Another Awesome BRRR Project Completed!

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Another Awesome BRRR Project Completed!

Benjamin Riehle
Developer · Tucson, AZ · Member since 2015 · 190 posts · 309 votes

Hey Bigger Pockets! Just wanted to share a recent remodel project we completed and how the numbers worked out for us!

The appraisal just came in for a recent BRRR we undertook. The property was valued at $138k.

We began this project back in March of this year, purchasing a run down home in Tucson’s Barrio Hollywood neighborhood for $60k cash. We poured $53k in the project, carrying out a 3-month remodel, and arrived at an updated 4B/2BA, 1296 sqft home. The place was rented out within the first week at $1,100/month! That comes out to a cap rate of nearly 8.2%.

And yet, as we know, with the BRRR strategy our primary concern is the ability to return our capital and minimize our total capital outlay and maximize our equity gains.The fact that we have such great rental return is just icing on the cake!

After rehabbing and renting, our next step is to refinance. We will refinance with a conventional mortgage at 80% LTV (loan to value), putting $110,500 back into our pocket.

Herein lies the compounding potential of the BRRR strategy. After putting $113k in, we are getting the $110.5k back, nearly negating the amount of capital tied up in the project. Now the property is cash-flowing, we have $25k equity in the property, and we have the refinanced sum of $110.5k to go repeat the process. Gotta love BRRR!

If you haven't already, go read Brandon Turner's comprehensive blog post on the BRRR strategy:

https://www.biggerpockets.com/renewsblog/2015/04/2...

Hope everyone has a great weekend!

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David Grabiner
Investor · Chattanooga, TN · Member since 2016 · 146 posts · 108 votes
9y

@Benjamin Riehle Are banks now doing conventional refinances at 80% LTV? I thought the limit was 75% LTV? If so I would be interested in getting the info of the bank. I currently have a BRRR project going on as well. Purchased at the end of april for 111K, rehab and finance cost 17K, it rented without marketing before we even finished the rehab for 1450 per month. Expected ARV to be at least 175K. All the banks I contacted said 75% LTV.

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  • Bud Dwyer
    Phoenix, AZ · Member since 2009 · 61 posts · 17 votes
    9y

    That's awesome you got that done in Tucson. I've been investing in Phoenix for a while, and it seems all buildings that need only minor repairs are going $50k more than they were last year.

    I've been on the fence about this strategy for a while.  What happens if the market tanks and rents fall?  What if you get over extended on a rehab, and can't finish the project?

    1Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    9y
    Bud Dwyer always going to be "what's ifs". There is a reason the returns in RE can be so high. There is risk involved.
    1Reply
  • Tony Robinson
    IL · Member since 2016 · 17 posts · 5 votes
    9y

    @Benjamin Riehle the BRRRR strategy looks to be set to work like a charm on this property. Congrats and thanks for sharing!!!

    1Reply
  • Robin Boyer
    Surveyor · Hemet, CA · Member since 2015 · 797 posts · 112 votes
    9y

    Great story and it sounds like a home run I am looking to do the exact same thing. What was the after repair value? It sounds like you got about 100 percent of your money back it's like how the heck did you do that? Who is your lender LOL.

    1Reply
  • Christian Wathne
    Investor · San Jose, CA, Bellevue, WA · Member since 2016 · 327 posts · 257 votes
    9y
    Awesome!; pics!?!?
    1Reply
  • Robin Boyer
    Surveyor · Hemet, CA · Member since 2015 · 797 posts · 112 votes
    9y

    @Benjamin Riehle how much will a hard money lender lend you? Or ranges? I read it can be very powerful if you use there money right. I am getting ready to throw 500k in my local market here in Southern California for the brrrrr method. I am very interested in tiny homes as well!

    2Reply
  • Benjamin Riehle
    OP
    Developer · Tucson, AZ · Member since 2015 · 190 posts · 309 votes
    9y

    @Robin Boyer there are a lot of variables that go into hard money lending. Depending on your level of experience (Ie previous projects you have done), relationship with the lender, type of property you are purchasing, ect. 80-90% is possible, however there are typically high loan origination costs that may or may not be a deal breaker. Would love to connect with you and learn about what you are doing in So Cal. Happy to help any way I can with your BRRR deal.

    As for how we were able to get the full investment back, this was possible because we were able to substantially increase the property value through forced appreciation. The property appraised for $138,000 and we used an institutional lender to do the cash-out refinance. I have also been very successful using local banks and structuring credit lines that allow us to pull capital when needed without having the fixed interest costs. 

