My First Deal using BRRR & low-to-no money-down FHA Loans
It's been a very exciting and yet a turbulent experience in terms of bringing enough cash to the closing, passing and knowing about rigorous FHA guidelines for the first time, as well as fixing a major credit issues that could have ended this entire journey. At the end of this experience, I ended up making the closing because of the exceptional team who helped and guided me till the very end to make everything happen. I now own a rare, high cash flowing, fully renovated & rare historic four flat investment property full of tenants located in East Side Chicago, yards away from the beach.
The journey began in January 2017 when I started reading and researching about financial freedom and real estate, being completely dissatisfied and hopeless with my 9-5 job. I pretty much felt trapped. The following late summer I bought a couple of books by Brandon Turner, (PM me to get the names) and began planning my next steps to set up systems in achieving accurate and consistent results in either finding an operative farm area or projecting a future ROI. Throughout this experience I noticed that endless planning and overthinking will slowly- if at all, will push results in the right direction. Careful planning is a must, but there is a certain point where we must take action.
Just moving to Chicago in February 2017 from Minneapolis, I began my rigorous search and analysis of finding the best investment property in September 2017. I thought it would be best to get familiarized with my surroundings and settle into my new job first. The search started with my "PLC" analysis which stands for Price, Location, and Condition. I then broke the search down into an estimated/projected CoC ROI analysis by breaking down the numbers based on current market rents relative to location and all possible expenses from CapEx, gas, utilities and anything else I thought would be financially feasible. After I found a desired area, I began searching for a realtor.
This is where things got messy, since I did not research what type of realtor would be best for me. Realtors come in all different experience levels and areas of expertise. A typical residential realtor that specializes in working with conventional home buyers who are not interesting in business investing could possibly have major knowledge gaps in how different loans operate based on the type of property whether it be a VA, FHA or 203K home renovation loan.
In the past, I once had a realtor completely give up on the same historic, brick 4-unit investment property, because they saw several cosmetic issues that they thought would be major deal breakers and would not pass an FHA loan inspection or appraisal. When I mentioned the words "FHA", the contract was literally cancelled in the middle of the drafting process. I thought my dreams of becoming an investor and property manager were over.
After weeks of searching with the same realtor, I saw that they could not make ends meet to even properly schedule a showing because of their endless excuses and empty justifications! At this point my goals were slowed down almost to a complete stop. I ended my relationship with this realtor that had years upon years of experience.
This situation completely changed when I met Damon Smith from REMax/Premier. If it wasn't for Damon, I wouldn't have closed on a beautiful, historic, fully renovated, rare 4-unit brick investment property in Eastside Chicago. Based on my experience with Damon, it takes a lot of creativity, endless perseverance and determination to have pushed a deal like this forward to completion. Many realtors have given up due to the idea of having to pass a highly rigorous FHA loan inspection as well as the FHA appraisal. For a first-time homebuyer, I determined that the BRRR method via the FHA loan direction was the best financial strategy in my situation.
Due to the nature of this loan, the guidelines and regulations to have a solid appraisal and to gain an appropriate value for the property would be a great challenge for us all, and is noted as a obstinate issue in the real estate business: underappraisals.
What I found unique about Damon was that, he maneuvered around countless obstacles, from executing an extremely accurate and detailed comparative analysis that eventually brought the final desired value of the home, impeccable negotiation skills that saved me thousands upon thousands of dollars, and what seemed like a never ending supply of ideas that he came up with that passed the rigorous FHA inspection. There were some major problems that were found within the inspection report that everyone on all sides thought would be unreasonable to a risky level. There were plumbing and structural/cosmetic integrity issues of the garage that were believed to possibly cause financial setbacks and essentially end this deal. With Damon and his team, multiple ways were found to completely minimize ‘what would have been' serious impacts and neutralized the situation presented by the inspector. The issues were scrutinized further and further till an agreement and strategy was made to move forward.
The perseverance and creativity of Damon to find more reasonable directions to push the deal forward in situations that would essentially end the deal were the most notable strengths I have ever seen in anyone and was a major inspiration. Many would have given up, however through his inspiration words, we all pushed forward as a cohesive team. Having many years of experience and deep knowledge in property management and general contracting/home renovation work helped impossible situations, by turning them into feasible and practicable circumstances by either making appraisal repairs or an in depth financial reevaluation to pass the FHA appraisal and to ultimately find the desired value of the home.
Again, chose your team wisely- go for professionals whom are very familiar with your situation. The selling agent John Ruiz from Colonial Real Estate was also a top-notch individual who greatly helped me and my realtor. Selling agents usually never help the buying agent in the due diligence period and sometimes work against each other. John has been in the Real Estate business for several decades, and has been through every possible situation, as well as being a very experienced contractor which made this deal go through.
The ideas that he came up with to pass the strict and rigorous FHA loan inspection regulations and guidelines were of pure genius and of impeccable creativity. Also having a wide set of skills in home renovation, he knew what to do in terms of repairs that 99% of realtors would be at a total loss. Having a deep interpersonal position and stance, when working with my buying agent, he knew how to bypass barriers that many realtors fail to realize. Many realtors sometimes work in contradiction of each other without realization because of dissimilar opinions and perceptions, thus creating breakdowns in communication. From him, we learned that realtors must work cohesively, in collaboration of thoughts and actions to reach our similar goals at the end.
If it wasn’t for John’s knowledge, decades of experience, passion, skill and the ‘never give up’ attitude, I know I would not have ended with my dreams coming to reality.
John worked closely with my realtor Damon and myself, making sure all of our needs were met, and at the same time offering excellent advice and techniques that I personally think saved this deal. I’d contact him any time for valuable advice and another loan because of his profound experience working through thousands of different circumstances like mine and overall, being an awesome person to work with.
Choosing a lender that also has experience in non-traditional property investment is an absolute must. Throughout the entire due diligence phase in closing my first investment property, there were several moments where I thought to myself that the deal would fall through due to the various financial tribulations that I’ve experienced in March 2018, a month before closing. I thought my dreams of becoming a property investor/manager would be shattered due to a mere bank error caused by one of the tellers over the phone. However, not all hope was lost, and there were dreams to be made, thanks to John Moony- a very experienced and knowledgeable loan officer of Guaranteed Rate Bank Affinity Group.
We got through any obstacle that came our way because of John and his group which gave the most professional and financially advantageous instruction for my closing. Through careful and extremely accurate planning and evaluation, thousands of dollars had been saved before the closing date, and most importantly, the topmost diligence and thoroughness in scheduling, underwriting and preparing for events such as the appraisal were flawless that essentially led up to me getting my dream house. His stance was never hopeless or dissatisfied even during the most unconfident circumstances with my flawed credit report, and events long ago that led up to my credit downturn which caused me to mismanage my finances. There was always a creative solution and flexibility for a way out when working with his team and never a ‘red light’ coming from them during hopeless times. We were always on the move no matter what.
With the FHA loan, I will now be living in this beautiful 4 flat making creative improvements, rehabbing & fixing, and in 1 year will refinance and take out another mortgage for another property.
Thank you all again and than you BiggerPockets!
Alex