FIRST BRRR Complete! Details + Pictures!

301 Replies

Hey Biggerpockets!

My partner and I just completed our first BRRRR and we are so STOKED and THANKFUL for the education we have received from this website. I am writing a summary of this report in the hopes that someone finds value from it and our story inspires them to take the first step towards financial independence.

BACKGROUND:

I began listening to the Biggerpockets podcast 18 months ago. Before BP, I was an active member of the Personal Finance community on Reddit, and was on the journey towards FIRE (Financial Independence // Retire Early). My primary plan for early retirement was shoving money in tax-advantaged mutual funds. As I began to learn more and more about real estate investing, I began to question my strategy. The information I was hearing in the podcast made sense, the numbers were better than the stock market, but I was struck in "analysis paralysis" and couldn't pull the trigger.

Once my wife and I purchased our primary residence in California, we decided to take the leap and dive into real estate investing. The BRRRR method made the most sense mathematically to us, and I consumed as much informational content as I could.

THE JOURNEY:

Step 1: We bought our first home (primary residence). We live in California where homes are expensive and saving up 20% for a downpayment had taken us years. We could have bought more rental properties if we had continued to rent and foregone purchasing our own home (like Grant Cardone and Stephan Graham recommend), however, I can not stress enough how important it is to be on the same page with your significant other. My wife wanted her own home, and we made a promise to each other to get out of our apartment before we began investing in rental properties. Our quality of life improved tenfold going from a 600 sq ft apartment to an 1800 sq ft single family residence. And once we had our own home, we were free to dive into out-of-state rentals.

Step 2: Once we closed on our home, I immediately begin looking for a HELOC to fund our rental purchases. I found a local credit union that would give us a 1.99% introductory rate (18 months), after a 3 month seasoning period. We put the paperwork in motion and as soon as the seasoning period was over we were able to pull out 50k of equity to be used for real estate investing.

Step 3: While we were waiting on the HELOC to fund I took to BP and started looking for where to invest. The information was overwhelming, and it was hard to figure out where to start. After a good deal amount of research, I settled on Huntsville, AL. I started making contacts through the BP forums and talking to people on the phone. I would get up early California time and talk to people in Alabama (+2 hour time difference) just as they were starting their day. I had countless conversations with wholesalers, property managers, contractors, and real estate agents. I then took 3 days off work to fly to Alabama to tour the city. I fell in LOVE with Huntsville. The city was incredible, nothing like what I expected. It reminded me a lot of my hometown in Redlands, CA. Craft beer and coffee everywhere. Downtown revitilizations. Tech jobs and sort of a "hipster" feel to it. And stuff was happening in Huntville. They were building everywhere. Companies were moving to the town. Rents and property values were increasing, but still affordable. This was it.

Step 4: Once the HELOC closed I had 50k burning a hole in my metaphorical-pocket. I had found a partner who knew nothing about real estate, but was just as driven as me to find financial independence. He wanted to quit his day-job and travel the world, and needed monthly cash flow to do it. We found our first deal through a wholesale connection I had made on my trip to Huntsville. The wholesaler had found an off-market deal that they needed to sell QUICKLY. This was the Friday of a 3-day weekend. The property was a 3/2 townhome 1500 sq ft in Madison, AL. The location was good and Madison has some of the best schools in the state. The property was midway through a rehab, the owner had bought the home in foreclosure a few years ago and was slowly fixing it up himself. The wholesaler wanted 68K for the property, and I quickly estimated the home to be worth about 100K fixed up based on comps from similar homes. My partner and I made an offer of 60K for the property based on our rehab estimates, and at the end of the day the wholesaler accepted our offer. We had an inspection Monday and we closed on Tuesday, and just like that, we owned our first rental property.

Step 5: Now began the rehab. The property needed some work, the biggest issue was the backyard. There was an abandoned pool and overgrown landscaping that made the property appear MUCH worse than it actually was. There was no way we were going to have a pool in a rental property (insurance nightmare), so we got a pool remover to break up the pool, fill it in, and cover the backyard with beautiful sod. We then cut the vegetation away and suddenly the backyard was simple and clean. We replaced our side of the shared-townhome roof with 20-year shingles, and we installed a new 6 foot cedar privacy fence. We then turned our attention to the interior. The biggest issues with the interior was the unfinished stairs, partially completed bathrooms, and rotting exterior french doors. We got extremely lucky and found materials for the stairs in one of the closets that the previous owner had purchased. The interior rehab took 4 weeks, and we managed the project completely from out of state. Total cost of rehab: 18k. By the end of the rehab the home was completely restored, stable, and beautiful.