    Feel free to reach out any time to discuss in more detail. 

    Best, 

    2Reply
  • Benjamin Riehle
    OP
    Developer · Tucson, AZ · Member since 2015 · 190 posts · 309 votes
    9y

    Hey @Christian Wathne, I will grab a few before/after photos and post them here. We ran this project pretty fast and I have not gotten all the photos from my marketing guy. 

    If you go to my page on BP I have a video of some of our before/after projects if you want to see the type of remodels we do.

    Best,

    0Reply
  • Benjamin Riehle
    OP
    Developer · Tucson, AZ · Member since 2015 · 190 posts · 309 votes
    9y

    Hey @Bud Dwyer I have to echo what @Cody L. said. Always going to be "What ifs" however, our investment strategy is designed to offer an additional layer of protection if the market does take a turn. 

    You are correct property values in Phoenix have drastically appreciated over the last year, Tucson seems to be following a similar trend. I have written a few articles on why I believe this rapid growth in AZ is occurring. 

    As for the fear of prices dropping, with a 80% LTV we have 20% equity protection, meaning the market would have to drop more than 20% before we are under water. We invest in under-capitalized neighborhoods that have substantial upside appreciation potential due to attractive locations. As a result, we feel we have an additional layer of protection from a shift in the market given the demand for the areas we are investing and the current under priced micro-market.

    As for rent drops, the investment strategy of under capitalized neighborhoods provides that additional layer of protection from drastic rent drops. 

    As with any type of investing, there are going to be risks. The key is minimizing the risk by maintaining multiple exit strategies and holding options. 

    Feel free to reach out any time to discuss in more detail. Have a great day and thank you for commenting on my post!

    4Reply
  • Robin Boyer
    Surveyor · Hemet, CA · Member since 2015 · 797 posts · 112 votes
    9y

    @Benjamin Riehle thank you for the reply 

    1Reply
  • David Grabiner
    Investor · Chattanooga, TN · Member since 2016 · 146 posts · 108 votes
    9y

    @Benjamin Riehle Are banks now doing conventional refinances at 80% LTV? I thought the limit was 75% LTV? If so I would be interested in getting the info of the bank. I currently have a BRRR project going on as well. Purchased at the end of april for 111K, rehab and finance cost 17K, it rented without marketing before we even finished the rehab for 1450 per month. Expected ARV to be at least 175K. All the banks I contacted said 75% LTV.

    4Reply
  • David Tyrell
    Investor · Huntersville, NC · Member since 2015 · 10 posts · 1 vote
    9y
    I'd be interested in the 80%LTV for investment properties as well.
    1Reply
  • Benjamin Riehle
    OP
    Developer · Tucson, AZ · Member since 2015 · 190 posts · 309 votes
    9y

    @David Grabiner Congrats on the deal that is a fantastic return. The 80% LTV is a deal I have worked out with a local bank in Tucson. I have spent the past 6 years building a relationship that started with a simple $60,000 credit line. I now have a large credit line and keep large deposits with the bank, this gives them the security they need to issue a loan like mentioned above for a conventional mortgage. I should have put a disclaimer that the 80% LTV is not very common. I do know there are options with some lenders to get to 80% LTV depending on projects and relationships.

    0Reply
  • Mark B.
    Engineer · Allentown, PA · Member since 2014 · 105 posts · 64 votes
    9y

    @Benjamin Riehle congrats!!!  I'm looking to do this type of deal for my second property (once I get enough reserves saved up for the first).  Glad to know this strategy is still fully functional in 2017!

    1Reply
  • Paul Bowers
    Real Estate Investor · Macedon, NY · Member since 2016 · 251 posts · 290 votes
    9y

    How did you acquire the property?

    2Reply
  • Benjamin Riehle
    OP
    Developer · Tucson, AZ · Member since 2015 · 190 posts · 309 votes
    9y

    Hey @Paul Bowers This deal was brought to me by a subcontractor of my construction company. He had a friend that needed to sell and knew we could purchase cash and close in 10 days. I have found my sphere to be one of the best sources to find good deals. Everyone I know is aware that my team acquires rundown and distressed properties. I typically get 3-5 messages a week from people I know telling me about a property they saw or someone they know that needs to sell. From there I had it off to my investment team and they go to work.  

