My first rental property: A BRRRR Success Story

26 Replies

Hi B-Peeps,

I'm really excited about some news I got yesterday and wanted to share. After about 8 months of immersing myself in REI books, podcasts, and of course the BP collective wisdom, I found my first rental property deal. It's a SFR, 4BR 1.5 BA in an inner-ring Milwaukee suburb. It was really a perfect first purchase: it had been very well-maintained (including an over-the-top foundation repair), but needed a cosmetic update. It sat on MLS for a long time, and on the 3rd price drop we jumped on it. We closed in September, and some great tenants moved in on November 1.

The rehab was simple: new cabinets, LVP flooring, granite, and SS appliances in the kitchen. Refinished hardwoods throughout. Replaced all fixtures. Fresh paint throughout. 

Here are the purchase & cash-flow numbers:

Purchase: $111,900
All-in cash: $38,021 ($23k to close, $15k rehab)
PITI: $912/month
Rent: $1450/month
Cash-flow: $466 (after repair/capex set-asides)

I was hoping to refi with a valuation between $145-150k. Yesterday the appraisal came back at $163k! After closing expenses, I'll be getting $24k back out. I'll still have about $10k in the house, but making a nice 29% annual cash-on-cash return. With some partnerships I've formed in the past 6 months, I'll now be able to take this cash and buy TWO new properties! Needless to say I'm pretty stoked.

As all newbies hear early and often in their education, having a great mentor (or mentors), a great team, and a great network of other investors is all key to success. My agent @Marcus Auerbach has been amazing to work with -- smart, patient, wise, and truly invested in the success of his investor clients. The Brew City REI group, led by @Rebecca Holmes and @Nicole Pettis has been invaluable for getting advice and making connections.

Thanks to BP and this community for all you do, and for inspiring this guy to take the REI plunge!

@Mike Lauer

Congrats! I’m looking for my first deal in Milwaukee. 

I got to meet Rebecca and some of the Brew City crew while I was out there earlier this month- I agree with you that they are some good people. 

By the way what do you mean by inner-ring suburb?

@Philip Williams  @Rob Stein @Marcus Auerbach @Brian Garrett Thanks all for the kind words. This has been a hell of a lot of fun, and it's so great to see a theory turn into reality.

@Jorge Ruiz I'm talking about suburbs that are immediately adjacent to the City of Milwaukee, e.g. Wauwautosa (west), West Allis (southwest), Brown Deer (north), etc. That's mostly where I look for deals. Hit me up if you want to discuss! And hope to meet you next time you're out this way!

Great job. I am just curious about the environment there.  What are your thoughts on why it sat until the drop and you came along? Priced too high for amt of rehab needed? How much per sqr foot did you have to pay? Here in Central Florida the market is hot. I feel that here,an investor must buy at under $100.00 sq ft. To meet the rent numbers for cash flow. Also for rehab. Any flippers can rehab at $25 sq ft and resell at about $160.00 sq ft therefore grossing $45.00 sq ft before commissions or closing costs.

However, buyers who will occupy will snatch up about anything for $130.00 sq ft. With inventories low and many home buyers, here in lies the reason for difficulty locating deals on mls in Florida. It normally will not be priced as a deal. You make an offer and by some unknown mysterious circumstances they accept and boom you got a deal. 

Just my thoughts and was wondering about your market area. Last year I found one priced for 199k. It was priced moderately fair for the comps. It had not moved in a month so I offered 150k. They agreed and a deal was made. I put 25k in and arv is 240k.  I got lucky under mysterious circumstances but it took my action and bold offer.

@Scott Harper  Thanks for commenting, good question. I don't really know the reason this one sat for so long, but my guess is that it was a combination of the "right things being wrong" as @Marcus Auerbach would say. It had some foundation issues in the past, and all four walls were braced. This may have scared some buyers and/or agents. In reality what could have been a $6k foundation repair ended up being about $24k (the seller had a box with all the receipts from work over the years). It is in a really great school district, but in the less-desirable part of the suburb, right on the edge of the city. It had the original kitchen with almost zero counter space, no dishwasher, old cabinets, ugly vinyl, etc etc. It's a 1.5 BA, with the full bath down and half bath up. And the place smelled like a German Shepherd.

What you're saying about your market resonates with me. SFR inventory is low in the suburbs and it's been difficult to find deals like this on MLS. This kind of deal doesn't come along too often, but I've tried to be diligent about tracking properties and spotting opportunities to jump at the right time. My partner and I just got another SFR under contract yesterday. It's not a screamer of a deal but it will cash flow and we can add some value. We'll probably be able to take some cash out in 12-18 months.

Here's to more mysterious circumstances in the future for both of us!

Congratulations @Mike Lauer !

This is really great to hear.  @Michael R Fox and I recently bought our first two SFRs in some quiet neighborhoods on the outskirts of Milwaukee. Those have been practically turnkey and while they do cash flow, if interest rates go up much more we won't be able to hit our goals. That has us thinking about rehab/BRRR type transactions in the future - something we don't have any experience with.

Would you mind sharing a bit more about the rehab?  Did you do the work yourself?  If not, how did you go about finding contractors, estimating the costs of the rehab, etc?

To add to my earlier comment. I looked at a foreclosure today listed at 350k.   3500 sq ft.  I would really like this house but numbers don't work. I was thinking of offering 300k but realtor says they have multiple offers over $300k and now bank is asking for highest and best.  

That is the way it works around here. I think December is a better time to make offers. You don't have as many people active.

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@Pete Woelfel I managed the project myself and hired electrician and plumber to do that work, hardwood floor guy, and my handyman (who's a carpenter by trade and also a GC) did almost all the rest. I did my kitchen design at HOBO, and bought my cabinets, flooring, tile, and counters there. I bought all materials/supplies and brought them to the house, and my handyman did the actual work in the kitchen. I did some minor repairs myself. So I was pretty involved, handling all the hiring of contractors and scheduling, making sure we were on track, scheduling inspections, etc. I'd estimate 35 hours over the course of 6 weeks of my own time.

I knew my electrician from previous work, and found my handyman and floor guy from a couple different Facebook groups. If you're not already part of the Brew City REI group (local BP meet-up), definitely join up. You can search for contractor recommendations in that group. I got some recs from Marcus my agent as well.

In terms of estimating rehab, Marcus was really helpful as he has a ton of experience rehabbing houses. I also have some experience with two live-in flips that I did -- although most of the lessons learned on those were what NOT to do, haha. And J Scott's The Book on Estimating Rehab Costs was invaluable for understanding how to think about projects, how to manage them, and broadly how much things cost.

Send me a PM if you want to chat more about it, and good luck to you!

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