My First BRRRR Deal!!!

52 Replies

I just finished my 1st BRRRR deal! None of this would have been possible without Bigger Pockets!

Breakdown of the numbers:

  • Purchase Price: 3 bed/1 bath/850 square feet.Listed at $75,900, negotiated down to $50,250
  • Rehab: $31,433 (leveling sub floor, vinyl floors, drywall, doors, cabinets, bathroom, re-glazed tub, new toilet, new glass block windows, paint, removed a door in the master bedroom and closed off with drywall)
  • All-in: $81,683
  • Expected ARV:$95,000-100,000

Planning on refinancing after 6 months of seasoning at 75% LTV. Will only have $5k-$10k left in the property when it's financed.

Today is my 1st showing to get it rented and I have 8-10 people showing up.

Rental #’s:

  • $1,350 for rent
  • $318/month cash flow (factoring in 8% for PM, even though I am managing it)
  • 51.35% Cash on Cash return (based on $95,000 appraisal)
  • 191.64% Annualized Total Return

I have been investing in Real Estate for just under 2 years, and the moral of the story is ANYONE can do this! It just takes a willingness to learn (Bigger Pockets) & then take action! Already looking forward to my next one! Please let me know if you have any questions as I would love to help others who might be trying to break into buy & hold investing or their first BRRRR!

Dan, that is an awesome story all of us can appreciate! Congratulations on making the numbers work but I was curious if the property was in an area that you already knew before BP or did you research another area for something you could feel good about?

Here in the West i.e. CA/OR/NV/WA it's almost impossible to find properties that I would feel good about for under $250K and in CA it's more like $400K and up.

What is your advice in these high markets?

@John Acheson I first discovered BP about 3 years ago. I spent about 9 months reading everything I could get my hands on and joined a local REIA group before I felt confident enough to jump into rental investing. Currently, I have 5 other rentals in this same town so I felt like I knew the numbers on comps very well. It is a low income blue-collar town, but the crime rate is also very low which was appealing to me.

I have family in Southern Cali, so I definitely know these numbers are probably not realistic on either coast and certainly not in California. I think BRRRR is possible in California, but you definitely need to have a good idea of rehab costs and make sure you leave some cushion because it always goes over budget and takes longer than you had planned.

Also, one thing I could improve on going forward is to get multiple bids.  I had worked with this contractor for 6 months on my other properties and felt comfortable using them on this project.  However, you give up a lot of leverage when you don't have different bids to compare against each other.

Originally posted by @Dan Shelhamer :

@John Acheson I first discovered BP about 3 years ago. I spent about 9 months reading everything I could get my hands on and joined a local REIA group before I felt confident enough to jump into rental investing. Currently, I have 5 other rentals in this same town so I felt like I knew the numbers on comps very well. It is a low income blue-collar town, but the crime rate is also very low which was appealing to me.

I have family in Southern Cali, so I definitely know these numbers are probably not realistic on either coast and certainly not in California. I think BRRRR is possible in California, but you definitely need to have a good idea of rehab costs and make sure you leave some cushion because it always goes over budget and takes longer than you had planned.

Also, one thing I could improve on going forward is to get multiple bids.  I had worked with this contractor for 6 months on my other properties and felt comfortable using them on this project.  However, you give up a lot of leverage when you don't have different bids to compare against each other.

Congrats on finding an area that works well and can benefit from BP advice. One dream is to do a 1st deal in CA but I haven't found a strategy that works. If you ever come across a tactic that can work in CA, please let me know, John

@Dan Shelhamer congratulations on the BRR, the next RR will be fun too! My favorite part is that leaving a bit of money in the deal still is a success, instead of just lower profit on a flip. I am working to get into my first BRRRR this year at around the same purchase, ARV, and rent ranges as yours. Be sure to update us after refi! And as for your contractor, I don't think you likely missed a savings. Even if the bids maybe could have been lower, who knows if the next one would screw you, unlike the known GC. If the bid seemed reasonable it probably was. I own a service business aside from being a Realtor, and I charge my regulars I know more reasonable rates than new people who call. Your contractor may be the same, if he's got a good working relationship with you and you're happy with his work, he shouldn't have a reason to up his price. Your filling his calendar with work is better than him needing to quote 5 new jobs to get one new one. I think this sounds like a perfect success so far!