    2Reply
  • David Grabiner
    Investor · Chattanooga, TN · Member since 2016 · 146 posts · 108 votes
    9y
    Originally posted by @Benjamin Riehle:

    @David Grabiner Congrats on the deal that is a fantastic return. The 80% LTV is a deal I have worked out with a local bank in Tucson. I have spent the past 6 years building a relationship that started with a simple $60,000 credit line. I now have a large credit line and keep large deposits with the bank, this gives them the security they need to issue a loan like mentioned above for a conventional mortgage. I should have put a disclaimer that the 80% LTV is not very common. I do know there are options with some lenders to get to 80% LTV depending on projects and relationships.

    Well that is good to know that it may be available in the future. I just got a unsecured line of credit and opened a deposit account with a local lender, so hopefully in the future I will be able to leverage that relationship in to higher LTV lending.

    2Reply
  • Brandt Miller
    Rental Property Investor · Dallas, TX · Member since 2016 · 27 posts · 10 votes
    9y

    Congrats man. It sounds like you have a great system in place.

    1Reply
  • Robin Boyer
    Surveyor · Hemet, CA · Member since 2015 · 797 posts · 112 votes
    9y

    @Brandt Miller I spoke with Benjamin on the phone today. These guys really got it down can't wait go down to Arizona and see how it all really happens!

    1Reply
  • Ryan Bolesky
    Mechanicville, NY · Member since 2017 · 28 posts · 16 votes
    9y

    Congrats on your successful investment!

    1Reply
  • Jimmy MoncriefPro Member
    Chattanooga, TN · Member since 2010 · 319 posts · 100 votes
    9y

    Good for you man! Executing this strategy perfectly! 

    Podcast Guest on Show #55
    1Reply
  • Lamar George
    Rental Property Investor · Tucson, AZ · Member since 2016 · 96 posts · 35 votes
    9y
    Benjamin Riehle that is incredible. I never heard of anyone executing the BRRR method here in Tucson with great success. You are an inspiration. Thanks for sharing.
    1Reply
  • Bill Regan
    Investor · Baltimore, MD · Member since 2015 · 160 posts · 76 votes
    9y

    Awesome deal, congratulations on your continued success!

    1Reply
  • Cody Climp
    Real Estate Investor · El Paso, TX · Member since 2015 · 7 posts · 4 votes
    9y

    Hi @Benjamin Riehle, inspiring stuff. Your market sounds like it shares some similarities with mine. Wondering how much you are cash flowing now with the refinance loan in place or how your expenses break down now with the rental. Taxes would almost kill that deal (the refinance part) here in TX or at least cut into your cashflow. Awesome stuff and thanks for sharing.

    0Reply
  • Benjamin Riehle
    OP
    Developer · Tucson, AZ · Member since 2015 · 190 posts · 309 votes
    9y

    Hey @Cody Climp, 

    P/I, property tax, insurance is $770 per month. My management company charges 8% of rent plus $25 per month so that is $112 per month. I factor in a vacancy rate of 5% or $60 per month, although with as quickly as this property rented I believe vacancy will not be an issue. Lastly, I run a repair expense of 10% or $120 per month. The property is fully remodeled so there should be minimal expenses, again I like to run safe projections.  

    Rent: $1,095

    Expenses: $1,062 (Remember these are with vacancy and assumed repairs accounting for $15% of the rent)

    Cash-flow: $33 per month (WELL THAT SUCKS! However, there are a few other things to consider)

    First, I am paying the principle down on this property starting at $120 per month and will grow over time. Principle paydown is something I believe a lot of newer investors overlook. Additionally, you can ramp up the principle paydown and shave 8+ years off of the mortgage by making one additional mortgage payment per year. By doing this more of your monthly mortgage payment will go to principle and ultimately back into your pocket.

    Second, I ran the numbers with a 5% vacancy and 10% repair expense. For the 3 months we have had the property in production we have had no repairs and zero vacancy. As a result we are cash-flowing an additional $164 per month.

    Lastly, because we were able to pull our entire investment out to go do other projects we are happy with breaking even, paying down the principle and benefiting from the areas rapid appreciation. This area in Tucson is appreciating at 7+ percent per year. Obviously, this will not continue and can just as easily go the other direction, but for our investment strategy as long as we are breaking even, paying down the principle and able to acquire additional assets we are achieving our goals.

    Probably a much longer answer than you were looking for but wanted to take the time to explain my thought process. 

    Best,

    0Reply
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