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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  • Rental Property Investor · San Clemente, CA · Member since 2019 · 160 posts · 34 votes
    7y

    @James Gates this is amazing and so encouraging for a new real estate investor who is also from SoCal! Congrats on your successes!

    How did you find and manage a team for the rehab remotely?

  • Real Estate Agent · Redlands, CA · Member since 2017 · 199 posts · 487 votes
    7y
    Originally posted by @Brandon Zeng:
    @James Gates congrats! Would you please share how you estimated the rehab cost and mananged the rehabbing OOS?

     For this property, because it had to be sold basically the same day (and it was a holiday weekend...) I wasn't able to estimate the rehab costs as accurately as I would have liked. I knew the house was worth at least 99K, as I had a really good comp to provide that value. I trusted the relationship I had built with the wholesaler already when I had flown out to Huntsville. I basically added a 40% buffer to what I thought the rehab was going to be based on the pictures and the conversations with the wholesaler. My numbers for the Rehab turned out to be 12K, I added a 4K buffer, and then rounded that number up to 20 to be super safe. I added a 1-day inspection period to my offer (my contractor could be there on Monday), and I figured if the property was in much worse shape than advertised I could get out. Luckily for me the property was basically exactly as I thought it was going to be, and we later decided to replace the roof completely instead of repair it, which because I had built in that buffer into the offer did not make the deal a bad one for us. 

    As regards to managing the rehab, my strategy was just to learn as I go. I had listened and read as much information as I could from Biggerpockets (@David Greene 's book on out of state investing is pure gold), and knew enough to avoid the major catastrophes (like paying the contractor the full payment up front.). The contractor I found was a recommendation from another BP investor, and it worked out great. I made mistakes and didn't communicate as clearly as I should have the expectations of the project (especially in regards to the timeline), but I learned from the experience and have taken this knowledge into future projects.

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

    @James Gates

    Hi James, we are in Orange County. Thanks for the story it is great to read about other people's knowledge and success. My husband and I are also looking into REI in Huntsville. Guidance and good contacts out there would be so helpful.

    Thank you

     Hey Janine! I grew up just around the corner from Anaheim. If you would like to talk Huntsville shoot me a private message!

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

    @James Gates Thanks you for sharing your story.

    I'm interested in the BRRR strategy ad well to fund my first deal. However, I have a question. What was your criteria to decide to invest in Huntsville before visiting the city? I'm interested in learning how to analyze good locations to invest in.

     Hey Andrew,

    Great question. I spent a good amount of time looking into investor markets and deciding where to buy my first rental. From the start, I knew my one of my biggest weaknesses is I have a tendency to overanalyze a situation, and I knew if I spent a year looking into markets I never would get started.

    "Better a diamond with a flaw than a pebble without." — Confucius

    Perfect is the ENEMY of great. There is no perfect market. But there are a lot of great ones. Instead of spending months creating pros/cons of the top 20 rental markets, I decided to just pick 1 or 2 markets and LEARN them. Even if the market was not the #1 choice I knew it was going to be good enough to make money. As I was reflecting on the above quote I happened to be listening to a Real Estate podcast at the time that mentioned Huntsville. I began my research (including browsing the Huntsville forums on this site) and decided to focus on this city. I booked a flight, fell in love with the town, and moved on from there.

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

    @James Gates how did you find the purchase? HML? business credit? Cash? Traditional lender?

     Hey Brian,

    I found the property through a wholsaler.

    I funded the purchase with a combination of savings, retirement accounts, HELOC, and partnerships. We used a traditional lender during the refinance process, 30-year fixed.

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

    Congrats man! Love the detailed story and pictures.

    Did you find any other properties in the same area? 

    What made you specifically choose this property opposed to others?

     I have found some other properties within 20 minutes of this property, and we are in the process of closing a deal that is only a couple blocks away from this property!

    I decided to put an offer in on this property for a couple of reasons. The numbers worked perfectly for a BRRRR, and with an appraisal around 100K and a projected rent around $950 (almost 1% rule), I knew it would cash-flow after we stabilized the property. This property was in a nicer area of town than some other properties I had put offers on (and had not had them accepted), so when my offer was accepted I was ecstatic!

  • Lubbock, TX · Member since 2019 · 16 posts · 8 votes
    7y

    @James Gates interesting. Thanks for the answer!

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

    @James Gates

    Thank you for sharing your story and being an inspiration.

    I'm curious to know how you found your contractor and how you managed the rehab from a distance.

    Also if you don't mind explaining, I'd like to know how you partnerships work? Are you both on the title and mortgage. How did you set up the partnership? Do you use a lawyer?

    Hey Marzieh,

    I found my contractor through a reference from another member I had met on Biggerpockets through the Huntsville forums. I interviewed him over the phone, and could tell right away he was a hardworking, professional, and straightforward individual. He did the inspection and sent me detailed photos and a scope of work, which furthered my confidence in him.

    With regards to partnerships, some of the properties I am on title (and my silent partner is being paid a % interest agreed to in a promissory note), some we are both on Title (if we both put up 50% of purchase + rehab costs), and one of the properties my partner is on Title (they provided 100% of purchase + rehab, I have 50% equity secured through a Promissory Note). The more options you provide partners the better chance you have at growing your business. One of my partners simply wanted a 10% simple interest balloon payment on their money. Another partner wanted a percentage of the equity. Another partner wanted the asset on their taxes for depreciation purposes. Be FLEXIBLE, protect both parties, and partnerships can be a beautiful thing. We have not yet used a lawyer, but we are using one on the property we are currently under contract as the equity % situation is a bit more complicated. For most of the deals we have used a standard and professional promissory note for the state of California. 

