My first BRRRR.... From purchase to refinance

My first BRRRR.... From purchase to refinance

Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes

Hello everyone! I want to chronicle my first BRRRR investment and hope to share a success story with all of you. My main purpose is to help new investors, that are thinking about jumping into real estate investing, get a real life picture of what to expect. This isn't HGTV and I am not some Guru, I am a 40 year old dad with two kids that is tired of working 50 hours a week so someone else can get rich. I want the freedom that real estate has the potential to give, and I want something that I can share with my daughters when they get older. I have never chronicled anything like this before, so bear with me.

Now, about me. I have some experience in real estate investing, but not much. I bought my first rental, a SFH in Cincinnati Ohio, in 2010. It was pretty turnkey and has cash-flowed well for me over the years. I moved to the Philly suburbs in 2013 and decided to keep that rental because of its low maintenance and good cash-flow. I also fix and flipped a house last year, just to do it, and made a little money but nothing to write home about. That's it, so I don't have a ton of experience and consider myself still very green in all of this.

So lets talk about the property.... I am scheduled to close next Thursday. 

It is a SFH in central NJ that was a VA forclosure, that I purchased for $55,000. It is a 3 bed, 1.5 bath that needs a complete rehab. I toured at least 20 homes and offered on 5 before landing this one. I utilized the BP calculators to analyze deals and this seemed like a winner. It's not a homerun deal, but will cash flow nicely and is in a good rental area. So here are the numbers....

Purchase price $55,000

Closing costs $3500

Renovations (my initial estimate) $35,000

Taxes $5000/yr

ARV $130,000

Target rent $1600/month

I am purchasing using a hard money lender, then refinancing through my credit union after 6 months "seasoning". The terms of the hard money are as follows.... 9 month, interest only loan at 10.5%, with 20% down payment and 4 points. The points are rolled into the loan so they are paid at refinance. So I will be putting out $22,500 of my own money to fund this deal. I'm going to use real numbers because I think too many people talk about "real estate with no money down", "get loans with 100% funding". For a new investor with no experience, It's going to be difficult to invest in real estate without money. So my suggestion for new guys and gals out there looking to invest, the first step is to SAVE MONEY! Very few people invest starting with nothing. It's much easier if you have something to invest.

Here are pictures of the property as it sits today.... And thanks for reading, I hope it gives newer investors the confidence they need to jump in and take the risk!!

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Investor · Philadelphia, PA · Member since 2017 · 97 posts · 30 votes
9y

Defiantly SAVE money, LEARN from others and last and MOST important... DO IT. You never know if you're going to make it happen until you make it happen!

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  • Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    8y
    @Alex Malyarovich absolutely! Between permits and inspections, it can easily add a few weeks to the project. I hope to be able to list the property by early December and have tenants for the 1st of January.
  • Jersey City, NJ · Member since 2012 · 93 posts · 32 votes
    8y

    The house looks great from the outside so far. Looking forward to seeing all the pictures.

  • Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    8y
    Another quick update for today for people starting out.... A little back story, the previous owner, apparently was a piece of work. So much so that when he stopped paying the electric bill, they turned the service off at the pole because they had a few "incidents" and didn't want to enter the property. Last week I was introducing myself to a couple neighbors and one told me that she has seen the previous owner driving by the house. I didn't think much of it, knowing that I would be curious as well if it were me. But this evening I get an email from the next door neighbor saying that they were in my dumpster taking out wood from the demo'd deck and in the back yard! I thanked her for informing me and called the police. I have an alarm inside the house but I don't trust this guy won't sabotage my work. So I am going to the local PD and filling out a property check application and installing security cameras on the property. I guess you have to learn to deal with difficult situations when dealing with forclousures!
  • Real Estate Agent · Albany/Schenectady/Troy, NY · Member since 2016 · 74 posts · 35 votes
    8y

    Thanks for chronicling this in real time. I am right behind you, first BRRRR under contract.

