1st out of state/BRRRR purchase

26 Replies

Hello BP,

This is my first deal bought through BP so I figured I'd return the favor by sharing my adventure.  I'll skip the details about myself and get right to the transaction.

*Will omit names from my story and pictures.  Living in South Florida I have learned never give out addresses or pictures of homes that are vacant, asking for trouble, sorry. Also, excuse the novel but the category listing did use the word "diary".*

Signed up for BP mid March, within 3-4 weeks found a listing on BP for a SFH in Houston that really peaked my interest.

Advertised:

4/2/2 1600 sq ft on oversized lot for area

Asking: 105k

Rehab: 11k

ARV: 159k

Rent: 1400 - 1500

Called up the seller (wholesaler) and immediately felt comfortable with them. They didn't try to sell me they just gave numbers, spoke about what services and help they can provide for a first time out of state investor. The house itself was very well taken care of by a retiring couple and didn't need major repairs. Small amount and short time frame from rehab. After taking time, too much time as it was my first deal analyzing with BRRRR lucky someone didn't pick it up, I advised them I was ready to take the plunge.

During final talk on numbers they received an alternate bid for the rehab at 9500 (1500 less than other bids) and we also settled at 103k purchase price.  When I asked for a reduction in price they were open and transparent about the contracted price and what they were making.  They agreed to take 2k off and that made me feel even more confident and trustworthy of who I wsa now dealing with.  Of course I would have found out their cost due to assignment but still they were right up front with it.

Plan is to buy, use the seller as my project manager and they will be my property manager as well.  This turned out to be a Turnkey type of transaction except I was getting in before rehab instead of after allowing me to take advantage of forced appreciation!

The seller connected me to a local HML who they in turn connected me to a local conventional lender. During this process I learned there is no seasoning minimum when doing a rate and term refi. So, as soon as I have a signed lease I can refi right out of the HML and not wait 6 months which is what I've been used to with cash out refi's. Not to mention on rate & term refi you can pull out 2% or 2k whichever is less I'm told so less money out of pocket.

So far so good. Been running my numbers on the conservative side so as long as I can get at least 150k ARV and 1400 rent I'll be into it about 15-20k cash and around 10-15% COC return.

Assignment contract signed ready to move forward:

Purchase Price 103k

Now comes the financing. HML orders the appraisal then sit and wait nervously to see. This was so nerve-racking. Buying sight unseen, in another state trusting people I've never met face to face only chatted over BP. Finally after waiting forever, was only 5-6 days, the appraisal came in:

ARV = 175k!!!!!

Holly cow, it came in 25k more than what I was hoping for and 16k over what the seller said it would come in at. I struck gold and everyone is telling me I found a deal that doesn't exist anymore buying from resellers. I was so jacked but did my best to play it cool with the seller and HML. LOL, think I may have just blown my cover. This ARV would mean I will come out less money than expected for this project.

Now with a 175K ARV the HML was pretty much going to cover everything but they reduced the % on the loan to make sure I had some skin in the game especially being my first deal with them, I was fine with that.

I closed on 05/31/17.  Numbers:

Total HML loan: 114k

Total out of pocket at closing: $7,800.00

10k from that loan went to escrow for rehab that I will draw on.

Once we're done rehabbing and get a signed lease I will then refi probably come out of pocket a bit more so I'm thinking if all goes well I'll be out roughly 10k. If I hit 1500 monthly rent (after appraisal came in I'm trusting the seller assumption on the higher rent) that would result in my first out of state buy returning 40% COC return!

With all of that being said, I've done a couple of deals and have a local SFH I rent out so although new to the game I know things can go south quick. I'm keeping my excitement tempered for now.

Rehab started on 6/1/17 and should take only 2-3 weeks.  I'll keep chiming in how the project goes all the way through signing a lease with a tenant.  Sorry I don't have any words of wisdom to share but I figured telling my story was a way to pay back the BP community for the help I have received so far. 

That's it for now..............

Thanks for sharing! Be very curious to see how this turns out so please keep us updated!

@Nelson Leal Great job and nice ARV and COC return. Do you have this in the BP BRRRR calculator in PDF. I would love to see that.

Curtis

Thank you very much for sharing Nelson!

Thanks for sharing @Nelson Leal , that's exactly what I've been trying to do. Which part of town is the property situated in?

Thanks

That's awesome! I look forward to seeing photos when the rehab is completed.

@Curtis Harvey thanks. See below image for BRRRR results. The purchase and acquisition is pretty much down to the penny. Wont have exact numbers on refi until I have it rented but they are based on what I was quoted upon pre-qualification. I lowered the estimated rent back to 1400 to stay on the conservative side reducing my COC to just below 30%.

Your welcome @Khaled Helmi and @Francesco Barbati

@Tristan S. Northline

First nice surprise during rehab............Wood flooring under the carpet.  Good condition just some sanding, staining and we have wood floors at low cost! 

After closing last week was clean up.  This week paint, replacing doors, install kitchen counter top granite and a bunch of other misc items.  Probably will be able to start showing to prospective tenants next week during tail end of light rehab. 

End of next week I'm flying out to check  the end result and take lot's of pics.  I'll post plenty of them then along with some before pics as well.   

Hi Nelson!

Looks like a great deal. One word of advice that was given by  @Brandon Turner in his rental property book is if you plan to rent use laminate over the hardwood, as you know it will get abused. Keep the actual hardwood floors protected and have them finished when sprucing up the property for sale. This way you only refinish once and what is there remains intact for you to cash out on later.

@Corey McKinney thanks for the tip.  I've also heard laminate is a nightmare with tenants due to bubbling up when they clean the floors.  I'm not  familiar with laminate, south florida seems to usually be tile or wood I've never come across wood on a property being rented unless higher end we usually just tile everything down here. 