Step 6: Now we needed a renter. There were very little rental comps for a 3/2 townhome in that area, so pricing the rent was tricky. Another disadvantage we were facing is that our rehab completed the week after Thanksigiving, and finding renters in Al is slightly harder during the winter months. We had the nicest townhome on the street, so we marketed the property at $975/month. The highest a home had been rented in that area before was $850 a month, but that was for a 2-bedroom townhome. We didn't get any takers for the home, which was scary, and I was starting to think we had made a big mistake. We decided to drop the rent to $950 the day after Christmas and suddenly we had tons of interest in the property. We had a great qualified renter in the property the first week of January.

Step 7: Now the property was stabilized and rented. It was time to pull our money out. Our 6-month "seasoning" period was to end on March 11th, so at the begining of February I began looking for a bank to perform a cash-out refinance. I was hoping for an 80% LTV, but after calling around 30 banks I was not able to find anything better than 75%. The refinance process was painful (so much paperwork!), but after many hours and email exchanges between the lender, the final hurdle left was the appraisal. I was definetely worried the appraisal was going to come in low, as our property was nicer than any of the (limited) comps, but the appraisal came in at 105K! Here is a quick summary of the numbers:

Purchase Price: 60K

Rehab: 18K

Total Cost: 78K

Appraisal: 105K

Cash out Refinance: 78.5K!

WE DID IT!

These numbers are rounded of course and do not include a few thousand in holding costs and lender fee's, but the monthly rent in the interim period before we refinanced the property paid for those costs. The property is cash flow positive after accounting for maintenance, vacancy, and operating expenses, and we have pulled out our entire starting capital!

I can not thank Biggerpockets enough for the immense information available through their website and podcast. It has literally changed my life. 7 months ago my partner and I had -ZERO- rental properties. Since diving into the BRRRR method we now have -SIX- cash flowing rentals, with a goal of -TEN- by the end of the year.

Here are some pictures of the property before the rehab:

BEFORE PICTURES

AFTER PICTURES

I would love to answer any questions or comments you might have on the BRRRR process. I would not have been able to even GET STARTED in real estate investing if it wasn't for BP, so please if you have a question on the process let me know! My journey wasn't perfect, and there were plenty of things I will do differently moving forward, but for the first BRRRR I am extremely happy with how it went.

THANK YOU BP!

@James Gates.  Thanks for sharing your story that is inspiring and awesome!  You took action and it paid off for you and it looks like you are chugging along now. 

I am interested in starting some BRRRRs myself soon and this was great to read.  You said you have been doing them for 7 months now and are already on your 6th property!...  Are you using money you saved up from before?  I am in California also and looking out of state.  

Great job and thanks for the post!

Originally posted by @Carl Crump :

I am interested in starting some BRRRRs myself soon and this was great to read.  You said you have been doing them for 7 months now and are already on your 6th property!...  Are you using money you saved up from before?  I am in California also and looking out of state.  

Great job and thanks for the post!

Hey Carl! Thanks for the kind words.

We are on our 6th property thanks to the power of partnerships. When I began investing I only had about 20K liquid capital + HELOC (50K). This capital didn't last long of course, but I was able to work with a few partners that didn't have any real estate knowledge but had capital they wanted to invest. I also utilized borrowing from Roth IRA (contributions only, not earnings) and general frugality (we are renting two rooms out of our house in an attempt at "house hacking") to save additional capital to invest.

Originally posted by @Carl Crump :

@James Gates.  Thanks for sharing your story that is inspiring and awesome!  You took action and it paid off for you and it looks like you are chugging along now. 

I am interested in starting some BRRRRs myself soon and this was great to read.  You said you have been doing them for 7 months now and are already on your 6th property!...  Are you using money you saved up from before?  I am in California also and looking out of state.  

Great job and thanks for the post!

 I too would like to know how you are funding! These are crazy numbers!

Originally posted by @James Gates :
Originally posted by @Carl Crump:

I am interested in starting some BRRRRs myself soon and this was great to read.  You said you have been doing them for 7 months now and are already on your 6th property!...  Are you using money you saved up from before?  I am in California also and looking out of state.  

Great job and thanks for the post!

Hey Carl! Thanks for the kind words.

We are on our 6th property thanks to the power of partnerships. When I began investing I only had about 20K liquid capital + HELOC (50K). This capital didn't last long of course, but I was able to work with a few partners that didn't have any real estate knowledge but had capital they wanted to invest. I also utilized borrowing from Roth IRA (contributions only, not earnings) and general frugality (we are renting two rooms out of our house in an attempt at "house hacking") to save additional capital to invest.

 You answered my question ha!

