FIRST BRRR Complete! Details + Pictures!

FIRST BRRR Complete! Details + Pictures!

Real Estate Agent · Redlands, CA · Member since 2017 · 199 posts · 487 votes

Hey Biggerpockets!

My partner and I just completed our first BRRRR and we are so STOKED and THANKFUL for the education we have received from this website. I am writing a summary of this report in the hopes that someone finds value from it and our story inspires them to take the first step towards financial independence.

BACKGROUND:

I began listening to the Biggerpockets podcast 18 months ago. Before BP, I was an active member of the Personal Finance community on Reddit, and was on the journey towards FIRE (Financial Independence // Retire Early). My primary plan for early retirement was shoving money in tax-advantaged mutual funds. As I began to learn more and more about real estate investing, I began to question my strategy. The information I was hearing in the podcast made sense, the numbers were better than the stock market, but I was struck in "analysis paralysis" and couldn't pull the trigger.

Once my wife and I purchased our primary residence in California, we decided to take the leap and dive into real estate investing. The BRRRR method made the most sense mathematically to us, and I consumed as much informational content as I could.

THE JOURNEY:

Step 1: We bought our first home (primary residence). We live in California where homes are expensive and saving up 20% for a downpayment had taken us years. We could have bought more rental properties if we had continued to rent and foregone purchasing our own home (like Grant Cardone and Stephan Graham recommend), however, I can not stress enough how important it is to be on the same page with your significant other. My wife wanted her own home, and we made a promise to each other to get out of our apartment before we began investing in rental properties. Our quality of life improved tenfold going from a 600 sq ft apartment to an 1800 sq ft single family residence. And once we had our own home, we were free to dive into out-of-state rentals.

Step 2: Once we closed on our home, I immediately begin looking for a HELOC to fund our rental purchases. I found a local credit union that would give us a 1.99% introductory rate (18 months), after a 3 month seasoning period. We put the paperwork in motion and as soon as the seasoning period was over we were able to pull out 50k of equity to be used for real estate investing.

Step 3: While we were waiting on the HELOC to fund I took to BP and started looking for where to invest. The information was overwhelming, and it was hard to figure out where to start. After a good deal amount of research, I settled on Huntsville, AL. I started making contacts through the BP forums and talking to people on the phone. I would get up early California time and talk to people in Alabama (+2 hour time difference) just as they were starting their day. I had countless conversations with wholesalers, property managers, contractors, and real estate agents. I then took 3 days off work to fly to Alabama to tour the city. I fell in LOVE with Huntsville. The city was incredible, nothing like what I expected. It reminded me a lot of my hometown in Redlands, CA. Craft beer and coffee everywhere. Downtown revitilizations. Tech jobs and sort of a "hipster" feel to it. And stuff was happening in Huntville. They were building everywhere. Companies were moving to the town. Rents and property values were increasing, but still affordable. This was it.

Step 4: Once the HELOC closed I had 50k burning a hole in my metaphorical-pocket. I had found a partner who knew nothing about real estate, but was just as driven as me to find financial independence. He wanted to quit his day-job and travel the world, and needed monthly cash flow to do it. We found our first deal through a wholesale connection I had made on my trip to Huntsville. The wholesaler had found an off-market deal that they needed to sell QUICKLY. This was the Friday of a 3-day weekend. The property was a 3/2 townhome 1500 sq ft in Madison, AL. The location was good and Madison has some of the best schools in the state. The property was midway through a rehab, the owner had bought the home in foreclosure a few years ago and was slowly fixing it up himself. The wholesaler wanted 68K for the property, and I quickly estimated the home to be worth about 100K fixed up based on comps from similar homes. My partner and I made an offer of 60K for the property based on our rehab estimates, and at the end of the day the wholesaler accepted our offer. We had an inspection Monday and we closed on Tuesday, and just like that, we owned our first rental property.

Step 5: Now began the rehab. The property needed some work, the biggest issue was the backyard. There was an abandoned pool and overgrown landscaping that made the property appear MUCH worse than it actually was. There was no way we were going to have a pool in a rental property (insurance nightmare), so we got a pool remover to break up the pool, fill it in, and cover the backyard with beautiful sod. We then cut the vegetation away and suddenly the backyard was simple and clean. We replaced our side of the shared-townhome roof with 20-year shingles, and we installed a new 6 foot cedar privacy fence. We then turned our attention to the interior. The biggest issues with the interior was the unfinished stairs, partially completed bathrooms, and rotting exterior french doors. We got extremely lucky and found materials for the stairs in one of the closets that the previous owner had purchased. The interior rehab took 4 weeks, and we managed the project completely from out of state. Total cost of rehab: 18k. By the end of the rehab the home was completely restored, stable, and beautiful.

