First BRRRR finished in MA

3 Replies

Hello everyone,

It's my pleasure to share our experience of the very first BRRRR story. Any comments and advice are welcome.

Bought the property at public auction, purchase price 166K, occupied. We pulled out HELOC from primary residence, 401K, savings to cover. Closing cost around 4K (including 1K unpaid condo fee). The next day after closing, we sent out a text message to the occupant (previous owner) to see whether she wanted to talk. We met on the third day and she just needed 4 more weeks to wrap up and move on and declined any of our financial help. She moved out as agreed, cleaned the whole apartment.

We renovated the whole place and replaced everything: 3 new windows, 5 news doors, luxury vinyl plank across the bedroom/living room, tile across all kitchen/bathroom, brand new bathtub/vanity/kitchen cabinets/stainless appliances/light fixtures/window AC. Spent around 21K on renovation (materials and labors included).

3 weeks post-renovation, we rented the apartment out $1,875 (cash flow $1,300)

For the cash-out refinancing, 8 months after we purchased the property, appraisal price 250K, pulled out 75% which is 187.5K, closing cost 2250. After refinancing, we successfully pulled all our money out (166K+4K+3K+21K-10K-185.2K) the cash flow changed to $370/month.

Detailed numbers:

Purchase Price 166K

Closing cost 4K

Expenses for the 3 months renovation 3K (HOA fee, property tax, insurance, electricity, HELOC interest, 401K interest)

Renovation 21K

Cash flow for the 8 months 10K = 1300x8

Cashout equity 187.5K-2.25K=185.3K

Our money in the deal -1.3K.

After the refinancing, we purchased another 4-family multifamily, just closed. Thus there comes the final R.

More finished pics

Congrats on your success on the Condo!

Chances are your real estate agent didn't inform you of the lead laws (they rarely do). In MA, if the property isn't deleaded when you buy it, you are responsible for the past tenants that may have been lead poisoned while living there unless you delead within 90 days of closing. The state is trying to get every rental property in MA lead safe, and they figured this was the best way to do it. So you have 90 days from the date you closed on your new 4 family to start deleading it or you're liable for all the past tenants. 

You can use this in your negotiations on any new properties you look at (obviously it's too late for this one). If it doesn't have a lead certificate on file, it IS going to cost you to delead, the state has pretty much made it mandatory at this point, at least if you want to avoid the liability of a lead paint lawsuit from a past tenant. Don't let that scare you though, I've had clients negotiate $20k off the selling price, and I only charged them $10k for the deleading, so it can actually work in your favor for it not to have been done yet.

You cannot rent to someone with a child under 6 unless you have a lead certificate on file with the state. If you rent to a couple with no kids and they have a baby, you are then required to delead the unit with the added expense of putting the tenants up in a hotel during the process.

If a unit is a 2 or 3 bedroom, chances are you'll end up having a family apply. You cannot deny the family because of the lead paint either, that's considered discrimination (you're refusing them because they have a kid) and is against the anti-discrimination laws of the state. If there are kids under 6, you NEED to have the unit deleaded and have a lead certificate on file.

If the unit has been inspected, but not deleaded, you also cannot do any construction or remodeling in the unit, they consider that unauthorized deleading and it will prevent you from ever getting a lead cert. The best you would be able to get is a Letter of Environmental Protection, which tells everyone you did illegal work then hired a licensed deleader in to fix it. It generally increases your insurance rate and decreases your tenant pool (who wants to rent from a shady landlord that does illegal work?).

If you delead the property it will actually increase your tenant pool and the rent you'll be able to charge them. A deleaded unit is more valuable to a tenant then a non-deleaded unit, even if they don't have kids under 6, they still like to know they are safe from lead paint issues. Anyone can get high blood lead levels, the law only specifies under 6 because it affects the developing brain more severely then a it affects a fully developed brain.

If you want to message me the address of your 4 family, I can check the database and see if there was ever an inspection done on the property for you. I'll be able to tell if there's a lead cert on file already too. Maybe you'll get lucky and it's already been done.

Good Luck on your investment!

@Sha Zhu Wow congratulations! Would you mind sharing how the refinance works and what that was like? The refinance is the part that confuses me the most about BRRRR. Best of luck with the 4-plex, I close on one next week!

Exactly, I think the other Rs are controlled by ourselves, while we handle out the Refinance "R" to others (lending source, appraiser etc)
In my case, we actually financed twice. The first time is immediately after we rented out the apartment, in that case, lender could not finance 75% of the purchase price, which is 0.75x166k=124.5k, we used it to pay back most of the HELOC and all 401K loan. And then 4 months after the close day of the first refinancing, we finished a regular refinancing: which is the 75% of the market value. We tried really hard to print out a folder to show to the appraiser, the comparison in the neighborhood community (the highest price sold within two months was already 255K). And the result is not that bad. You need to find a good mortgage broker in this case, they are professionals, much better than us in this area.Good luck on your purchase and BRRRR journey.

Originally posted by @Grant Doyle :

@Sha Zhu Wow congratulations! Would you mind sharing how the refinance works and what that was like? The refinance is the part that confuses me the most about BRRRR. Best of luck with the 4-plex, I close on one next week!

 

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