  • Highlands, NJ · Member since 2016 · 52 posts · 9 votes
    8y

    Really intrigued with what your doing here, keep up the good work man! I wish you the best of luck the rest of the way.

    Thanks for taking the time up to give updates, it goes a long way.. @Jason D.

  • Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    8y

    So it has been a while since my last update, not as much progress as I had hoped. The original timeframe to have the property finished was mid-December, and that has come and gone. We made a number of changes to the original plan that has delayed us tremendously, but will make the property more marketable when done. 

    1) We decided to remove all of the drywall in the house. Nearly the entire house is wallpapered so it will be nice to start everything fresh.

    2) Instead of just enlarging the 1/2 bath to make it into a full, we have enlarged both bathrooms in order to fit larger vanities in each. The hall bath will have a deep soaker tub and the master will have a 30" x 60" shower.

    3) While we have the drywall torn down, we completely rewired both bathrooms and the kitchen. There was some questionable electrical that was exposed when we started tearing things apart so we felt that rewiring it would be the best course of action.

    4) We originally planned to refinish the hardwood in the living room and bedrooms, but after some consideration, have decided to install new flooring throughout the entire house. 

    All of these things didn't add a ton of cost (about $2000), but it did add a few weeks to the schedule. Right now we have the plumbing and electrical completed and the inspector coming next week. New HVAC was installed about 2 weeks ago. We are having drywall delivered tomorrow so we will close up everything that isn't being inspected hopefully by the end of the weekend. 

    On the financial side, we completed our first draw about 4 weeks ago and that was much smoother than I expected. They had an inspector come to the property, who was very nice and had some contracting knowledge. He had a copy of my scope of work and walked around, taking pictures of what was completed and any materials that were purchased. Three days later I had roughly $10k wired to my bank account. 

    We have also decided that this particular property will make a better flip than rental, so we will be listing it for sale when completed. My wife and I have decided that our area is not the right place for us to build a rental portfolio, and have decided to flip this property to build a little capital and move our family south in the spring and start our buy and hold investments in Florida.

    So I guess that this is no longer a BRRRR journey from purchase to refinance, but a fix and flip journey, from purchase to list :-)

  • raymond, WA · Member since 2016 · 20 posts · 2 votes
    8y

    So helpful to watch this story unfold! As a beginning investor, thank you. 

    I also just wanted to say that it seems like you've done an excrement job at adjusting as you go. Again, I'm a beginner, so i know my words don't hold a whole lot of weight but I have heard more savvy investors talk about the importance of knowing how to call an audible and adapt to situations and so on, so... well done!

  • Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    8y
    Originally posted by @Michael Landrum:

    So helpful to watch this story unfold! As a beginning investor, thank you. 

    I also just wanted to say that it seems like you've done an excrement job at adjusting as you go. Again, I'm a beginner, so i know my words don't hold a whole lot of weight but I have heard more savvy investors talk about the importance of knowing how to call an audible and adapt to situations and so on, so... well done!

    ..."done an excrement job"?...

  • Ana GarridoPro Member
    Central Florida · Member since 2016 · 40 posts · 19 votes
    8y
    Thanks Jason DiClemente for sharing your experience. I totally agree with that for newbies that “no money down” is fairly impossible. And even you have money saved as me, Lenders have asked me to form an LLC, and to partner with an experienced investor. This is real world ! I will keep following your thread, wishing you the best!
  • Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    8y

    So.... This has been quite a journey and its been 4 months since my last update. A lot of good has happened in these past months, some not so good as well. The good news is that the property is completed, and we have a tenant that signed a 2 year lease at our asking rent of $1600/mo., and they are moving in tomorrow. It took A LOT to get here, there were many bumps and bruises along the way, but the end is now a reality. The delays seemed like they would never end, and it ended up costing quite a bit more than anticipated. A lot of work needed to be done twice because my contractor was way too much of a fan of unskilled labor than he should have been, and ended up having to do a lot of the work again.