Step 6: Now we needed a renter. There were very little rental comps for a 3/2 townhome in that area, so pricing the rent was tricky. Another disadvantage we were facing is that our rehab completed the week after Thanksigiving, and finding renters in Al is slightly harder during the winter months. We had the nicest townhome on the street, so we marketed the property at $975/month. The highest a home had been rented in that area before was $850 a month, but that was for a 2-bedroom townhome. We didn't get any takers for the home, which was scary, and I was starting to think we had made a big mistake. We decided to drop the rent to $950 the day after Christmas and suddenly we had tons of interest in the property. We had a great qualified renter in the property the first week of January.

Step 7: Now the property was stabilized and rented. It was time to pull our money out. Our 6-month "seasoning" period was to end on March 11th, so at the begining of February I began looking for a bank to perform a cash-out refinance. I was hoping for an 80% LTV, but after calling around 30 banks I was not able to find anything better than 75%. The refinance process was painful (so much paperwork!), but after many hours and email exchanges between the lender, the final hurdle left was the appraisal. I was definetely worried the appraisal was going to come in low, as our property was nicer than any of the (limited) comps, but the appraisal came in at 105K! Here is a quick summary of the numbers:

Purchase Price: 60K

Rehab: 18K

Total Cost: 78K

Appraisal: 105K

Cash out Refinance: 78.5K!

WE DID IT!

These numbers are rounded of course and do not include a few thousand in holding costs and lender fee's, but the monthly rent in the interim period before we refinanced the property paid for those costs. The property is cash flow positive after accounting for maintenance, vacancy, and operating expenses, and we have pulled out our entire starting capital!

I can not thank Biggerpockets enough for the immense information available through their website and podcast. It has literally changed my life. 7 months ago my partner and I had -ZERO- rental properties. Since diving into the BRRRR method we now have -SIX- cash flowing rentals, with a goal of -TEN- by the end of the year.

Here are some pictures of the property before the rehab:

BEFORE PICTURES

AFTER PICTURES

I would love to answer any questions or comments you might have on the BRRRR process. I would not have been able to even GET STARTED in real estate investing if it wasn't for BP, so please if you have a question on the process let me know! My journey wasn't perfect, and there were plenty of things I will do differently moving forward, but for the first BRRRR I am extremely happy with how it went.

THANK YOU BP!

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Most Popular Reply

Member since 2019 · 38 posts · 32 votes
7y

Congratulations! How much did the refinance cost you and how much did your mortgage payment go up by? I feel like this part of the BRRRR strategy is not often talked about and curious to hear how it impacted your monthly cash flow.

See this reply in the discussion

305 Replies

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  • Investor · Woodbridge, VA · Member since 2019 · 162 posts · 64 votes
    7y

    @James Gates congratulations! Thanks for sharing it is inspiring to read such stories.

  • Real Estate Agent · Redlands, CA · Member since 2017 · 199 posts · 487 votes
    7y
    Originally posted by @Nate Rogers:

    @James Gates

    Thank you for sharing your journey- truly a dream to have it workout like that... really thats my actual life goal! I am still a college freshman but I’m starting early and working on getting some answers so I can jump into real estate ASAP!

    With that said, I have a few questions for you...

    How did you find the right partner?

    How did you evaluate that house as a good one to rent?

    How did you find tenants?

    And lastly, what was the most difficult part of long distance renting?

    I really appreciate your time. Congrats on your properties!

    Thank you,

    Nate

     Hey Nate, thanks for the questions.

    1) One of my partners I have known for ten years, and we are in the process of learning the real estate investing space together. Another partner I found locally at Biggerpockets, I reached out to  him, offered to buy him coffee, and we spoke real estate and went in on a deal together.

    2) I knew from visiting the city that this property was in a good neighborhood. I confirmed my thoughts by asking around my team and contacts I had me through my visit and Biggerpockets, and they confirmed that this was an up and coming part of town.

