First BRRRR - Triplex - Philadelphia, PA

4 Replies

This was the 'it actually works' moment for my partner (@Jon Sanborn ) and me. I'm in California, but I was giving 'out of state investing' a try. An AMAZING journey, all sorts of ups/down, took 12 total months but it worked!

NEIGHBORHOOD: Allegheny West in Philadelphia - Triplex!

DEAL FIND: We found the deal on the MLS, but it was first posted on HubZu, which is linked to Philly's MLS. HubZu is an Auction Site, and the property was bank owned.

FINANCING: Crowd sourcing $ from a family friend. This was our first time ever asking for money (isn't as scary as you think once you try it!). We knew the neighborhood well, and knew this was a deal that we could BRRRR and repay the family friend.

TOTAL PROCESS: 12 months between the Full Rehab and Refinance. Both of these were huge learning experiences. Tip - find a good lender and make sure you review every single detail with them upfront before beginning any type of process (i.e. is the property owned under a personal name or LLC, how many members are in the LLC). Those details can affect if a lender will loan you a residential loan vs a commercial loan sometimes, which both comes with different interest rates/terms.

THE FINANCIALS - BRRRR:

Purchase Price: $130,924 + Renovation Costs: $61,025 + Holding Costs (12 months): $2,384 = Total Investment Costs: $194,333

*New Appraisal Price: $330,000*

Refinance (70% LTV): $231,000 - Closing Costs: $16,000 - Original Investment: $194,333 = Total BRRRR Profit: $20,667

CASH FLOW:

Mortgage: $1,349 + Insurance: $150 + Taxes: $23 + Miscellaneous: $100

Estimated Mo. Repairs: $137 (5%) + Cap Ex: $82 (3%) + Vacancy: $219 (8%) + Property Management $274 (10%)

Total Expenses: $2,333

Total Rental Income: $2,735

Total Cash Flow: $402

Result: sold on Real Estate forever.

Good work on carrying it out from across the country! A few minor quibbles with the numbers.

1) how were your holding costs so low (2.4k)? Did you find friends/family to loan you the money almost for free?

2) Just one man's opinion, but your CapEx and maintenance numbers look EXTRAORDINARILY low (+/- $2600 a year?). Turnover costs for one unit per year (already low) might eat half of that, which leaves your verrrrrry little to offset the cost of a boiler, roof, HVAC, etc. I would encourage you to be much, much more conservative on underwriting those two expenses. At least another $1.5k per year, IMHO. This will take your monthly rent income down, but at least it'l be more sustainable..

Good work, and onwards and upwards

@Timothy M. Thanks! You're right, forgot to factor the interest from the loans we got! Factor in another $5000 off of the BRRRR profit. Copied this from an old Excel file :) We brought a portion of the funds ourselves, along with one other partner that covered his portion of the deal too.

I hear what you mean! We usually put cap ex and repairs higher for other properties. We put our repairs and cap ex so low because we replaced a lot during the rehab - new roof, kitchen appliances, water heaters (2/3), furnace. Overtime that will change and maybe we'll need to adjust these numbers as things age and get beat up in the property. As a reserve, we put 8 months of the entire 'cashflow' into a rainy day fund too, which we draw from for repairs and is our safety net. I agree with you though, they are low and we usually account for higher % for other properties. These %'s work for this property for now but won't years down the road. 

Congrats on the completion of a successful project! Sounds like an awesome deal.

Now that you're hooked, what's the next step for your team? Looking forward to seeing some more success posts like these :) 

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