A brief walkthrough my third deal
Unfortunately I've been on a bit of a hiatus since my last post.
Below is a brief walk through of my journey in purchasing my third single family rental in Memphis, TN. I made plenty of mistakes when I made my first two purchases. link below:
https://www.biggerpockets.com/...
The process for this purchase was much quicker and smoother. My ultimate goal was to utilize the BRRR strategy. For those that might be a little impatient, I'll give away the ending: it was successful. i was able to pull out all my initial capital, plus about $5k.
Buy
For those that don't know, I'm an out of state investor and did not have the opportunity to visit this property. Therefore, I had to rely exclusively on my agent. I worked with the same agent as my second deal. I was comfortable with him and he was very straightforward and honest with me. He sent me video walkthroughs of the house and gave me his honest opinion. I told him what my general criteria was and he sent me this house to analyze. he property was already rented for for $1034 by the same property manager I used for my first property. I asked for rent rolls, and the tenant was current and 11 months into a 2 year lease.
It was listed for $120k, and I offered $112k. After some additional information, my realtor suggested the roof would need some work and that it would cost about $6-7k to repair. So, I made an adjusted offer of $105k(after we were under contract). The seller was motivated and accepted, my offer was all cash. I used the funds from a HELOC that I have access to--HELOC payment was about $345.
Rehab
I obtained 3 bids for the roof work and, through my agent, was able to secure someone to do it for $5900 (the other two bids were $3-4k more). Shortly after the purchase, there was a big storm that caused a tree to fall and damaged the rain gutters of the house--luckily nothing else. A few hundred dollars to repair. I also had to replace a mailbox, and some other minor repairs.
Rent
As i mentioned above, this property was already rented. The tenant was 11 months into a 2 year lease, current with his payments and paying $995 a month, with a built in rental increase of 4% after year 1. The tenant's lease will end in July 2022 and according to various calculators, the current market rent is about $1200.
Refinance
I officially closed on this property on June 4 and the banks typically require a 6 month seasoning period. Since the property was rented and covering the HELOC payment, I wasn't in a hurry to pull out my capital. And I did not want to be limited to pulling out only the cost of the property plus repairs--I had a feeling it could appreciate for a lot more. Fast forward to December 4 and I began the refinance process with a lender I used to purchase my Pittsburgh duplex (more on this in a separate post). I compared 3 or 4 different lenders--and thank goodness I did because i saved about .5% in the rate. And the moment of truth finally comes--where dreams are either made or broken: the appraisal.
I finally get the report back and the house appraised for about $162k. I was able to take out 70% and after fees I pulled out about $118k. I was all in for $112k.
Repeat
I haven't repeated yet. I used the money to payback the HELOC, the extra money I used to buy some REITs and dividend stocks.
If anyone would like to speak to me in further detail about this deal, i'd be happy to connect. I will post about another transaction I completed around this time: A sale of my second property and using a 1031 exchange to shelter the profits from taxes and purchase a duplex in Pittsburgh.
Most Popular Reply
@Marky Suazo I appreciate you sharing - great story. Sounds like it was pretty simple. Can I ask what area of Memphis were you able to find something on the MLS that sold for under list? That seems pretty rare these days - especially for tenanted and nearly making the 1% rule.