Here are the results from my first out-of-state BRRR
- purchased property for $62,000
- budgeted $30,000 (expecting it was going to be closer to $35,000)
- ended up putting about $41,000 into the property
- the cash to close and buy the place was $25,000 with Renovo Capital (excellent experience with them, i highly recommend)
My property manager (@Mark Ainley ) acted as project manager for a set fee, which I thought was very fair. He doesn't have plans to repeat this service which is unfortunate but understandable.
The appraisal came back at $144,000, which is low because one of the bedrooms didnt get a closet for some reason. The missing bedroom cost me $10,000 in value :( My property manager found a market tenant in under a week, presumably due to the rent being low for 5 bedrooms in the area, but right in line with 4 bedrooms ($1,650/month). There were 5 applicants in the first week.
I received back $24,600 from the refinance, so technically i've got about $400 of my own money still in the property. It took a little less time to renovate the property than it did to refinance. But, in the end I've got a fully renovated 5 bedroom bungalow rented for $1,650/month in an economic opportunity zone for an out of pocket net cost of $400, so it's a victory i guess.
-confirm and re-confirm the bedroom count. In my area of operation, each bedroom is $10,000 in appraised value which translates into $7,500 back back with the refinance. Thanks to a miscommunication with the first appraiser & my project manager only 4 bedrooms got counted (vs. 5).
-listen to the property manager's recommendations regarding items tenants value. In this case, the PM said that security and safety are much more valuable than, for instance, quartz countertops. So this means heavy-*** security doors, fences, locks/deadbolts, and exterior lighting. Fine by me!
-you might have everything perfectly organized but it's impossible to account for errors made by other people, no matter how careful you are, no matter how much time you spend following up, and no matter if you're correct. In the end, there's a lot that's out of your control, so best to add a large layer of variability to any subjective number, such as ARV, rent, and repairs. It's also best to double whatever timeframe "should" occur so you're not irritated when things don't proceed as they should. Being diligent and well-planned will only go so far. I believe it was Gen. Patton who said "no battle plan survives contact with the enemy."
One last tidbit...although I had a verbal offer to buy it for $175,000, I'm not looking to sell (especially since it's in an economic opportunity zone.) I figure i'll hang onto the place for 10 - 15 years and see what values have done by that time. Still, it's nice to know there was a potential buyer at that price out there so quickly.
@Patrick Britton congrats on the project. How long did you waited for the seasoning period. From HML to refinace(I assume with conventional loan).
@Luis Medina i didnt have to wait any amount of time. I refinanced into commercial loan.
@Patrick Britton I’m curious. Why did it take so much cash to close? I’m looking in the same price range but didn’t think it would be that high. Great job getting the house for $400. Any tips for getting the team together? I’m looking to do the same thing by the end of the year.
@Ryan Conklin we the down payment was 15% of purchase and reno, which totaled $14,000, then there are closing costs which were another 3k, then hard money lender funds made up the rest. HML is expensive...
@Patrick Britton did you got full benefits(70-80% of ARV on the new appraisal) going the commercial route on the refinance. Do you have rental property in a LLC ? or you went commercial for the "no seasoning" period? Can you please share the lender that you refinance with? Thanks in advance.
@Patrick Britton congrats! What city was this in?
@Patrick Britton and what were the HML terms?
Gratz, $400 is a cheap education by any standards.
@Luis Medina I used Lima One Capital. 75% loan to value. 10 year arm at 6.9% or so. yes, LLC.
@Patrick Britton This deal is a huge win. Congrats. Sounds like Mr Ainley made this happen for you on the ground. Nice job all the way around.
@Jeremy Wickens before getting started on paper i was supposed to MAKE $13,000 doing this, but stuff happens.
@Brett Tvenge i used Renovo Capital and the property is in southside Chicago. Renovo was pretty standard rates and whatnot, but keep in mind the total loan was below their minimum so the "cost" on a percentage basis was high. I think it was about $8,500 in total upfront costs, points, fees, etc., and then 10% interest only. But they were a breeze to deal with and getting reimbursed was quite easy and fast. Often service means a lot more than price and when it comes to getting reimbursed from a HML I prefer speed and ease to cost.
I understand. Moving forward it will be an important experience. Making mistakes and having it cost very little is the best kind of mistakes. Making mistakes is the fastest way to get better at what you do as long as you are being honest to yourself about what you could have done differently.
Sounds like you made out pretty well only leaving $400 of your own money into it. Does the property cash flow well? I imagine it does at $1650 per month in rent.
How did you pick your market?
How did you meet the people who helped you with the property?
Off Market Deal? Or MLS?
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