Single-Family BRRRR Strategy [Critique Me!]

BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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Single-Family BRRRR Strategy [Critique Me!]

Caleb Bryant
Rental Property Investor · Knoxville, TN · Member since 2019 · 11 posts · 8 votes

Hey there,

My name's Caleb and I'm a local investor here in Knoxville, Tennessee. After many years of listening to the BP podcast and with one single-family long-term rental under my belt already, it is finally time for me to take on my first BRRRR.

I want to share my strategy with you today in hopes of gathering some feedback and generating some conversation. If you have anything to add to the conversation, I'd love to hear it, and if you'd like to connect with me or partner as a private-money lender, wholesaler, or general business partner I'd be happy to block off some time to chat.

Let's dive in:

Lead Generation

One of the interesting things about the Knoxville market is that although we're in a hot market, it is still possible to find properties that hit the 1% rule on the MLS. In fact, I was able to secure my first and only investment property in South Knox (SoKno) for $100k + $3k in seller credits and have been able to secure $400 a bedroom in rent (I'm renting per-bedroom to UT grad students). As such, I have my RE agent sending me regular MLS blasters which include properties listed between 50-120k in my target neighborhoods (Most of which are within a 3-mile radius of downtown as these areas are seeing lots of new development and renovations).

That said, I'm particularly interested in purchasing an off-market property for both the higher potential for ROI and for the experience. I'm planning on executing the following direct mail marketing campaign:

1. Use ListSource and local resources to generate a list of probates and absentee owner properties valued between 50-170k OR generate my own list of distressed properties using the driving-for-dollars method in my target neighborhoods

2. Send out 300 small, handwritten, short and sweet letters that read:

[insert name/greeting]

I would like to buy your house at [insert address]!

Please text or call me at [insert phone]

Caleb Bryant

[Leave business card in envelope]

3. Send follow-up mailers every month for 3 months - track results for analysis

I'm also interested in buying from a wholesaler, but I have not had much luck connecting with one through my current business partners.

Financing

After saving up $20,000 for a down payment, I was able to network through Linkedin, BP, and word of mouth to find a private-money lender who is willing to finance my BRRRR. My strategy is to take out a 12-month bubble loan to purchase and rehab the property, finish the rehab ASAP and place a renter, then refinance the property into a 15 or 30-year mortgage to pull all of my money out of the deal and repay the private money lender. This particular lender has offered me a 30-year mortgage at 5-6%, but I am still considering options for the refi. Here are some details on my loan options if you'd like to know more:

  • 12-Month Bubble Loan: This is a loan product specifically targeted towards flippers. In my case, the lender will loan me 80% of the purchase price + all money for rehab at a 9% interest rate. This is an expensive, interest-only loan that is due back in the full amount + interest at the end of the 12-month term.
  • Business LOC: I've also been offered a business line-of-credit at 0% interest for 18 months which I could use as a down payment on a more expensive property. I haven't looked far into this, as I don't see it as necessary currently, but I figure the risk here is that the APR jumps to 25%+ if the line of credit is still open after that 18-month period.

The Rehab

So, funny story.. The last apartment that I lived in was NOT ready for move in when it was supposed to be.. So I found myself homeless for a quick second at the ripe age of 23. As much as it sucked, I was able to stick it out and couch surf for a couple of weeks and actually ended up grabbing lunch with one of the developers after the dust had settled. We ended up having a nice chat and the guy was nice enough to give me a list of his best contractors. I'm pretty handy and I do have this list of contractors, but I am a newbie to the rehab process and would much appreciate any advice you guys have on this piece of the equation!

So.. What are your thoughts?

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Most Popular Reply

Richard A.
Investor · Fayetteville, NC · Member since 2019 · 77 posts · 44 votes
6y

Greetings Caleb,

For lead generation, I like using ReiPro or Propstream. It's WAY cheaper than Listsource and more user-friendly. And, both have a trial period to check it out. I subscribed to Propstream for a year and its still way cheaper than pulling just one list from Listsource. Plus, Propstream gives you the mortgage and any liens pending information.  

