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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  • Property Manager · Westminster, CO · Member since 2018 · 486 posts · 110 votes
    7y

    @James Gates what an amazing story good for you!!! You did mention Property Managment. Do you currently have a PM managing that property in Al, and if so, are you happy with their overall performance and cut of the rent?

    Thanks you.

  • Flipper/Rehabber · Bronx, NY · Member since 2018 · 14 posts · 3 votes
    7y

    @James Gates congratulations ! And thanks for sharing your story. I’ve been listening to BP podcasts and educating myself on wholesaling for 3 months now. I am so hesitant to pull the trigger. I am in NY.

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

    @James Gates what an amazing story good for you!!! You did mention Property Managment. Do you currently have a PM managing that property in Al, and if so, are you happy with their overall performance and cut of the rent?

    Thanks you.

     Hey Nadir, all of my properties have professional management. 10% of the rent is pretty standard for my area. It has been a learning curve as regards to how to manage the property management. You definitely need to stay on top of your properties. No one will care about your properties more than you, and good property management is key. 

  • Property Manager · Westminster, CO · Member since 2018 · 486 posts · 110 votes
    7y

    @James Gates exactly. I currently own a property in Omaha NE and about to close on a second. The first property just got rented out and the first invoice from the PM was a def surprise. With the 50% cut for finding a tenant plus the snow removal survive it really eats away the CF. Makes me contemplate a bit. I’m going to stick with my PM couple more months to see how things go. I knew the first invoice was going to hurt but actually seeing all that money going to PM kind of hit hard!

  • Teaneck, NJ · Member since 2017 · 20 posts · 9 votes
    7y

    @James Gates

    Congratz.. I'm extremely happy for you. This gave me toms of inspiration as i look forward to jump starting my investment career

  • Bolingbrook, IL · Member since 2019 · 23 posts · 4 votes
    7y

    @James Gates

    This is a great story, congratulations on your investment.

  • Flipper/Rehabber · Nashville, TN · Member since 2014 · 37 posts · 22 votes
    7y

    @James Gates great job! Very inspiring!

  • Member since 2018 · 2 posts · 0 votes
    7y

    @James Gates thank you for your story! Biggest question I have is what did you need to qualify for the HELOC? Feel free to personally inbox me if you like.

  • Chula Vista, CA · Member since 2017 · 195 posts · 104 votes
    7y

    @James Gates

    Congratulations, we're looking at huntsville as well and would love to connect.

    Also HUGE props for responding to everyone's comments, that's very nice of you

  • Staten Island, NY · Member since 2017 · 11 posts · 0 votes
    7y

    @James Gates Wow well done congrats! Can you please inform me on your next step on buying another one with the loan ? Thank you

  • Rental Property Investor · Depends on where my employer sends me · Member since 2018 · 171 posts · 142 votes
    7y

    @James Gates congrats

  • Specialist · Cincinnati, OH · Member since 2019 · 7 posts · 0 votes
    7y

    Great Job!  This is why I love BP, all the great stories, experiences and people all in one place!  I am in Cincinnati area and would love to know which lender you used as well.  Keep up the good work, thanks for sharing :)

  • Member since 2018 · 208 posts · 90 votes
    7y

    @James Gates This is amazing! Thank you so much for the write-up. I am going through a similar situation currently and have a couple questions about how you accomplished some of these things. 

    1) How did you estimate the rehab costs from out of state, that made you comfortable offering 60k? Did you get an inspection prior to offering? 

    2) How did you determine what rehab work actually needed to be done to get it rent ready, and how did you manage the contractors from out of state? I am finding this stage to be extremely difficult. 

    3) Is your partner from Huntsville? 

    4) Nobody talks much about the refinance property, people make it a given that the bank will let you cash-out refinance, thanks for mentioning that it was hard. If you don't mind, what type of paperwork did you need, and how would you go about it differently next time?

    Thank you so much for sharing! 

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

    @James Gates Wow well done congrats! Can you please inform me on your next step on buying another one with the loan ? Thank you

     Hey Troy,

    I need a little more context on your question. If you mean another investment property, our plan is to continue to buy in cash, rehab, and then refinance to pull as much (or all) of the equity back out and reinvest into another purchase.

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

    Great Job!  This is why I love BP, all the great stories, experiences and people all in one place!  I am in Cincinnati area and would love to know which lender you used as well.  Keep up the good work, thanks for sharing :)

     Private Messaged!

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

    @James Gates thank you for your story! Biggest question I have is what did you need to qualify for the HELOC? Feel free to personally inbox me if you like.