    3) Finding good tenants comes down to vetting and hiring a good property manager. One of the main functions of the PM is to find a stable and qualified tenant for your property. They need to match certain qualifications like credit score and proof  of income.

    4) The most difficult part of long distance investing (GREAT question) that I have found is taking the initial leap and building up your team and contact list. Once your systems are in place, every deal is pretty much going to go through the same steps. And each deal gets easier. I hear guests of the BP podcast say all the time "no one ever stops at one deal."

  • Member since 2018 · 41 posts · 11 votes
    7y

    James, a very inspiring story. I'm your neighbor (I live in Arrowhead) and have invested in real estate since the mid/late 90's. My place is a five-unit in Downtown Riverside which keeps me busy. Would love to talk with you regarding BRRRR investing, or anything real estate related. Will look you up locally, as I can't leave cell/e-mail.

    Best,

    Steve Sloane.

  • Lender · Atlanta, Ga. · Member since 2016 · 4 posts · 0 votes
    7y

    @James Gates great information. Keep crushing

  • Real Estate Agent · Redlands, CA · Member since 2017 · 199 posts · 487 votes
    7y
    Originally posted by @Mike Stone:

    James, a very inspiring story. I'm your neighbor (I live in Arrowhead) and have invested in real estate since the mid/late 90's. My place is a five-unit in Downtown Riverside which keeps me busy. Would love to talk with you regarding BRRRR investing, or anything real estate related. Will look you up locally, as I can't leave cell/e-mail.

    Best,

    Steve Sloane.

     Hey Steve,

    That is awesome! I lived in downtown Riverside for many years, let get together and talk shop.

  • Phoenix, AZ · Member since 2019 · 33 posts · 12 votes
    7y

    @James Gates Can i ask why you decided to wait the 6 months to refinance vs going to a hard money lender for a rental loan? I am starting my first BRRRR next week and do not want to wait 6 months to get my money back to buy another property, a rental loan seems like an OK way to get the money faster than 6 months, granted you pay for fees, etc.

    What are your thoughts?

  • Real Estate Agent · Redlands, CA · Member since 2017 · 199 posts · 487 votes
    7y
    Originally posted by @Nate Fanara:

    @James Gates Can i ask why you decided to wait the 6 months to refinance vs going to a hard money lender for a rental loan? I am starting my first BRRRR next week and do not want to wait 6 months to get my money back to buy another property, a rental loan seems like an OK way to get the money faster than 6 months, granted you pay for fees, etc.

    What are your thoughts?

    I had not considered using a hard money lender for my first deal, I did not have any credibility nor any contacts. My understanding is the interest rate is much higher (with points and fees), and the term much shorter. Our timeline for this property is likely around 10 years, and the low-interest 30-year fixed was very appealing to me. I also found the 6 month interim period extremely useful in stabilizing the property and getting everything running smoothly. So those 4 months where we had a tenant paying full rent but no mortgage expense were nice in setting up the reserve coffers for future expenses. 

  • Los Angeles, CA · Member since 2019 · 6 posts · 4 votes
    7y

    @James Gates thanks for taking the time to answer my questions! I have yet to watch the videos-but definitely will now. I've been consumed by the endless podcast episodes during my commutes. Keep us all posted on your next projects. 

  • Columbus, OH · Member since 2016 · 6 posts · 3 votes
    7y

    hi James, just curious, we have been asking around and almost all banks are only doing HELOC on primary residence. Who did you go to for your HELOC on your rental property? Thank you!!

  • Real Estate Agent · Redlands, CA · Member since 2017 · 199 posts · 487 votes
    7y
    Originally posted by @Jing Long:

    hi James, just curious, we have been asking around and almost all banks are only doing HELOC on primary residence. Who did you go to for your HELOC on your rental property? Thank you!!

     Hey Jing, thank you for the question,

    We only have a "HELOC" on our primary residence, on our rental property we have a conventional loan which we got when we "refinanced" the property after holding it for 6 months. As far as I know, HELOCs are not really available for investment properties anymore (and if they are they won't lend you very much, I have seen someone mention that they got 60% LTV, but at that amount I would rather refinance or exchange the property to strip equity).

  • Member since 2018 · 3 posts · 0 votes
    7y

    How did you manage the renovation process from out of state?

  • Rental Property Investor · Member since 2019 · 6 posts · 1 vote
    7y

    Wow, this is very inspiring! 

