Hey BiggerPockets!

I was absolutely blown away by the amazing responses, encouragement, and detailed questions from my first BRRRR post, so I figured I would share our journey on a recently completed BRRRR deal.

Background: 

My business partner and I began our investing journey 15 months ago by BRRRR'ing a 3/2 townhome in Madison, Al. We have narrowed our focus to the Huntsville MSA, and including that first purchase we have added 8 units to our portfolio, and are currently under contract on 5 additional units scheduled to close by the end of the year. It has been an unbelievably rewarding (and hectic!) year, but we have learned a lot about the business and have grown from our mistakes on each deal. One of the most gratifying parts of the journey was building up our local montlhy Real Estate Meetup from 4 people to an average of close to 30.

Enough of the preamble let's get into the deal.

The Deal:

This property is a 3/2 SFH in Madison, Al. The property has 1,528 sq ft of living space, a 2-car garage, a covered patio, and sits on a large corner lot. It is located in one of the best cities in Northern Alabama, with fantastic school ratings and a median home price of $260,000. The home was built-in 1986, and had been vacant for the last 5 years. I knew based on comps that this property would be worth between $160K-$180 after all repairs, which would make it a perfect candidate for the BRRRR strategy.

How did we FIND the deal?

We found this deal solely on the power of networking. My partner and I live in California and happened to have a client that had family in Huntsville (the neighboring city to Madison). It just so happen that on one of our trips to Huntsville, we met up with the family member and they mentioned they had a friend that was looking to sell their property. The property was in very rough shape but in a fantastic neighborhood. We drove by the property and contacted the seller, but nothing ever became of it. Six months later the seller reached out to see if we were still interested in purchasing the property. We absolutely were, and after some negotiations, we were able to agree on a cash price of $85,000. 

How did we FUND the deal?

My partner and I had no liquid cash (we were all tied up with properties awaiting refinances), so we had no choice but to bring in an equity partner on the deal. A friend of mine had previously asked about partnering on a deal, he had the cash but not the knowledge or time to do a deal on his own. We structured an agreement where he would put up 100% of the funds (purchase + rehab), I would manage all aspects of the acquisition, rehab, and refinance, and we would split all equity and cash-flow 50/50 after his initial funds were returned. 50% of a great deal is better than 0% of no-deal. 

Rehab: 

This property needed a full rehab. We immediately replaced the roof which had accumulated 5 years of tree limbs and leaves, and installed new gutters. Soffit and Fascia boards needed to be replaced due to rot from the damaged roof. We replaced about half of the wooden fence with high-quality cedar. We replaced the AC Unit and ductwork (squirrels and eaten through it). We installed new LVP floors in all bedrooms, walkways, and dining rooms (ripping out the old carpet, we try to stay away from carpet on all our rentals). New tile in the kitchen and dining room. The entire house got a fresh coat of paint (interior + exterior). We did a light interior remodel consisting of new light fixtures, a fireplace remodel, Rust-Oleum painted kitchen countertops (can not recommend this enough!), and new appliances. The rehab period took just under 3 months.

Rehab Numbers:

• Roof replacement (30 year w/ warranty). - $7,400
• New Gutters- $1,500
• Replace section of privacy fence - $2,100
• New Interior Luxury Vinyl Plank Flooring - $5,600
• Interior Remodel - $3,800
• Water Damage Repair from Old Roof - $2,200
• Kitchen remodel: Refinished countertops, new tile, new fixtures and appliances - $4,500
• All Interior freshly painted - $1,500
• All Exterior freshly painted - $2,500
• Exterior Fascia/Trim/Soffit Repaired/Replaced - $2,900
• Brand New AC Unit Installed / New Ductwork - $6,500
• Dumpster Rental: $450
• Trash Out: $1,000

Total Cost of Rehab: $42,000

Rental Period:

We knew based on rental compts that a fully rehabbed property in that school district would rent quickly. Comps showed rental rates between $1,250 - $1,400 per month. We decided to list it at the top of the range for $1,400, and it rented after two days on the market. 

After the 3rd month, we had a renter in the property, but we did not have mortgage yet, so we were cash-flowing BIG!

The Refinance:

Okay, down to the last hurdle to clear before completing this deal. We made it out of the rehab period alive and found a great tenant. The property is cash-flowing and things are great. Only problem? We have $128K "stuck" into the deal. Time to get our investor paid back. We contacted the same bank we have been using for our other refinances, and began the initial paperwork and ordered the appraisal. Based on recent comps in the area, I was confident the home would appraise for somewhere between $170K-$180K. The appraisal came in at $175K, which ended up being perfect for our numbers. The terms were good, 30-year fixed, 5.00% interest rate, 3K in closing costs, 75% LTV. We received a check of 75% of the ARV = $131,250, minus 3K in refinancing costs for a net total of $128,250! We were only into the deal for $128K (85K purchase + 1K closing + 42K rehab), so we received all the money we had put in, plus a small payday. We had created forced 25% equity ($43,750), which we will eventually recoup when we 1031 Tax-Deferred exchange the property in a 7-10 years. In addition, we have a tenant paying down the principal balance on the loan, as well as receiving $155 in net-positive cash-flow after accounting for all expenses (10% management, 8.3% vacancy, 10% maintainence + capex (remember this property has a brand new roof and AC and is fully rehabbed). A visual of the numbers break-down looks like this:

Technically since we have no money left into the deal the cash-on-cash return is "Infinite."

Let's See Some Pictures!

Before Photos

After Photos

What did we learn?

