Investment Info: My plan for this property was to BRRRR, but decided to put my own spin on it. At the time, I didn't see why it's best to pay cash up front so I ended up only putting 5% down payment and financing it through a conventional bank loan.
Because of this, I am living here until I'm legally allowed to turn it into a rental.
- Built 1954
- 831sq ft
- 2 bed, 1 bath
- 1.5 car Garage, central air
- Half acre lot
- Dead end street, near freeway
- 1/2 mile away from GM/Chrysler plants
- Worst house on the street
Purchase Price: $57,000
Down Payment: $2850
Financing: 5% Conventional Bank Loan
Rehab Costs: $15,000
Closing Costs: ~$3000
All In: $75,000
Market Rent: $1000/m
Cash out of my Pocket: ~$21,000
RESULTS AT THE END
What made you interested in investing in this type of deal?
My goal was to find a property in an area with strong economic development, rental demand, and that would both cash flow and likely appreciate in value over the next ~5 years.
I read the Master Plan of every city surrounding Detroit and determined this was one of the strongest areas prepped for growth going forward. It's the 3rd largest city in Michigan, borders Detroit, and has a high tenant population. I grew up in the neighboring city, so I was already familiar with the areas to avoid and the exact locations to look for a property.
How did you find this deal and how did you negotiate it?
I spent 3 months looking on the MLS to find this deal. I went and saw around 30 houses, both small Multi-Family and SFH. I put out around 5 offers, had 2 accepted, and this is the one I actually closed on. It was listed for $55,000 and had another offer for full price, so I told my agent $57,000 and they accepted. I actually paid slightly more than it was listed for...but this is the competitive market we are in!
How did you add value?
- Paint throughout
- Added closet to make an official 2 bedroom
- Removed 1 tree out front that was ruining driveway
- Added dishwasher
- Poured back patio
- Added storage to laundry room
- New flooring throughout
- Remodeled Bathroom
- New doors, fixtures
- New GE Slate Appliances
- Poured new sidewalk out front, sealed foundation, fixed front patio
What was the Outcome?
Since I put 5% down payment and $15,000 of my own money into the deal and it's been about 6 months since we purchased, I wanted to see if we could move PMI and extract some of the equity.
I called up Chase and they sent someone out here to do an Appraisal on the property.
I got my Appraisal back for $115,000!!
They ended up removing my PMI, dropping my PITI to $471/m and I'm able to extract just over $38,000 from this property!
It cost me around $21,000, but even if you factor in my living expenses while living here the past 6 months (utilities, mortgage payments) that would maybe add another $4000 to my 'all in' and put me around $25,000 overall cash out of my pocket. I'm now able to extract an additional $13,000 on top of that...pretty crazy!
Lessons Learned? Challenges?
My biggest lesson learned here is that you can save a LOT of up front costs by paying with all cash. I didn't have $57,000 to put into this deal, nor did I have a private investor, but I see tremendous value in being able to avoid generating 2 bank loans (one up front, one on the refinance).
The biggest challenge was actually finding a deal. It took a LONG time (and many declined offers) to find this deal. I went to see it with my agent the day it was listed on the MLS and it already had a full price offer. I didn't want to FOMO, but I figured $2000 wasn't going to effect my bottom line too much.
Another challenge I had was putting the deal together. I don't have a regular job or W2 income. I had to bring on a credit partner for this deal (thanks Mom) in order to close!
Future Goals? What's next?
About 2 weeks after I closed this property, I closed on a duplex about 2 miles away. While it was a turnkey investment, I was able to creatively add an additional $255/m in Cash Flow through raising the rents and putting the internet in my name, while charging both tenants individually to use it.
I've had a lot of difficulties finding more deals on the MLS due to the crazy market surrounding Detroit, so I've started doing some direct mail campaigns and marketing to find off market deals.
I recently put a property under contract for $42,500 from my mail campaign in an even better area than my first deal and it's a bigger house. I'm starting to network more with other investors and forming strategic partnerships to scale up my business focused on the markets surrounding Detroit.
I want to connect with more investors and acquire 5 more buy and hold SFH or small multi-family properties before 2020.
I'm extremely grateful for Bigger Pockets!
I've met a ton of great people here & it's helped me a ton. I've listened to every podcast, I read every book recommendation, and try to soak up all the knowledge I can from here!
Thank you all for reading!
Nice work @Matthew John house came out great and you killed it on the appraisal.
@Matthew John congrats
Numbers are awesome. Question - why not refinish those wood floors instead of going with new? They looked alright in the before pics.
Loving the Detroit market, its the come back kid:)
Bagley looking great for appreciation
Congrats! How much time elapsed between your purchase, and the $115k appraisal?
This was very informative! Thank you for sharing.
