Crushing it in Metro Detroit during Coronavirus (Deal Deep Dive)
Going to continue my "Crushing It" series after some great responses on my my first thread about my first BRRRR deal in Metro Detroit and my second thread about a hybrid strategy I use with Short Term and Long Term rental.
Summary
I bought this SFH in hopes to become a BRRRR deal, but one of my R's failed me during the Coronavirus Lockdown. I ended up moving forward with Plan B, which now I believe was probably the better move.
Investment Info
- - Built 1925
- - Bungalow
- - Single Family
- - ~1250sqft
- - No basement/No garage
- - Working class neighborhood, solid B area
- - Only a couple blocks from Lake Saint Clair in Michigan & on a street with some new builds and an elementary school
Purchase Price: $80,500
Financing: Raised $35,000 from a private money lender, used my $38,000 HELOC from my my first deal, used $10,000 of my own savings
Rehab Costs: ~$50,000
Closing/Holding Costs: ~$18,000
All In: $148,500
RESULTS AT END
What made you interested in investing in this type of deal?
It was in a better area than any of my other properties - B or B+ area, right by an elementary school, close to the water, and just knew there was potential at the price I could get it for. It was listed as a 2/1, but I knew there was major value add in adding a 3rd bedroom, central AC, and possibly a garage. It was one of the worst houses on the entire street, surrounded by fully updated homes and new construction.
How did you find this deal and how did you negotiate it?
I was actually in Wisconsin when I found this deal while scrolling Facebook Marketplace. I had been actively looking for my next investment property when this deal popped up in my feed. It was listed on Zillow as a FSBO for $115,000. The owners said it appraised for $120,000.
It was a probate deal - the daughters inherited the property, but didn't want to deal with all the work. I ended up finding it on FB Marketplace being advertised for $85,000 by a wholesaler. I reached out, went back and forth for a bit, then finally settled at $80,500. Just like that, I had the property under contract and I wasn't even in the same state!
Living room/Entry way
3rd room that I wanted to convert to a bedroom
Bedroom 1 Downstairs
Bedroom 2 upstairs (master)
Unforeseen Issues.
Going into this, I knew there was some unevenness on the floors of the lower level. It was hard to tell the extent of the damages because of the carpet, but I could feel it when walking the property prior to purchasing.
Turns out, the support pillars for the main beam in the crawl space were barely hanging on. The cinder block had cracked in half and it was being held together by bricks stacked on top of each other.
This was my first priority - addressing the foundation issues.
This was also a big question mark going into it. I didn't know to what extent the damage was.
Myself, alongside my contractor, spent the first month after purchase working in this crawl space. We had 6 different bottle jacks working under there. Over an 8ft span, the house dropped 4in along one of the walls. We spent a month jacking and adding additional supports to the beam in the crawl.
The end solution was to completely remove the subfloor, add new (level) floor joists, and lay a new subfloor down in the lower level. This was a MAJOR task & I learned a LOT, but I wanted to make the house bullet proof to hold it for the next 10+ years.
How did you add value?
- - New Subfloor & Floor Joists
- - Added closet to make official 3rd bedroom
- - Added Central AC
- Added Garage - - New Kitchen
- - New Floors throughout (carpet, laminate, porcelain tile)
- - New Drywall in Kitchen, Living Room, and Bedroom
- - Recessed Lights
- - Opened up living area
- - Added fence around the house
- New Window
What was the Outcome?
I ended up renting it out in early March after listing it for rent for about 2 weeks at $1500/m. I ended up renting it for $1550/m since the tenants had a couple of dogs and I charge more for pets.
My refinance fell through, so I actually ended up having to sell.
I listed it to try and just get it sold, knowing the market was full of uncertainty and not many sales because of the Coronavirus Lockdown.
I received several low ball offers during the Lockdown, but decided to stick it out until Real Estate opened back up on the 7th.
The day after Real Estate opened back up, I received a full price offer for $174,900.
We just closed on it in June 2020.
Lessons Learned? Challenges?
This deal brought some challenges and exposed some of the risks with the BRRRR method.
I purchased this property in August 2019 and I begin the refinance process in February 2020. I didn't qualify for conventional financing & the property was owned in an LLC, so I had to go with an asset based lender. I found a lender who would do up to 80% LTV on a cash out refinance and decided to move forward.
I ordered an appraisal and it came back at $133k. They had used non comparable properties and wouldn't budge on the value. At this appraised value, I would have basically added no equity other than the money I actually put in between the purchase & rehab. This would have been a major failed BRRRR.
I pushed the Lender to order another Appraisal. It came back at $180k! I could pull out all my original investment and then some. We lock terms & go to closing. We sign closing docs and then the Lockdown happens in Michigan. The Lender ended up not funding my loan - after I had signed closing docs. They said they aren't doing these loans anymore because of the Lockdown and don't know if they'll ever do them because of COVID-19.
I then found out none of these previous (asset based) lenders were doing loans anymore. Everyone locked it up when the Lockdowns happened. This forced me to have to sell because I had a lot of holding costs from February - June when it sat vacant and ready.
Future Goals? What's next?
Since this, I've purchased another Duplex and another primary residence to house hack in Metro Detroit and I'm now looking at more small multifamily (4-15 units). I plan to continue to move my way up into larger deals. I learned a ton about construction on this deal and got better at estimating rehab costs. I would have loved to keep this as a rental, but COVID hit and it brought some challenges.
The key to the success of this deal was having the ability to pivot. I didn't go cheap on the rental, I went with finishes that looked nice that made it an easy sell. I front load the repairs because if I'm holding it I don't want to have to worry about it for the next 5 years.
I want to connect with other local & out of state investors to work together and grow. I'm going to continue to document my journey as I invest in Metro Detroit.