    Throughout the process, we flip flopped on what we wanted to do with the property. At first, it was a BRRRR, then we decided it may make a better flip. Then, after reviewing the numbers, and listening to podcasts here on BP where nearly every guest regretted selling their properties, we decided to keep it after all. The downfall to that is that we spent too much on higher end finishes when we could have gotten away with lower cost items. The end result is a great product for our tenants and, hopefully, low maintenance costs for us.

    The final numbers are as follows....

    Purchase Price $55,000

    Closing costs $3500

    Reno Budget $35,000. Actual renovation $44,938.00 ($9938.00 over)

    Initial Rehab timeline 3 months. Actual Rehab Timeline 8 months (5 months over)

    Holding costs $6500.00

    Total Invested $109,938.00

    ARV $152,000 (this was a big plus, 2 rehabbed comps sold over the past 3 months in the $150k - $160k range)

    Cash-out refinance $100,750 @ 5.5% fixed for 30 years

    Total Cash invested after refinance fees $11,500

    Cash-flow after 20% reserves for PM, Capex, and Maintenance $175/mo for a COC of 18% and just over $40K in equity

    Not a homerun deal, but a great learning experience and we'll make a little each month. Thank you all for following along in my journey. I apologize that I was not good at updates. I work a full time, 60 hour a week job and spent WAY too much time managing my contractor, along with raising 2 young kids, left little time for updates :-)

    I'll post some pictures of the final product in the morning. If you have any specific questions, I'd be happy to answer them, I'm an open book and would love to share with newer or first time investors.

  • Jersey City, NJ · Member since 2012 · 93 posts · 32 votes
    8y

    Great job @Jason D.! What a process and incredible journey. Loved hearing all of it. Looks like the numbers are great on this and now the next one will be that much easier. Keep up the great work!

  • Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    8y
    Thanks @Stu Basham! Definitely a learning experience. No book or podcast can prepare you for what it takes. It was a great learning experience and I didn't lose a ton of money so I'll call it a success.
  • Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    8y

    Here are some final Photos of the renovation....

  • WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    8y

    Nice update. What refi % did you use? Sounds like you went very conservative (unless the bank couldn't do 75-80%). Another great lesson in rehab costs and choosing a contractor. 

  • Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    8y
    @Victor S. It ended up being about 65%. The lender would do up to 75% but the limitations came from the DSCR. Due to the high property taxes ($5200/yr), any higher of a payment would have pushed the DSCR too low. It's not a huge deal and it gave us a low interest rate (5.5% fixed for 30 year on a commercial loan).
  • Rental Property Investor · San Antonio, TX · Member since 2017 · 88 posts · 167 votes
    8y

    Thanks for keeping us updated for the duration of this project @Jason D.. As a new investor it was great to see how investment projects progress from beginning to end, especially when problems arise and you figure out a way to deal with them. Nice job & also the property looks great! What would you say are your biggest takeaways or lessons, if any, that you got from completing a BRRRR deal?

  • Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    8y
    @Alex Kamunyo I think the biggest takeaway is to always be conservative with your numbers. Even going $10k over on the Reno and 5 extra months holding costs, the property will still cash flow. Sometimes you are tempted to adjust numbers to make the deal a deal, but you're just setting yourself up for failure. One thing I need to do better next time is do a better job at holding my contractor accountable. I think the scope of work ended up being too much for him and he simply did not have the resources to handle this project properly.
  • Rental Property Investor · San Francisco, CA · Member since 2015 · 236 posts · 156 votes
    8y

    Congrats on a job well done @Jason D.! And thank you for sharing your experience and your story, especially sharing the numbers! It's crazy that you can get a house for 55k there. That's barely a down payment here in the Bay Area. Reading your process, from beginning to end is very inspirational!

    Good luck to you and keep up the good work!

  • Kuba F.Pro Member
    Real Estate Investor · Los Angeles, CA · Member since 2013 · 2k+ posts · 694 votes
    8y

    @Jason D. Nice work.  It was great reading your updates over time showing how these deals evolve.  I thought your initial rehab budget was low so I was interested to see where you ended up, and even at 10K over I think you made out pretty well, so great work!

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