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

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  • Rental Property Investor · Buena Park, CA · Member since 2014 · 13 posts · 1 vote
    7y

    @James Gates

    What advice would you give to a newbie looking for a first investment in a multi family unit? What to watch out for , things you learned, warnings.

    Mario

  • Member since 2018 · 1 post · 0 votes
    7y

    What made you settle for Huntsville? I'm curious as to what research you did to make you settle for that area. What other areas were you looking for? Was there a criteria or was it just random areas that you were interested and started to just research into it? What were some variables you weighed that took priority over others?

  • Simi Valley, CA · Member since 2019 · 24 posts · 7 votes
    7y

    @James Gates that was a great read. As for the asking price did you and your partner pay cash?

    Any details on managing the rehab?

  • Investor · Santa Barbara, CA · Member since 2018 · 19 posts · 5 votes
    7y

    Hey @James Gates,

    Thank you for sharing your story. As an OOS investor, on which occasions did you feel the need to fly out to Alabama? To meet the team/on closing the property? Any other reason why you may have flown out there?

    Second question, it seems like a silly and simple logistical question, but what do you do with the keys if you close from afar? Do you trust a team member to hold onto them or do you get a combination lock with the keys inside and hang it on the door?

    Thanks again.

  • Daniel MendezPro Member
    Investor · Dallas, TX · Member since 2018 · 254 posts · 47 votes
    7y

    @James Gates congratulations! I have 1 question. When you refinanced the house. How did you make sure that the mortgage wouldn’t be higher than the amount that you were renting it for?

  • Flipper/Rehabber · CA · Member since 2019 · 5 posts · 3 votes
    7y

    @James Gates FANTASTIC!!!! You proved that Real Estate is the Highest Paying Hard Work! Congratulations!!!

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

    @James

    @James Gates Congrats! I have done the same thing in Birm and Montgomery- little different story- I  used a hard money lender on 1 and fully funded the other with my cash- (paid $18k and $10k for rehab)   I like the Huntsville market too-- but found good deals w/cashflow in Montgomery & Birm. I am waiting to refi my last one in Birm - but have a tenant in place now bringing in good rent. I am doing a low money down in Birm now- its like a hybrid Brrr, but has everyone in place. I am just waiting to finish and close on that one. Keep us updated on your next one, so great to hear success stories!

  • Investor · Anchorage, AK · Member since 2016 · 222 posts · 294 votes
    7y

    @James Gates Congrats on your BRRRR! I was wondering how you did those stair treads? Did you use laminate planks for the vertical spots, and then what kind of tread did you use for the top?

  • Member since 2019 · 7 posts · 18 votes
    7y

    James,

    Did you pay cash for the first house and then refinance your money out of it? Also on average how much cash flow are you getting from your 6 houses after you refinance?

  • Rental Property Investor · Portland, OR · Member since 2019 · 6 posts · 3 votes
    7y

    @James Gates You're an inspiration and a rock-star! Thanks for the detailed post that outlined a lot of important  aspects of real estate investing.  I just found out about FIRE a few months ago and same as you I found Bigger Pockets shortly after and it made sense.  I think I'm still in that nervous and naive state and I'm afraid that I will fall in analysis paralysis waiting for a market correction. 

    How did you do your research on out of state investing and where you would invest?  I have read countless forums and every time I read something new I get discourage more and more until I read post like yours.  I'm currently living in Portland, OR with a crazy high market and recent rent control passed.  Washington state across the river is reaping the benefits of an Amazon and Microsoft HQ, driving housing cost really high.  We are planning to move back to San Diego in a couple of years but SD is another high housing market.  

    What tools did you use to determine the out of state area that you chose?  Did you contacts with contractors and real estate agents already?  How was your experience managing a flip from out of state?  What would you have differently and any notable lessons learned? 

    Thank you so much!

    Lourexel

  • Rental Property Investor · Sugar Land, TX · Member since 2018 · 6 posts · 0 votes
    7y

    @James Gates - Congrats! and thank you for taking the time to inspire us. Wanted to ask how you were able to find a good wholesaler to work with ... I heard some can be shady. Curious to understand how you screened them to finalize your choice.