@John Acheson have you considered doing a house hack?  I would recommend looking for a 2-4 unit property that you can get with a 3.5-5% downpayment, live in 1 unit for a year while you rent the other ones, and then move out and have all units rented out.

@Russell Holmes thanks for the kind words! I like what you said about the contractor, and that me having worked with him before counts for something. I never looked at it like that before. I will be sure to update this post once I get the financing on the house, and good luck to you on your first BRRRR!

Nice work! How did you find the deal?

Congrats Dan!

@Minh Nguyen I actually found this one on the MLS with my realtor. We had agreed on $45,000 with the seller's agent, and I signed the contract. That same night, before the seller signed the contract, their agent reach out to my agent. They said "we received 2 more offers, and need your highest and best". Pretty shady but long story short, we came up about $5k to get the house but were not happy with how everything went down. However, the numbers still worked at that point so I was happy to just get it under contract and move on.

@Andrew Syrios thanks!  Loved you and your brothers podcast.  Very inspiring!

Going to definitely read Getting Things Done.

CONGRATULATIONS!!! The first one is usually the hardest💪

Congrats man! Keep it up! 👍🏼👍🏼👍🏼

Thats amazing! Congratulations.

How much was financed? How much of your own money from your own pocket was put into this? It looks like BRRRR is the way to go.

Hey @Dan Shelhamer

Congrats! That is incredible. Thank you for sharing the numbers the way you did. I hope you don't mind if I ask a rookie question...

When you say, 'Planning on refinancing after 6 months of seasoning at 75% LTV. Will only have $5k-$10k left in the property when it's financed.' My understanding is that....

Assuming a 20% down payment on a $50,250 mortgage ($10,050) + the ($31,433) for repairs puts your cash in the deal at ($41,483). 

So refinancing at 75% of ($100,000) value would get you $25,000 back in cash, right? (I don't think I totally understand the cash out re-fi part). So wouldn't you still have about ($16,000) still in the property? 

I was just kind of lost on that part, and am not trying to present my question in a negative way. I just think I'm missing something in my knowledge base to get me to understand the refinance part. Let me know if my questions make sense, and again, Congrats! Keep killin it man. 

Garrett 

Nicely done.  Can you tell me how you were able to get a $75,900 listed property for just $50,250?  Had it been on the market longer or had some other obvious defect?  That's 34% off list.  

Great job!

@Dan Shelhamer Looking to get my first BRRRR so this post is inspiring. It seems like most things I have read said you need hard money lending for BRRRR did you use conventional loan with 20%?

@Garrett Quathamer great question!  

So we actually bought the house in cash and paid for the rehab in cash. So all in, we are just over $81,000. If it appraises out for $100,000 and we get a loan at 75% LTV (mortgage would be $75,000), we would only be in the deal for the difference of the $81,000 - $75,000 = $6,000.

I believe you are right though in your scenario, if I were to finance it right away instead of paying all cash, I would have more money left in the deal.

@Kevin Brown it had been on the market starting in May 2017 for $75,900, and had a pending sale which fell through.  It then came back on the market at $63,000 in November, and we closed it on January 25th, 2018.  It needed a lot of work.  The previous owner lived in it for a very long time, and didn't do any updates.  All of the floor needed to be leveled as well.  It was pretty much a full gut on the interior.  Luckily the roof and siding is fairly new.

@Dan Shelhamer ,

Ah I see now! So with the re-fi the financer will give you the ($75,000) of your cash in place of a mortgage essentially. That makes a lot more sense to me now. Thanks for the reply! 

@Mitchell Litam you can certainly do hard lending for a BRRRR, just be aware that you're going to have 6 months of holding costs before you refinance into a conventional loan. We bought this one in cash. Once we refinance, I want to put that money right back to work in another property.

@Garrett Quathamer exactly.  Whatever the property appraises for, they will write us a check for up to 75% of that, and that becomes the mortgage.  Glad to help!

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