Well that is awesome @James Gates !!  That is what I am looking to do also.  I need to get out there and find some people to work with and like minded investors.  Thanks for the motivational story!

Are all the other properties in Huntsville?

Well that is awesome @James Gates !!  That is what I am looking to do also.  I need to get out there and find some people to work with and like minded investors.  Thanks for the motivational story!

Are all the other properties in Huntsville?  Are they all from wholesalers?

Originally posted by @Carl Crump :

Well that is awesome @James Gates!!  That is what I am looking to do also.  I need to get out there and find some people to work with and like minded investors.  Thanks for the motivational story!

Are all the other properties in Huntsville?  Are they all from wholesalers?

Yep, all the properties are in the Huntsville metro. 5 of them are from wholesalers and one is from a personal contact who happened to know someone in the area that wanted to sell their home.  

Originally posted by @James Gates :
Originally posted by @Carl Crump:

Well that is awesome @James Gates!!  That is what I am looking to do also.  I need to get out there and find some people to work with and like minded investors.  Thanks for the motivational story!

Are all the other properties in Huntsville?  Are they all from wholesalers?

Yep, all the properties are in the Huntsville metro. 5 of them are from wholesalers and one is from a personal contact who happened to know someone in the area that wanted to sell their home.  

Nice! Thanks for all the info. I am trying to nail down a market now. Congrats on what you've achieved and hope it gets better from here out!...

@James Gates - what a great journey and thank you for sharing that. You are an inspiration to all of us getting started. I own a house in Denver, Colorado and just took out a HELOC of $55k but cannot buy any rental properties here...so I am concentrating on an area I grew up in on the East Coast where my family still lives. Can I ask you - how did you find your partners?

Congratulations! How much did the refinance cost you and how much did your mortgage payment go up by? I feel like this part of the BRRRR strategy is not often talked about and curious to hear how it impacted your monthly cash flow.

Originally posted by @Terri O'Brien :

@James Gates - what a great journey and thank you for sharing that. You are an inspiration to all of us getting started. I own a house in Denver, Colorado and just took out a HELOC of $55k but cannot buy any rental properties here...so I am concentrating on an area I grew up in on the East Coast where my family still lives. Can I ask you - how did you find your partners?

 Hey Terri,

Awesome job on the HELOC, it's a great strategy for "transferring" passive equity from one property to active equity in another.

I found my partners through a variety of ways. My primary business partner was an old co-worker of mine who is extremely like-minded when it comes to goals, attitude, and motivation.

Another partner was found on BP! I did a search for members in my area, asked him to coffee, and it blossomed into a partnership on two properties.

Another partner was simply a mutual friend who heard and saw what I was doing with Real Estate, asked for a sit down meeting, and when I showed him the numbers jumped right in!

Originally posted by @Chris Battaglia :

Congratulations! How much did the refinance cost you and how much did your mortgage payment go up by? I feel like this part of the BRRRR strategy is not often talked about and curious to hear how it impacted your monthly cash flow.

 Hey Chris!

The refinance cost about 3k total. This includes the lender fees, title fees, and appraisal. I went with a lender that was a recommendation from another investor and they focus almost exclusively on rental properties. They were able to get me the funds from my refinance on the 6th month + 1 day of me owning the property. Most other lenders I spoke to wouldn't even start the refinance process until the 6 month seasoning period had been completed. This lender also charges a flat fee per transaction, and does not have a minimum loan amount (I am working on pulling money out of a 30k property right now) which is a huge benefit to areas that have properties under 50k. Adding a mortgage on this property changed my cash flow by $447, but increased our ROI by literally "infinite" as we pulled all our money out of the property.

Sounds like you had a great experience and did everything right. I especially love that you got the rehab done in 4 weeks. That's awesome.

BRRRR is a great strategy because even if your cash flows is less due to taking more cash out from the refinance, you still get to do more deals because you have more investing money. And over time rents will go up while your payment will stay the same, increasing both your cash flow and your equity in those rentals.

I've also seen a few investors Buy, Rehab, Live In, and then Refinance for cash out to buy the next one.

@James Gates Thanks you for sharing your story.

I'm interested in the BRRR strategy ad well to fund my first deal. However, I have a question. What was your criteria to decide to invest in Huntsville before visiting the city? I'm interested in learning how to analyze good locations to invest in.

@James Gates

Thank you for sharing your story and being an inspiration.

I'm curious to know how you found your contractor and how you managed the rehab from a distance.

Also if you don't mind explaining, I'd like to know how you partnerships work? Are you both on the title and mortgage. How did you set up the partnership? Do you use a lawyer?

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