  • Phoenix, AZ · Member since 2019 · 33 posts · 12 votes
    7y
    Originally posted by @James Gates:
    Originally posted by @Nate Fanara:

    @James Gates Can i ask why you decided to wait the 6 months to refinance vs going to a hard money lender for a rental loan? I am starting my first BRRRR next week and do not want to wait 6 months to get my money back to buy another property, a rental loan seems like an OK way to get the money faster than 6 months, granted you pay for fees, etc.

    What are your thoughts?

    I had not considered using a hard money lender for my first deal, I did not have any credibility nor any contacts. My understanding is the interest rate is much higher (with points and fees), and the term much shorter. Our timeline for this property is likely around 10 years, and the low-interest 30-year fixed was very appealing to me. I also found the 6 month interim period extremely useful in stabilizing the property and getting everything running smoothly. So those 4 months where we had a tenant paying full rent but no mortgage expense were nice in setting up the reserve coffers for future expenses. 

     Gotcha, thanks for explaining this to me. 

  • Craig DrummondPro Member
    Shingle Springs, CA · Member since 2017 · 24 posts · 119 votes
    7y

    @James Gates This post is out of state investing GOLD!  I'm sure your lender & David Green appreciate all of the referrals.  I'll be PM'ing you for the lender referral.  ;)  Thanks for sharing your experience as I'm sure all of your thoughtful responses took quite a bit of time.

    After quite a bit of research I too landed on Huntsville to begun my OOS investing journey for all the same reasons you stated. BRRRR is VERY appealing to me; however, I had some cash saved and decided to go for a buy & hold in order to test the waters and build the team. I closed on a 4-plex in January. NOT the 4-plexes near Ascent Trail but in a nicer area of S. Huntsville. As you mentioned, MFR is difficult to come by in Huntsville. On Monday I'll be closing on a duplex in NW Huntsville that should cash flow nicely. Now that I have 2 properties and am more comfortable with the area & my team I'm definitely interested in BRRRR'ing.

    Have you had any difficulty obtaining financing as your mortgage count increases?  

  • Rental Property Investor · San Diego CA · Member since 2019 · 68 posts · 51 votes
    7y

    Thanks @James Gates for sharing. I also live in Cali and been debating how to make use of the HELOC on our primary home. Have done quite a bit of research on Huntsville and starting to arrive at the same conclusion you have, that Huntsville is a good location for opportunity. Would very much like to ask for any referrals you would recommend so i can see if i can have them as part of my team, wholesale, contractor and property management.

    Thanks!!

    Marcus

  • Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes
    7y

    @James

    @James Gates following up on the seasoning time for the refi that someone asked you about. Some lenders do require the 6mo seasoning period. I use a hard money lender on the front (rates are fine and added to my projections) and then my end lender locks me into the conventional 30yr fixed. My end lender looks at the HUD in advance and confirms if I need to season for 6mo or not. So far no seasoning period and he does the refi really quick. Total time is about 4-6 weeks for rehab and then approx 3 weeks to close on the refi. And my PM is placing a tenant quickly.

    I usually pay out about 10-12% total ARV in the end, leaving around 25% equity and after all closing costs and paying back hard money. I like it because I can buy more-- but I actually didn't do any of the work. I work with a group that puts it all together for me and I just choose the property they have ready.

    I haven't done this in Huntsville yet---- only Birmingham and Montgomery. The team that I do these with will go into Huntsville if the numbers work. Anyhow, best of luck!! Keep posting. 

  • Member since 2019 · 3 posts · 0 votes
    7y

    Hello James,

    Congrats on your success! As a fellow BP enthusiast from SoCal, I am contemplating investment in areas where market prices allow for more favorable cap rates. I am interested in how you resolved the property management issue. How are you handling it? How did you find the property management company and --if you care to share-- how expensive does it run?

    Thanks a lot and good luck with all your future endeavors!

    Cal

  • Real Estate Agent · Redlands, CA · Member since 2017 · 199 posts · 487 votes
    7y
    Originally posted by @Craig Drummond:

    @James Gates This post is out of state investing GOLD!  I'm sure your lender & David Green appreciate all of the referrals.  I'll be PM'ing you for the lender referral.  ;)  Thanks for sharing your experience as I'm sure all of your thoughtful responses took quite a bit of time.