  • Real Estate Broker · East TN Loudon/Lenoir City/Tellico Village · Member since 2014 · 363 posts · 222 votes
    7y

    SERIOUSLY ... CONGRATS... It is so totally awesome to hear others have success stories.  Way to go investing in Huntsville. I have been talking to people especially friends from SOCAL about it and It's awesome to have another CA investor discover the awesomeness of investment opportunities over here. 

  • Accountant · CO · Member since 2018 · 195 posts · 23 votes
    7y

    HI James, thank you for sharing your story! it's very inspiring to hear the successful long distance investing story. I appreciate that you shared every details of your investing journey ! IF you don't mind, I would like to ask you how did you found the wholesaler?you mentioned during your trip, did you attend any events? thanks a lot! Ashley 

  • Real Estate Agent · Redlands, CA · Member since 2017 · 199 posts · 487 votes
    7y
    Originally posted by @Patrick Clark:
    Originally posted by @James Gates:
    Originally posted by @Johan Yang:

    @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.

     PM me if you are looking for a lender! This lender is based out of Cincinnati, and they lend in most states. 

    For the first property I put in half the cash and did most of the work managing the rehab, but I needed a partner to come up with the rest of the cash. I didn't have any rental experience so a 50/50 equity split made sense at the time. 

    We do not self manage any of the properties. We have a boots on the ground professional property management team (and would highly recommend it!)

    Hi @James Gates,

    Congrats on the success! I noticed that you mentioned your lender was based out of Cincinnati and it sounds like you had a good experience. I live in that area and was curious what company it was?

    Thanks for taking the time to share your experience so we can all learn!

     Private Messaged!

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

     Hey Jeffrey,

    3K total in refinance fees, which is on the low end of the standard. Most lenders I spoke to were closer to 4K. The refinance process includes a lot more than just assigning a new value. The lender needs to make their money (our lender had a flat fee, but most lenders have a % of the loan as an "origination fee"), you need to pay an appraiser $400-600 for his time, and you need to pay the title company to run title and file all the paperwork. Then there is pre-paying insurance, taxes, and filling up the escrow account if you choose to go that route. I didn't calculate the refinance charge due to simplicity, but I did mention that the 4 months of rent that we received on this property when we did not have a mortgage on it (before the seasoning period had completed) covered the refinance charge. Now that the property is "stable" (all repairs are done, tenant is in place, mortgage is 30-year fixed) the property is cash flowing nicely and we have all our capital back.

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

    @James Gates I’m halfway through reading David Greene’s book and have had Huntsville on my mind while reading it.

    It sounds like you really leveraged the power of relationships in this deal. How did you go about finding your wholesalers? Did you go to a meetup while on your trip or did you research contacts ahead of time and pre-set meetings with them?

    I’m also curious how you estimated the rehab costs (before tacking on your contingencies). Did you have a guide you used or did the inspector help you form your opinion?

    This inspired a lot of confidence and helped prove the proof in the pudding. Great job, looking forward to hearing about more of your future success stories!

     I went about finding wholesalers through networking with other BP members. I reached out to individuals who were active on the BP Huntsville forum, got some contacts, reached out to them, and flew out and met them.

    For rehab costs I recommend becoming familiar with the basic costs of rehabbing a home (for example 10K for a minor kitchen rebab, 5K for a bathroom, just general numbers), Jay Scott's book on estimating Rehab costs is also a good read. Also, the internet is a powerful thing. For this property I knew I needed to have the pool removed and filled in, I went to thumbtack.com and searched pool removers in Madison County, and was able to get an estimate for that job (which was really almost 1/4 of the rehab) in just a few minutes.

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

    @James Gates

    What advice would you give to a newbie looking for a first investment in a multi family unit? What to watch out for , things you learned, warnings.

    Mario

    I don't know too much about multi-family investing. We do have a duplex that we purchased from a wholesaler and are in the process of BRRRRing, I haven't seen that many opportunities for multi-family units in the areas I am looking at.  But my best advice is just to prepare for the mistakes you can prepare for (listen to other peoples stories, don't make those mistakes) and when you make your own mistakes learn from them and do better the 2nd time.

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

    What made you settle for Huntsville? I'm curious as to what research you did to make you settle for that area. What other areas were you looking for? Was there a criteria or was it just random areas that you were interested and started to just research into it? What were some variables you weighed that took priority over others?

    Huntsville is a market that can still cash flow and have a shot at future appreciation with all the tech jobs moving there, the population is increasing, and there are new developments everywhere.