Direct Mail is ok. I personally don't find much success in it, especially in a hot market where sellers are getting 4-5 a week. Plus the cost associated with direct mail isn't worth it. I've found better success in building a highly targeted list, mapping that list out, and taping a letter to the door. I learned this trick from Wholesalers Toolbox. Here's the link.
https://www.thewholesalerstoolbox.com/driving-for-dollars.html

The business LOC can be used to show proof of funds (if needed). Most wholesale deals won't require it. But, almost all agents require a proof of funds when submitting a cash offer.

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  • Allan Smith
    Contractor · Nashville, TN · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    I think that would be a good list to mail to. You might need a larger list than 300 to get some traction going (what if the first person in that 300 isn't ready to sell until 3 months from now). Also, you'll get a good response from handwritten letters, but it won't necessarily increase the quality of the leads. In my opinion, the time you spend handwriting those isn't worth the results. Handwrite one and photo copy it for the rest. You could handwrite in their name and property address on each letter maybe. I think handwriting the address on the envelope could be time well spent, though.

    That 12-month loan sounds like a great deal and perfect for a BRRR. 9% is cheap for hard money and huge plus if they take all the interest on the back end.

    I sense you might be underestimating the rehab aspect of the equation. This is where money made or lost. If you are flying blind estimating repairs, it could turn this whole deal upside down. All good as long as you have the cash and bank-ability to refi out even if it means you have to leave a lot of cash in it because of a rehab that got out of control. Can always take a contractor in the house with you to get a bid. 

    I do think new investors can benefit from doing a rehab or two with their own hands as you can save a TON of money not hiring contractors so it gives you a buffer if your projections are off. Especially for new investors that have more time than they have money, knowledge and network. The trade off of course is if you are in there swinging the hammer, it slows the growth of your business to a crawl. I cringe a little inside when investors plan to do the reno themselves because I think of how much more money they could make by hiring someone and finding another house instead. But ya gotta start somewhere.

    I'm in Nashville with properties here and chattanooga. Nothing in Knoxville yet, but if you find a deal that you want some help with, I have some experience doing these types of things. Some cash myself, and some private money as well. If you have a deal, some cash, and a hammer, we might could do something. Methinks you have this handled on your own, though! Your post is organized which shows you have some clarity and diligence.

    1Reply
  • Caleb Bryant
    OP
    Rental Property Investor · Knoxville, TN · Member since 2019 · 11 posts · 8 votes
    6y

    Thanks a ton for your input, @Allan Smith - this is exactly the type of feedback I’m looking for.

    Small world! My girlfriend is wrapping up a radiology program in Chattanooga and we frequently visit my Great Aunt who has retired in Brentwood. Perhaps we'll brush shoulders some day, but in the meantime I'd be happy to connect further. I'll shoot you a DM shortly.

    0Reply
  • Richard A.
    Investor · Fayetteville, NC · Member since 2019 · 77 posts · 44 votes
    6y

    Greetings Caleb,

    For lead generation, I like using ReiPro or Propstream. It's WAY cheaper than Listsource and more user-friendly. And, both have a trial period to check it out. I subscribed to Propstream for a year and its still way cheaper than pulling just one list from Listsource. Plus, Propstream gives you the mortgage and any liens pending information.  

    Direct Mail is ok. I personally don't find much success in it, especially in a hot market where sellers are getting 4-5 a week. Plus the cost associated with direct mail isn't worth it. I've found better success in building a highly targeted list, mapping that list out, and taping a letter to the door. I learned this trick from Wholesalers Toolbox. Here's the link.
    https://www.thewholesalerstoolbox.com/driving-for-dollars.html

    The business LOC can be used to show proof of funds (if needed). Most wholesale deals won't require it. But, almost all agents require a proof of funds when submitting a cash offer.