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

    Can you share your loan terms and if its in your personal name or business name? Hope I didnt miss this information and making you repeat yourself.

     Hey Robert,

    This property is in my own name. I live in California where the franchise fee of $800 for an LLC does not make economic sense. Instead, I purchased in my own name (and got the best interest rate because of this), have great property insurance, and took extra protection by purchasing a personal umbrella liability insurance policy.

  • Real Estate Agent · Redlands, CA · Member since 2017 · 199 posts · 487 votes
    7y
    Originally posted by @Thuy Pham-Satrappe:

    @James Gates this is amazing and so encouraging for a new real estate investor who is also from SoCal! Congrats on your successes!

    How did you find and manage a team for the rehab remotely?

     Hey Thuy,

    I found a property manager through a recommendation on Biggerpockets. I flew out to meet them when I visited the town and was impressed with their operation. They were a big help in providing information for a first time investor!

  • Rental Property Investor · Raleigh, NC · Member since 2018 · 28 posts · 5 votes
    7y

    @James Gates nice, I love reading success stories like this.

  • Rental Property Investor · Los Angeles CA · Member since 2017 · 100 posts · 37 votes
    7y

    @James Gates wow what a great story! So you cash out refi'd and now you can pay off the HELOC, got your $18k back and you can do it again! How did you find the repairs? Did that come out of the HELOC???

    Thanks for sharing!

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

    @James Gates wow what a great story! So you cash out refi'd and now you can pay off the HELOC, got your $18k back and you can do it again! How did you find the repairs? Did that come out of the HELOC???

    Thanks for sharing!

    Absolutely!

    The repairs did come out of the HELOC as well. The HELOC is basically a credit card checkbook , so I was able to write my contractor checks from my HELOC account and they are as good as cash.

  • Rental Property Investor · Los Angeles CA · Member since 2017 · 100 posts · 37 votes
    7y

    @James Gates ohhh gotcha. I thought the HELOC was $50k and then purchase price was 60k + 18 in repairs. Is there where your partner came in ?

    Also, thank you for the Huntsville plug! I’ve been looking in Birmingham but now I’ll expand my search !

  • Investor · West Palm Beach, FL · Member since 2017 · 94 posts · 32 votes
    7y

    @James Gates do you mind telling me what lender you used? I have a property in Alabama I’m looking to place a mortgage on. Ive been struggling due to the small loan amount.

    Thanks

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

    @James Gates do you mind telling me what lender you used? I have a property in Alabama I’m looking to place a mortgage on. Ive been struggling due to the small loan amount.

    Thanks

    Private Messaged! 

  • Rental Property Investor · Richmond, VA · Member since 2019 · 21 posts · 6 votes
    7y

    @James Gates

    How did you setup your partnership on these rentals ? Do you guys split the cashflow 50-50 ?

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

    @James Gates

    How did you setup your partnership on these rentals ? Do you guys split the cashflow 50-50 ?

     Yep, everything is split 50/50. Any profit from the refinance, cash-flow, and equity when we exchange the property.

  • Rental Property Investor · Klamath Falls, OR · Member since 2016 · 146 posts · 213 votes
    7y

    Congratulations! I'm almost done with a 6-month BRRRR as well. Were lenders willing to speak with you at the 4ish-month point in order to close at 6-months instead of beginning the financing process once 6 months had passed? Our roof is going on now and once finished I'll be ready to work on financing. One complication for us has been a tenant that we chose to keep through the process. It isn't easy to do interior work with somebody living in the home, but he's a really solid tenant so we're working around it.

  • Raleigh, NC · Member since 2017 · 347 posts · 94 votes
    7y

    @James Gates how did you get a HELOC with only 20% down?

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

    Congratulations! I'm almost done with a 6-month BRRRR as well. Were lenders willing to speak with you at the 4ish-month point in order to close at 6-months instead of beginning the financing process once 6 months had passed? Our roof is going on now and once finished I'll be ready to work on financing. One complication for us has been a tenant that we chose to keep through the process. It isn't easy to do interior work with somebody living in the home, but he's a really solid tenant so we're working around it.

     I started working with a lender at the 5 month mark, and we were able to close at 6 months + 1 day. The lender basically said we could start the process as soon as the place was "appraisal ready." 

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

    @James Gates how did you get a HELOC with only 20% down?

    After some searching I found a bank that would lend on a HELOC up to 90% LTV. We had put down 20% on our primary residence, so we were able take out a little more than 50% of our equity (when we did the appraisal for the refinance, our home appraised for 20K more than we bought it for and we were able to take out a loan on the higher amount).

  • New york, NY · Member since 2014 · 74 posts · 3 votes
    7y

    @James Gates Congrat on your success!! and thank you for sharing. Do you happen to know if the lender you are using is also serving outside AL? My business partner and I have two rental properties in FL that we paid all cash (free and clear). Now, I wanted to do cash out refinance on both of them. I will private message you.

    Question about your partnership where both name on the title ("some we are both on Title (if we both put up 50% of purchase + rehab costs)"). Did your partner contribute something else beside 50% capital which you also put up the same amount? It looks like you were the one who did all the work from finding the deals to managing the rehab, etc... And, do you self-managed all your properties?

    Thanks.

  • Member since 2018 · 4 posts · 0 votes
    7y

    @James Gates

    Hey James, I just downloaded the BP app today so very new to it. What does BRRRR stand for?

    I love in San Diego and plan on doing something similar in Utah or North Carolina.

    Thanks.

    Jonathan

  • Rental Property Investor · Mount Dora, FL · Member since 2017 · 33 posts · 35 votes
    7y

    @James Gates

    Thanks for sharing your story and pictures. It's very refreshing to hear a story like yours. Keep executing and smashing your goals. Wishing you best of luck!

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