@Max T. Thanks! You can't see in the pics, but in the living room they had to cut out about 4 feet by 2 feet of the flooring to access the pipes because they froze before we bought the house. They ended up replacing the pipes, but the flooring didn't look great with how they patched it.
Vinyl plank was a bit more expensive than other choices, but we installed it ourselves & I was sold on the life proof and scratch proof. I figure this will be durable enough for when tenants eventually move in.
@Marisa R. Thanks Marisa! I haven't ventured into Detroit yet, I prefer the areas surrounding. But we should connect if you're buying down there because I have gotten some investors calling from my direct mail campaign with properties in Detroit that are looking to sell.
@John D. Thanks! I purchased August 31st 2018, rehab took a month & I didn't even know I could get PMI removed early. Probably could have done it sooner, but I just got the Appraisal back last week. I started the process in mid February.
@Matthew John Thank you for the great write up. The property looks great!
I’ll second the vinyl flooring. Super solid and easy to install. Just did the floor in a bathroom and it took longer to pull up the old flooring (2 layers of linoleum sandwiching a layer of self adhesive tiles;) than it did to buy and install the new vinyl tiles. And best of all... no grout!
Congrats! Looks like you found a great value-add and a few in the pipeline.
I am trying to BRRRR in Lansing myself. I am closing on my first deal later this month. I am already learning that cash on purchase is so much easier as paying closing costs twice adds up!
Best of luck, Sean
@Matthew John An honest assessment with some good information. Thank you
@Matthew John Congratulations on this superb deal!
I have 2 questions for you.
1) That first conventional loan that you obtained for the first property, was that through a big bank? Or was that through one of your community banks that does portfolio lending.
2) how were you sure that when you refinanced the house that the mortgage payment wouldn’t be higher than the rent? I believe you mentioned that rent was around $1,000. Chase gave you a new loan for $115,000. How did you make sure that the mortgage payment for that $115,000 wasn’t higher than $1,000? Or was it higher than $1,000 and you just raised the rents?
Great pictures and I really like the creativity you found in the rehab.
I often struggle with envisioning how a home I find can be rehabbed but this gave me a lot of insight!
Congrats and thanks for this post.
@Scott Marshall Thanks! Vinyl was pretty easy, but became a pain when trying to get it around doors and in the closets. Took us 2 days to complete the house and we did it ourselves!
@Sean Sloop Congrats! Great area there too by MSU. Cash is ideal, but I struggled (and still struggle) finding people with enough money they are willing to invest.
@Michael Hayes Thanks!
@Ehsan Rishat Thank you!
@Daniel Mendez I went through Summit Funding, which is a smaller lender...but they actually flipped the loan to Chase about 2 weeks after I closed.
This was my Realtor's recommendation and it was pretty expensive to close and they gave me a higher interest rate than the Duplex I purchased shortly after.
I went back and forth about Refinancing or not and I decided it would be best to HELOC. Since I'm living in here currently, I was able to HELOC whereas rentals it's much more difficult to get a HELOC. This keeps my PITI low and I get access to that line of credit when I need it, whereas if I don't use it then I don't pay anything. So I'm going to keep that as a backup if I'm not able to find a private investor for future deals.
I honestly didn't expect the property to come in that high. I figured it would be around 100k based on the area and comps (my realtor did too), but in the past 6 months this market has really boomed and I guess the homes have increased about 15%, so it came in higher than anticipated.
Being a 2 bedroom, I know it won't rent for higher than $1000/m, so I'll keep my monthly payment as low as possible so make sure it cash flows. When I buy a property with the HELOC, the cash flow should cover the HELOC payment.
@Evan Parker Thank you! It helped to have a good woman in my life! She had Pinterest for a lot of the ideas, but I let her pick out most the stuff and I just managed the money and stuck to the budget.
We definitely splurged on stuff we didn't need (barn doors in Bedroom, shelving, brand new appliances, and building the kitchen table...but we wanted to add a more personal touch since we knew we'd be living here for the next year.
If it was just a regular rental, we probably could have saved $3000 - $5000...but I do think the appliances/dishwasher added some value as the Appraisal did make specific comments on that.
Congratulations Matthew! That's quite impressive and very inspiring! I'm just getting started as well. This truly motivates me even more to tackle a BRRR/flip. Keep up the good work.
yeah you crushing man, brrrr
@Matthew John great post and very nice work on the BRRRR. Giving me something to aspire to!
Great information and motivational.
@Christine Krizenesky Thank you! Keep moving forward, but be careful not to chase a bad deal just cause you want to get started.
@Blayne Williams haha thanks!
@Patrick Menefee Appreciate it that's great to hear!
@Mario Leon It's exciting to see how it turned out and proves the strategy can work with the right deal.
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