     Hey Jayson,

    To get a HELOC on your primary residence, generally, most banks will be able to lend on 80% of the value of the house, minus what you owe on it. For example, if you own a home worth 300K, and you have a 200K mortgage, the lender would be able to give you a HELOC for 40K. (80% of 300K = 240K, 240K - 200K = 40K).

    Well, I only had 20% equity in my home (we had just purchased it), so that was not going to work in my situation. I called every bank around and eventually found one that could lend on up to 90% of the value of the home. This allowed me to pull money out that I had -just- put in, and begin my investing journey.

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

    @James Gates This is amazing! Thank you so much for the write-up. I am going through a similar situation currently and have a couple questions about how you accomplished some of these things. 

    1) How did you estimate the rehab costs from out of state, that made you comfortable offering 60k? Did you get an inspection prior to offering? 

    2) How did you determine what rehab work actually needed to be done to get it rent ready, and how did you manage the contractors from out of state? I am finding this stage to be extremely difficult. 

    3) Is your partner from Huntsville? 

    4) Nobody talks much about the refinance property, people make it a given that the bank will let you cash-out refinance, thanks for mentioning that it was hard. If you don't mind, what type of paperwork did you need, and how would you go about it differently next time?

    Thank you so much for sharing! 

    Hey Heshel,

    1) I used technology to estimate the rehab estimates for this property. I spoke with the wholesaler over the phone, got details of the property, went online ran the numbers conservatively, then built a 40% buffer into my offer, then rounded up to the nearest 10k. Because this home had to be sold in 2 days, I didn't have time to do a more detailed inspection, and I built that into my offer. My offer was accepted on a Saturday, and I built a 1-day inspection clause (on the Monday) into my offer. We closed on Tuesday. 

    2) I had found a contractor I was comfortable working with, I had already flown out to meet him and he came heavily recommended from another BP member. It was a learning process for sure.

    3) All of my business partners at the start of my real estate journey were from California, but I have begun making partnerships with individuals who are in Huntsville. I have been fortunate enough to make some amazing friends through this process.

    4) The banks need all your financial paperwork. W2's, tax returns, bank statements, lease agreements, closing documents, insurance documents. It is a lot, and sometimes your documents are in the right forms. they also need letters explaining any unusual or large transactions in the last two months (which I had a lot of, since I was rehabbing or purchasing other properties during the refinance process). 

  • Real Estate Consultant · Philadelphia, PA · Member since 2017 · 52 posts · 35 votes
    7y

    @James Gates looks sounds like a success in my books! Keep It up!

  • Rental Property Investor · Newport News, VA · Member since 2018 · 264 posts · 130 votes
    7y

    @James Gates Excellent story sir! I was wondering if you could share what numbers you use for vacancy rate, repairs/maintenance and CapEx? Thank you!

  • Melbourne, FL · Member since 2018 · 13 posts · 2 votes
    7y

    @James Gates Excellent work, and thank you for the inspiration! Just what I needed to push past my analysis paralysis this week. Keep up the hustle!

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

    @James Gates Excellent story sir! I was wondering if you could share what numbers you use for vacancy rate, repairs/maintenance and CapEx? Thank you!

     Vacancy: 8.3% (1/12)

    Repairs/Maintainence: 5%

    Capex: 5%

    If this property had not been completely updated during the BRRRR (New roof, HVAC is from 2018, new electrical) then the repairs + capex would be 10% each. Another beautiful thing about the BRRRR strategy is property is restored upfront, before the refinance, so you pull the capital out and now your ongoing repairs on going to be less on average since you put all the work in upfront to get the property in pristine condition.

  • Investor · Mechanicsburg, PA · Member since 2017 · 110 posts · 50 votes
    7y

    Great work @James Gates! Congrats... 

    Would you mind reiterating your rehab breakdown here if haven't already done so?  I am curious as 18k sounds like a very reasonable number for inside outside rehab.

  • Rental Property Investor · Boise, ID · Member since 2018 · 15 posts · 5 votes
    7y
    @James Gates Congratulations! Thanks for the detailed experience!
  • Winter Springs, FL · Member since 2017 · 7 posts · 1 vote
    7y

    Congrats @James Gates! That's awesome to hear, I'm looking at doing the BRRRR strategy in the near future as well! I'm curious how you decided on the area of Huntsville, AL. I would like to invest in other areas but it is overwhelming trying to narrow down possible locations. What are some of the traits you were looking for that made you decided on AL?

  • Member since 2019 · 114 posts · 111 votes
    7y

    I would love to hear what you think about long-distance investing--your experiences thus far.

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