BRRR Actual Deal - $2M profit or $15K/mo cashflow: with pictures!

146 Replies

Originally posted by @Danielle Wolter :

@Michael Ealy What an amazing deal! Congrats :-) You're definitely out there doing the deal. Inspirational to us newer investors. 

 Danielle, thanks. I am glad my post has inspired you. Again, this deal is not for a newbie. Walk before you run as they say :)

Originally posted by @Joel Fine :

Damn, this is impressive. I want to be @Michael Ealy when I grow up. ;) Seriously, congrats, this is a perfect case study in repositioning multi-family for massive profits.

Thanks Joel. I've been doing this for a while so really it's not that impressive. Some investors in the hotel business have been investing a lot shorter than I have and they have a LOT higher net worth than I am. So the money seems to be like this:

Hotel >>> Apartment buildings >> Houses

You can do it too my friend.

Originally posted by @Brett Tvenge :

@Michael Ealy I would take that money and run.

 Brett, I tend to agree with you. $2.2M is a whole lot higher than $15,170/month.

What makes me hesitant is the fact that the rents are increasing and I could be leaving a lot of money on the table. Also, when we sell, there is this pesky thing called taxes :)

After taxes, the net is $1.54M, so that means I need to put that money to produce higher than $15,170/month or a cash on cash return of 11.8%, which is possible but the typical CCR at least on year 1 for my deals is around 8%.

Or I can refi at 75% of $4.2M less our $1.8M to get $1.35M tax free and my cashflow goes down to maybe around $10,000/month with the potential of taking advantage of the potential higher rent in the next year or two.

So based on the above analysis, I might just refinance.

What do you think?

Originally posted by @Rickie Mincy :

@Michael Ealy

Great job, and very motivating! I'm very familiar with Avondale. My husband and I sold our "forever home" just blocks away. The area isnt for everyone but the profit from our unintentional flip allowed us to purchase several investment properties. We still live close by, if you're in need of any assistance, feel free to reach out!

Thanks. I might take you up on your offer :)

And congrats that because of your unintentional flip in Avondale, you were able to acquire several properties. That's awesome. Don't you love real estate?

Originally posted by @Erik B. :

Congrats and Thanks for sharing!!

 Erik, thanks man. How's your market doing nowadays? I have a friend who is a house-rehabber/flipper and he works a lot harder than me and makes a lot less. The money is in flipping apartments ;)

Originally posted by @Parker Eberhard :

@Michael Ealy I grew up in North Avondale and went to UC years ago when you could buy buildings in OTR for $5k..amazing how Cincinnati has changed! Congratulations on the deal!!

 Parker, yes it has changed indeed. I got a 20-unit building in Over the Rhine which I acquired for $200,000 and a few years later I sold it for $400,000. On hindsight, I should not have sold it. It's probably worth $800,000 today! When was the last time you were in Cincy?

Originally posted by @Chris Salerno :

WOW, this is wonderful! Keep up the great work. Love to hear success stories like this!
I would refi the property, Take some money out and put it in a new deal. 

 You're very smart Chris. That's what I am leaning towards also.

The rents are increasing in the area and when I did the math, if I sell, I would net $1.54M after taxes and I lose the cashflow, while if I refi, I would net $1.35M tax free and my cashflow goes down to $10K/month and I get to take advantage of the rent increase that can happen 1-2 years from now.

Personal opinion is that you refinance and take the 1.35mm and keep the 10k in cashlfow coming and reinvest that chunk back into another big multi family. I could see 50k per month in cashflow coming your way in a couple more deals like this as your cash snowballs. This would allow you to see where this property is headed appreciation-wise and see if there is opportunity to raise rents while keeping your cash working for you elsewhere as well.

I’m a newbie, so I’m totally open to critique in my thoughts on this. You obviously are not and are already doing what many here aspire to do!

@Michael Ealy first of all, well done! A truly inspiring deal. From here, I would do a cost segregation study to enjoy some of that cash flow at a lower tax rate while waiting for another great opportunity to present itself. At that time I would do a 1031 exchange or reverse 1031 exchange in to the next property.

Originally posted by @Michael Ealy :
Originally posted by @Erik Baumer:

Congrats and Thanks for sharing!!

 Erik, thanks man. How's your market doing nowadays? I have a friend who is a house-rehabber/flipper and he works a lot harder than me and makes a lot less. The money is in flipping apartments ;)

 Over inflated. Margins are just to tight for flips and buy and holds are not any better.  I just keep analyzing  new deals and I check to see what happened on ones I didnt get. 

Multifamilys that im seeing around here are priced at a level where you need a good amount down (closer to 50%) in order to cashflow.

Originally posted by @Ola Dantis :

@Michael Ealy

Crushing it, Mike. 

This project looks amazing! Congrats 🎉🎉🎉

 Thanks Ola. Looking forward to see that podcast interview we did :)

Originally posted by @Nandy B. :

@Michael Ealy

Daaayumm! Yup impressive. My mind can't even think on that level.

Here I am struggling with a $3000 deal 🤦🏽‍♀️ Oh laud!!

 Do bigger deals Nandy.

The bigger the deal, the easier it is to get it financed ;)

Don't get me wrong. You can make money with a $3,000 deal but the profit is limited and under $50K deals are way harder to finance than $5M deals.

Originally posted by @Steve Vaughan :

Awesome job @Michael Ealy !

I'd do both. Hold it for 366 days, then sell.  The difference in tax implications with just one year of productive use to reach cap gain status vs ordinary income will blow your mind. 

 I agree.

I am leaning towards refi to get the cash out and keep it for cashflow. The difference in after tax sale vs. refi is just $200K and the cashflow from the project after the refi can produce $200K in 20 months. So, it's like having an investment that produces 50% cash on cash so I think I will refi and keep it.

Originally posted by @Bob Langworthy :

@Michael Ealy first of all, well done! A truly inspiring deal. From here, I would do a cost segregation study to enjoy some of that cash flow at a lower tax rate while waiting for another great opportunity to present itself. At that time I would do a 1031 exchange or reverse 1031 exchange in to the next property.

That's an awesome suggestion Bob. We itemize our rehab cost so that we can do cost segregation. It's a lot of work for our bookkeeper, accountant and controller but it's worth it.

@Michael Ealy

Baby steps here.

I very much hope to get there and I m working towards it.

I have a full time job and I m in grad school. I still want to keep some sort of momentum so these tiny deals are great classroom in the basics of the industry.

As soon as I m done with school i can invest more time to build partnerships and grow to full-time investor.

If there s a way to do it, I don't see it. But I m open.

@Michael Ealy this is absolutely amazing, congrats! Being a Xavier grad and living in Norwood for 4 years I am familiar with Avondale. I’ll have to make a trip back to see what all has changed there

Right on man, way to be patient until the numbers tilted in your favor. That's how you do it, you buy right with equity already on the table. Nicely done! Love to connect with you at some point.