What would you do in this BRRRR situation?

2 Replies

I need some guidance! 

I am buying 3 duplexes in Sierra Vista, Arizona, which is just south of Tucson. Each unit is a 3/1. 

I am buying with hard money @ 15% down, 13.5% interest rate at a $295k purchase price. 

After 30 days (when leases are up), I will give tenants the option to stay in the unit and pay $700 (currently each paying $550), or vacate. If they vacate, I will spend 10-20 days putting in vinyl floors & paint, then fill the units for $725/mo. 

My hope is that each duplex will then appraise for $130k+. At which point I can refinance @ 75% to pull out my initial investment. 

To ensure I get the highest appraisal, would you vacate all the units and rehab them, or just raise the rents and the tenants will stay? 

If the current renters are $150 below market, I would not try raising their rent. I would give them notice to vacate, clean the units up, and put new renters in at market rate. Raising the rent on tenants is likely to create animosity and possibly put them in a financial bind that results in you kicking them out later on. Get qualified renters that can afford to pay what the rental is worth.

I'd agree with Nathan. Or at least qualify and run a background check on the current tenants to make sure they meet your standards. Even if they agree to the rent increase doesn't mean you're going to get it.