Any other opinions out there to share.  I have time to adjust rehab plans still.  This could be like a audience influenced project as we move forward.  In fact that is an awesome idea, I'm going to try that on my next project.  The property will probably suffer but it will be one hell of a story to tell and experience. 

Just chatted up with the GC today.  Weekend did not go as planned to there are delays.  Completion date pushed back a few days to Sunday.  Can start showing the property Monday, have to wait for the floors to dry and be able to handle foot traffic.  I'm flying out to Texas this Friday to go see the property for the first time so excited to see the house almost done.  Kitchen pics attached of before and repainted stage.  A little teaser for you.......(sorry, cant get the pic to rotate)

Paint finished up next is flooring.

@Nelson Leal Best of luck and keep us informed how you progress. 

Well, it's been a bit but wrapping things up.  Took 4 weeks for estimated 2 week rehab.  Delayed issues with the contractor but finally got it done, except waiting delivery still of the range.  Listed it Last week and expecting signed contract by tomorrow with what looks to be excellent tenants.  So all in all Signed assignment for purchase, closed, rehab and rented in 6.5 weeks.  Final numbers came out higher than expected but since i did all my research basesd on everything being more expensive than it all worked out.  Below is breakdown:

BRRRR Results will be final after I refi at end of month but plugged in initial locked in quote from lender now just need to negotiate closing costs with title company.

Monthly Income:
$1,425.00
Monthly Expenses:
$1,172.23
Monthly Cashflow:
$252.77
Pro Forma Cap Rate:
6.06%
NOI:
$10,607.50
Time to Refinance:
2 Months
Cash on Cash ROI:
36.69%
Purchase Cap Rate:
10.30%
Vacancy:$78.38Repairs:$49.88
CapEx:$49.88Insurance:$100.00
Management:$71.25P&I:$631.19
Property Taxes:$191.67
Purchase Closing Costs:$3,605.00
Estimated Repairs:$10,338.00
Total Project Cost:$116,943.00
After Repair Value:$175,000.00

Acquisition:

Down Payment:$0 ($10750 surplus)
Loan Amount:$113,750.00
Loan Points/Fees:$4,823.00
Loan Interest Rate:14.000%
Monthly Interest:$1,327.08
Total Cash Needed At Purchase:$8,016.00

Refinance:

Loan Amount:$121,000.00
Loan Fees:$7,500.00
Amortized Over:30 years
Loan Interest Rate:4.750%
Monthly P&I:$631.19
Total Cash Invested:$8,266.00
Purchase Price: $103,000.00

All is right in the world.  Good enough that I just signed a contract on another property this weekend, only this time in Cleveland Ohio might give a shot at flipping or maybe just hold as well. 

Thank you all for following, i'll try to do a better job with pics on the next project I have coming up August 1st. 

Couple of pics on the best part, the flooring looks really good in certain rooms. 

Looking promising so far! How has it been managing the rehab/contractors from distance? Do you have someone on the ground to help keep an eye on things?

@Minh Nguyen

Managing the contractors was a bit of a challenge. Contractor induced delays but when all said and done I purchased, rehabbed and rented all in roughly 5 weeks. Just received my second months rent on a 2 year lease. Worked out good. Now in the middle of a rehab on a SFH in Cleveland, Ohio. Will see how this goes about 2 weeks in on that one.

The wholesaler that I bought the house from also acted as a quasi project manager for me so that was helpful. 

So how much out of pocket did you actually spend once all was said and done to get it from tied up/purchased to rented?

How did it weather the hurricane?

Hi @Nelson Leal can you tell me a little bit about your refi and why you didn't need title seasoning? Was it because of using a HML? Does it just depend on the bank you use? Your rehab looks amazing you should be proud!

@Stu Basham Thank you.  Just finished up my other property in Ohio and tenants moved in this past weekend.  That one I'm seasoning, reason:  I want to pull cash out.  

I didn't have to season this property in Texas because it was a rate and term refi nothing else, no cash being pulled out. So, if you buy at a deeply discounted value, get a high enough ARV from an appraiser, a HML lender putting up a high enough % of the ARV you can come in little to nothing out of pocket to buy the property then have the long term financing come in after and refi the rate and term only. You can quickly get new mortgage with no seasoning and little money down if you bought right and still cash flow.

If you wait to season and pull cash out you could end up with less money overall into the deal and still cash flow.  Just all depends on your buy and your goals.  

@Francesco Barbati Thank you

@Wesley Merville  

Total Cash Invested:$8,266.00 and being reduced each month by $252.77.  I'll have nearly all of that back by the time the first 2 year lease is up and I'm ready to sell.  

I had a small puddle on the front porch.  I lucked out no further damage.  I have two general contractors for a local real estate company that rent out the house so my investment is in good hands the next 2 years.    

@Minh Nguyen I had the wholesaler who I bought the property from there checking in on it, the realtor who listed it check on it, I flew out there once during the rehab and a 3rd party inspector done for the HML rehab draw at final.

Handling the contractor was a bit trying at times but to be honest  when isn't it.  If it were local I probably could have shaved a week off but I had the extra week buffered into my estimates and it didn't affect the renting out of the property so all worked out well.  

Thanks @Nelson Leal . Super helpful. So Rate/term refi's usually don't have seasoning requirements but Cash out's usually do?

@Stu Basham can't speak to across the board. My broker advised me of it then got me a loan with no seasoning so I would think it's readily available. Others have confirmed this to be true as well. I now use it in my analysis with properties knowing I can refi out an HML quickly if needed.

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