    2Reply
  • Caleb Bryant
    OP
    Rental Property Investor · Knoxville, TN · Member since 2019 · 11 posts · 8 votes
    6y

    Thanks for the input, @Richard A. I haven’t heard of anyone taping letters to doors until now; That may be more effective for my strategy since I’m only targeting a handful of neighborhoods.

    Take care!

    0Reply
  • Joey Chavez
    Investor · CA · Member since 2019 · 56 posts · 25 votes
    6y

    @Caleb Bryant Hello there. Just thought I'd pop in here if you don't mind. I've found that sending out large offers works much better than sending out 300 handwritten letters. With today’s technology, we’re direct mail acquisition machines all without leaving our office (or home, or wherever we happen to be that day). We pull assessor data from a direct link of the type of properties in the areas we want and send ALL the property owners an offer. (Not only out of state or tax delinquent.)

    We scrub the list and then spend a tremendous amount of time on pricing, because although these offers may be a lot less than retail, they are not out of the question. We explain in our offer letter to sellers that we are serious investors, we are not agents/brokers, we pay cash, and are prepared to close in as soon as x number days. Then we wait for the motivated sellers to call us - and believe me they do. It works amazingly well, and it is how we get there first. Hope this helps ya. Feel free to message me. I'd love to help.

    1Reply
  • Caleb Bryant
    OP
    Rental Property Investor · Knoxville, TN · Member since 2019 · 11 posts · 8 votes
    6y

    Thank you for the input, @Sonia Captain!

    0Reply
  • Justin Sullivan
    Real Estate Agent · Phoenix, AZ · Member since 2019 · 158 posts · 140 votes
    6y

    @Caleb Bryant

    Way to go for developing a plan for your investments, it's very good to know where your heading. I won't speak about the mailers or money being as though I've done less than 10 deals and I'm still getting my deals off MLS and wholesalers so I don't know much about direct mail. What I do know a lot about is construction. I get most of my income from my contracting company which I started a little less than 2 years ago. So I will speak about the construction since that's my strong point.

    Come up with a good budget. Have it down on paper and have extra money in there for issues or change orders. No matter what budget almost always go over. You open up a wall and realize it was built wrong or has termites. After going in the house for the tenth time it finally hits you on a better way to improve your value. But all these things cost extra money. 

     Expect the worst but hope for the best. You have a good plan to have the loan for 12 months. I wouldn't suggest taking that long to complete the project but its good to have the extra time. Walk the property with a contractor or 3 and get several bids from all of them. I would suggest calling contractors now and start putting the bug in there ear. All good contractors are busy and booked for months in advance. If you call them now and tell them your situation and you have a property coming soon and you'd like to get bids from them, well than the bug is in there ear and if it were me I would put you on my schedule as tentative. If your last minute trying to find someone you may get someone who doesn't do quality work and skips out and doesn't stay on schedule. So get connected. Go to meet ups speak with other people in your area about who they use. 


    When they give you their bid expect it to cost 20% more and take 20% more time. If you plan for it youll be happy if it comes in before you expected time frame but after their given one. Issues arise on jobs that are unforseen and no two jobs are ever the same. Now I'm not saying to vocalize to the contractor that its okay to take the day of because you extended his schedule but mentally for yourself just prepare for the worst. Another thing always go with the lowest comp or lower because its better the expect less and get more then to expect more and get less. A bad appraisal could blow a deal and lose you tons of time and thousands of dollar in due diligence money. Trust me I know from experience. So always be conservative with your numbers so that way you don't lose out.

    I've done some comments on finding good contractors and how to pay them if you wanted to check on my page to view them. My strength is definitely in the field running jobs. So if you have anymore questions or concerns feel free to reach out!

    2Reply
  • Caleb Bryant
    OP
    Rental Property Investor · Knoxville, TN · Member since 2019 · 11 posts · 8 votes
    6y

    Thanks a ton for the input, @Justin Sullivan! In retrospect, I think some additional planning for the renovation phase would benefit this deal greatly. Don’t be afraid to stay in touch over the next few months; I’d be more than happy to share how this progresses!

    0Reply
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