    After quite a bit of research I too landed on Huntsville to begun my OOS investing journey for all the same reasons you stated. BRRRR is VERY appealing to me; however, I had some cash saved and decided to go for a buy & hold in order to test the waters and build the team. I closed on a 4-plex in January. NOT the 4-plexes near Ascent Trail but in a nicer area of S. Huntsville. As you mentioned, MFR is difficult to come by in Huntsville. On Monday I'll be closing on a duplex in NW Huntsville that should cash flow nicely. Now that I have 2 properties and am more comfortable with the area & my team I'm definitely interested in BRRRR'ing.

    Have you had any difficulty obtaining financing as your mortgage count increases?  

     Congratulations on your closing! We have a duplex in downtown, I wonder if ours are close?

    I haven't run into trouble obtaining financing yet, although that is a hurdle we are going to have to figure out in the near future...

  • Real Estate Agent · Redlands, CA · Member since 2017 · 199 posts · 487 votes
    7y
    Originally posted by @Marcus B Hsu:

    Thanks @James Gates for sharing. I also live in Cali and been debating how to make use of the HELOC on our primary home. Have done quite a bit of research on Huntsville and starting to arrive at the same conclusion you have, that Huntsville is a good location for opportunity. Would very much like to ask for any referrals you would recommend so i can see if i can have them as part of my team, wholesale, contractor and property management.

    Thanks!!

    Marcus

     Hey Marcus, send me a PM and I hope I can help!

  • Real Estate Agent · Redlands, CA · Member since 2017 · 199 posts · 487 votes
    7y
    Originally posted by @Melissa Nash:

    @James

    @James Gates following up on the seasoning time for the refi that someone asked you about. Some lenders do require the 6mo seasoning period. I use a hard money lender on the front (rates are fine and added to my projections) and then my end lender locks me into the conventional 30yr fixed. My end lender looks at the HUD in advance and confirms if I need to season for 6mo or not. So far no seasoning period and he does the refi really quick. Total time is about 4-6 weeks for rehab and then approx 3 weeks to close on the refi. And my PM is placing a tenant quickly.

    I usually pay out about 10-12% total ARV in the end, leaving around 25% equity and after all closing costs and paying back hard money. I like it because I can buy more-- but I actually didn't do any of the work. I work with a group that puts it all together for me and I just choose the property they have ready.

    I haven't done this in Huntsville yet---- only Birmingham and Montgomery. The team that I do these with will go into Huntsville if the numbers work. Anyhow, best of luck!! Keep posting. 

    Sounds like you have incredible systems in place! Did you have those systems in place from the beginning? Or are they something you put in place as your investor knowledge grew?

  • Real Estate Agent · Redlands, CA · Member since 2017 · 199 posts · 487 votes
    7y
    Originally posted by @Calin Costea:

    Hello James,

    Congrats on your success! As a fellow BP enthusiast from SoCal, I am contemplating investment in areas where market prices allow for more favorable cap rates. I am interested in how you resolved the property management issue. How are you handling it? How did you find the property management company and --if you care to share-- how expensive does it run?

    Thanks a lot and good luck with all your future endeavors!

    Cal

     We found property management companies through referrals from other BP investors in the area. For Huntsville, I have noticed its pretty standard 10% of rent collected goes to the PM company.

  • Member since 2019 · 3 posts · 0 votes
    7y

    Thank you for the reply. I'm very impressed with your success!

  • Parrish, FL · Member since 2016 · 3 posts · 0 votes
    7y

    Hey @James Gates, just wanted to let you know how great it was for you to post this and answer so many questions.  I read all your posts in this thread and you covered everything in great detail.  Look forward to hearing about future deals and wish you much success. 

  • Real Estate Agent · Redlands, CA · Member since 2017 · 199 posts · 487 votes
    7y
    Originally posted by @Rick DiChristofaro:

    Hey @James Gates, just wanted to let you know how great it was for you to post this and answer so many questions.  I read all your posts in this thread and you covered everything in great detail.  Look forward to hearing about future deals and wish you much success. 

     Thank you Rick! I appreciate the kind words. 

  • Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes
    7y

    @James

    @James Gates  I can't take the credit-- I work with a local company in Alabama that has it all set up for me. I bought a property on my own, in a D class area of Birmingham and paid cash for it and then through that process ended up working with this group that basically does it all for me, much easier and in better areas and I don't need my own capital. Dm me if you want an intro with them. 

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