Investment Info:

Single-family residence buy & hold investment.

Purchase price: $78,000
Cash invested: $20,000

HUD auction, 5/2 SFR. Updated with paint throughout, tile in kitchen/baths, painted kitchen cabinets, repaired rotting deck, new roof and repaired carport, new fence

What made you interested in investing in this type of deal?

The numbers looked good, and it seemed like a fairly light rehab.

How did you find this deal and how did you negotiate it?

It was a HUD auction, and we were the high bid

How did you finance this deal?

Cash from our own sources, as well as a private money loan.

How did you add value to the deal?

We spruced it up with new paint, replaced cracked linoleum in kitchen with tile, repaired rotted carport roof and replaced whole house roof, repaired deck, replaced corroded water heater, painted kitchen cabinets, repaired faulty appliances, and a few other smaller things

What was the outcome?

House looks great, got it rented to a nice family at our planned-for rate. It appraised for 130k, which is the number we calculated on, but of course were hoping for 140-150k.
Unfortunately, our rehab expenses were significantly more than we planned for. Budgeted for around 30, ended up being 42, which made us leave about 20k in the property at refinance. Took out 104k to pay back lender and reinvest in future properties.

Lessons learned? Challenges?

We needed to keep a close eye on our contractor, because the expenses seemed to explode, cutting into our ROI.

All told, we are getting a moderate return, have a nice asset, and a lot of experience gained!

Nice rep, @Graham Northrup !  Base hits accumulate to won games and repetition breeds mastery.  You learned and will continue to learn valuable lessons and these will start snowballing into doubles, triples, and home-runs in the reps to come! 

Cool write up and analysis! 

What were the differences in what you though you had to fix at purchase and reality? 

Just wondering if you underestimated what things would cost or the things you would have to do. 

Thanks @Will Fraser ! That's the plan. I have a couple more rehabs in the pipeline, one that I know will go fairly well, and another that is kind of sketchy. Will report on those as they wrap up.

@Kyle K. we underestimated the cost of labor, and our contractor was working on a per task basis, rather than under one overall contract (our mistake!) And I think he was able to pad his expenses quite a bit that way. Lesson learned.

How long was the process from time of purchase, rehab time and refinance?

@Graham Northrup

Isn't it funny how budget the went up? 

I once heard that projects (not just in Real Estate) take longer and cost more than anticipated. 

All in all great summary. 

@Ryan Shannon long story short, we bought in late May, started the rehab in July/August, finishing up early September. Finally rented out in late October, and just got the refi today. Longer than we wanted due to contractor issues. If everything went smoothly we could have tightened it all up to about 4 months

@Ola Dantis Indeed! We're definitely being more careful about estimating and looking over our contractor's shoulder a bit more

@Graham Northrup great job! I'm sure this will lead to many more! What was the issue with the appraisal coming in at the numbers you were hoping for? Was it based purely on comps? Or was it something else? Are there things you could have spent more money rehabbing to get those numbers while maintaining a solid ROI?

Also, what was your tenant screening process like? You stated it was a nice family, what constitutes a “nice family” and was it an emotional feeling about them or primarily a numbers thing (income, debt, job security, etc.) or a mix of both?

Thank in advance! Great job again!

@Jerrett Wilson Thanks! Appraisal was largely based on comps. We didn't go too high end on the finishes, but did everything we could too ensure systems were solid and trim was attractive.

The family we rented to got great reviews from their references (always paid, though sometimes late), and passed their background check. Main issue was with their credit score. We stipulated that if they got on auto pay for their rent we would lease it to them.

@Graham Northrup

Great job. The first one is exciting! How does your monthly rent ($) look compared to your new loan (PITI)?

awesome job. Im sure taking what you learned from this one you'll do even better on the next.

@CJ M. We are using a commercial loan through a portfolio lender (local bank, and we have a longstanding relationship with their mortgage officer), so interest rates are a tad higher, but at 6%, we are paying PITI of 769 on income of 1100, with tenant paying all utilities. After saving for R/M, CapEx, and Vacancy, we are pocketing almost $150/mo.

@Graham Northrup great job on your first BRRRR deal. I'm nervous myself to do this entire process but seeing first timers like yourself succeed gives me some confidence to do it soon. Question: After Refi did you have $20k still left in deal or did you get that money back. Read your post and was still a little confused on that? And also, what was the process like getting hard money for the rehab? Easy? difficult? Thanks and great job!

Base hits are nothing to complain about. Well done!

@Kody Bernier There's no teacher like experience! We calculated based on leaving about 10k of our capital in the property, but that ballooned to 20K based on the aforementioned issues. One of our goals is to have enough capital to invest during the next downturn, which means our priority needs to be on preserving that capital. Of course, that means we are going to have to work that much harder to find deals that have enough headroom to pull most - if not all - our money out at refi. Best of luck with your next steps!

Nice numbers Graham. Where is this property located? Certainly not the RF Valley?

@Jonathan Godes Not even close. :) Lamar, southeastern Colorado. My hometown.

@Graham Northrup Thanks for sharing !

@Graham Northrup congrats! My first deal was also a BRRR and I don't even know if it could be called a base hit. What's important is the experience and overcoming the mental blocks of thinking it's tough or scary to do a deal. Hopefully this propels you forward!

Thanks @Adriel Hsu and @Kata Walters

I have another one that will appraise and refi in the coming weeks, and will give a full report then. Onward and upward!

@Graham Northrup

Question, what was the negotiation with the private money lender like? Was there an agreed upon interest rate etc? What was the process and how did that work for you?

@Austin Utley Private lender as a relative who had some money in a standard brokerage account that wasn't necessarily high-performing. Fortunately, since we already have a relationship of trust, it wasn't too hard to convince them to lend, and they only wanted a nominal interest rate.

We have courted others, and each has a different requirement for rate of return and terms. As @Matt Faircloth says, I made a list of people who potentially have the kind of money we would need, and started going down it. The bonus materials that come with @David Greene 's BRRRR book were very helpful in strategizing an approach to private lenders as well.

@Graham Northrup I love this format and sharing. Great job and nice base hit!