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

    @James Gates that was a great read. As for the asking price did you and your partner pay cash?

    Yes, generally a wholesaler will require cash as these deals move quickly. We bought the house on a Saturday and closed on the following Tuesday, so cash was the only option. My partner and I split it 50/50.

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

    Hey @James Gates,

    Thank you for sharing your story. As an OOS investor, on which occasions did you feel the need to fly out to Alabama? To meet the team/on closing the property? Any other reason why you may have flown out there?

    Second question, it seems like a silly and simple logistical question, but what do you do with the keys if you close from afar? Do you trust a team member to hold onto them or do you get a combination lock with the keys inside and hang it on the door?

    Hey Justin, I did feel the need to fly out to the area the first time to meet the boots on the ground team face to face, but after that, I did not fly out again until after we had purchased and completed the rehab. I did a post inspection with the contractor, but looking forward I do not feel the need to do that again now that the team is in place.  

    GREAT logistical question. This is where having a good team can save you so much headache on such a simple thing. My Property Management and contractor have been able to pick up keys from escrow on the properties, and place them in a lock-box at the property so that everyone on the team has access to the property.

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

    @James Gates Congrats on your BRRRR! I was wondering how you did those stair treads? Did you use laminate planks for the vertical spots, and then what kind of tread did you use for the top?

     Hey Jimmy, good question. I wish I had an answer. We got lucky in that the materials for the stairs were actually hidden in the house. The previous owner had started working on them but then had to sell the house. I am not quite sure what kind of tread the contractor used for the stairs.

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

    James,

    Did you pay cash for the first house and then refinance your money out of it? Also on average how much cash flow are you getting from your 6 houses after you refinance?

    All of the houses have been purchased in cash, and this is the only property we have been able to "pull money" out yet, as the other 5 units are all within the 6 month seasoning period. Because only one of the properties have a mortgage, the cash flow is high right now, but all that cash flow is being reinvested to stabilize the properties. Once the properties are stable and the money has been pulled out. Each property should cash flow between $100-$250 post all expenses, capex, maintainence, vacancy, etc. If the BRRRR is done right, you are able to cash flow AND pull all your money out, for an "infinite" return.

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

    @James Gates You're an inspiration and a rock-star! Thanks for the detailed post that outlined a lot of important  aspects of real estate investing.  I just found out about FIRE a few months ago and same as you I found Bigger Pockets shortly after and it made sense.  I think I'm still in that nervous and naive state and I'm afraid that I will fall in analysis paralysis waiting for a market correction. 

    How did you do your research on out of state investing and where you would invest?  I have read countless forums and every time I read something new I get discourage more and more until I read post like yours.  I'm currently living in Portland, OR with a crazy high market and recent rent control passed.  Washington state across the river is reaping the benefits of an Amazon and Microsoft HQ, driving housing cost really high.  We are planning to move back to San Diego in a couple of years but SD is another high housing market.  

    What tools did you use to determine the out of state area that you chose?  Did you contacts with contractors and real estate agents already?  How was your experience managing a flip from out of state?  What would you have differently and any notable lessons learned? 

    Thank you so much!

    Lourexel

     Hey Lourexel, I feel you on living somewhere where investing doesn't make sense. Investing for cash-flow does not work in my market. I was forced to look elsewhere.

    Huntsville is the perfect market for me because it blends a cash-flowing market and a market that has a shot at appreciation (high population growth, good tech jobs, new developments). Because I have a W-2 job and do not need the cash flow immediately (I would just re-invest it), I do not need a strictly cash-flow market (like Memphis) and would rather invest in a market that has a bigger upside long-term. 

    Plenty of online tools let you check out markets out of state. Technology has CHANGED THE GAME. It use to be that you basically needed to live within an hour of your rental, now you can manage anything from the device in your pocket. 

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

    @James Gates - Congrats! and thank you for taking the time to inspire us. Wanted to ask how you were able to find a good wholesaler to work with ... I heard some can be shady. Curious to understand how you screened them to finalize your choice.

     Some wholesalers...can be less than trustworthy. So VET everyone. Get recommendations from other investors and past clients. In this business your reputation is everything.

  • Investor · Park Ridge, NJ · Member since 2015 · 14 posts · 2 votes
    7y
    @James Gates Congratulations!
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