A lot. This was by far our biggest rehab to date. We underestimated the rehab budget and the time required to complete the project by about 30%. We didn't account for the summer stormy weather and should have began with the exterior painting. We lost 2 weeks just due to the rain when all that was left to do was paint the exterior. Most of all we learned that as long as you are conservative with your numbers, there is much less than can go wrong. When we originally underwrote the deal we expected the ARV to come in at 155K and the rent to be $1,200. We were off on our rehab numbers but because of the conservative ARV and rents, the property still was a textbook BRRRR deal and is now a cash-flowing rental which we plan to hold for 7-10 years (because most of the major components are new).

What's next?

We started 2019 with two units and if all goes well next month we will end up 13. It has been an exhilarating couple of months and I can not thank BiggerPockets enough for the constant resource overload and positive reinforcement that this community has become. Without the encouragement to take that initial step that this website provided my partner and I would still be listening to podcasts and dreaming of one day making a move, instead of owning cash-flowing Real Estate TODAY. Do your future self a favor, and make that first/second/tenth move.

I would be more than happy to answer any questions or comments you might have on the BRRRR process, no matter how specific or general. Our journey has not been perfect, but we've done just enough things right and learned from our mistakes (and the mistakes of others) to keep us going in the right direction.

HERE TO A GREAT 2020!

-James

Amazing job!

What a nice, little house-well more so after you were done with the renos.

Awesome job and awesome post. Thanks for sharing!

Originally posted by @Alex Sabio :

Amazing job!

Thanks Alex! 

@James Gates

Great job man!

I don't know what rustoleam painted countertops are but I will be checking youtube as soon as I finish this comment lol...also you are paying too much for the LVP flooring I know we are in different states but I get it between 1.50 and 2.00 a sq 1$ install ...maybe shop around a little. Anyways great Brrrr keep on moving !

Originally posted by @Dustin Mathenia :

@James Gates

Great job man!

I don't know what rustoleam painted countertops are but I will be checking youtube as soon as I finish this comment lol...also you are paying too much for the LVP flooring I know we are in different states but I get it between 1.50 and 2.00 a sq 1$ install ...maybe shop around a little. Anyways great Brrrr keep on moving !

Hey Dustin! Thanks for the price comparison. We had about 1,100 sq ft of flooring, paid about $3/sq ft for the materials and another $2.00 to install. We decided to go with really nice LVP for this project due to the higher class area, but looking back I would have done with a LVP closer to the $2 range and I should have gotten the labor down as well. Definitely a learning experience.

As for Rustoleum, I would definitely check it out. Costs about 1/10th the cost of granite, it has been pretty durable, and for our market it doesn't seem to affect the ARV's or the rents we have been able to receive.

-James

@James Gates

Yea I know labor and material cost are different by location. Here in DFW 1$ a sq for anything click together is pretty standard. The LVP I get for $1.50 is rigid core with the pad built in and doesn't scratch 100% waterproof.. I feel like everyone says this one is higher quality but I don't see the difference between the 1.50 and the 4.00 one. I looked up that paint looks pretty cool ! I have yet to get a project where I got to save the countertops but maybe someday. The problem is I can get a 9'X 25.5" piece of finished granite for 110$ at the cheapest and about 220$ for quartz. It's almost as cheap as formica.

Very well done James, congrats!

Nice work James! keep it up and thanks for sharing, its exciting to see how well you and your business partners are doing in Huntsville, keeps me motivated in real estate!

How did you guys manage the contractors all the way from CA?  Did you fly out to meet with the contractors?  How did you get progress updates?  facetime? text pictures?

Great work! I love reading this type of content as it's highly motivating. Post more when you can please. I'm looking to start my first BRRRR in the next few months. Congratulations!

Great Job!  Was the refi done with traditional financing or private lending? Also, what calculator do you use? Those are nice graphics!

James, how did you go about getting your first unit, did you have down payment or did you get a 

partner to assist?

Amazing Job! 

@James Gates congratulations! This looks awesome! I’m currently in the middle of obtaining my first rental. Multi family residence 3/2 with about the same rehab needed. so this is really relevant to me. Prices are a little different but all in all I will definitely use you as an example!

Good luck on future investments!

Congrats on your success and best wishes for an even better 2020! 

I am curious about the whole portfolio - how many units are each of the other properties? How are they funded? How much net cash monthly are you receiving from each unit? 

Also, any tips for managing renovations long distance? My husband and I work full time jobs and have 2 small children in San Diego and we did a renovation on our first duplex in Indiana and it was ROUGH! How often are you making trips out to Alabama? 

I would love to add at least 6 units to my portfolio this coming year and appreciate any guidance and advice you have. 

Thanks for the inspiration and sharing your journey!

@James Gates Nice work! My partner and I have been doing the same thing in Kansas City. Question - how did you structure the partnership with your private lender? Did you form an LLC? We've raised some private capital in the form of interest only loans but we've been hesitant to give up equity thus far. But we currently have a verbal offer accepted that we're having trouble raising the funds for. Considering offering equity for the funding and just curious if you have any thoughts/feedback on your specific arrangement.

Congrats James on a successful BRRR!! The house looks great and thank you for the inspiration to take more action. Cheers to 2020.

HOw did it work with the rustoleum paint on the countertops?  Just paint it and they look new? @James Gates

Thanks for providing a very detailed analysis!

What lender did you use for the refi?

This is the goal #2020 - I have 4 now however I aiming for 20 total at the end of next year - #goals lets get to work - love this inspiration from others who have been successful 

Awesome job @James Gates . Curious if you could elaborate with what you did to the countertops?