First Out Of State BRRRR (During PANDEMIC!)

[Josh Feldman]

Investment Info:

Single-family residence buy & hold investment in Shelbyville.

Purchase price: $28,000
Cash invested: $72,000

Contributors:
Kwon Do Lee

Successfully built and managed a team to aid in the completion of our first BRRRR project located in Shelbyville, Indiana. Purchase price + rehab cost +Closing costs + Holding costs = $72,000 all in. Renting for $950 per month. Estimated ARV = $95,000 - $100,000. Estimated ROI after refinance >40%. All during a PANDEMIC! Huge credit to Jeff Wallenius (CEO of North Peak Investments and guest on Podcast #241) for mentoring us through the process.

What made you interested in investing in this type of deal?

We want to build our portfolio to 50 units in 5 years and create a long term wealth legacy for us and our families, using passive income to replace our current income down the line. We are starting with SFH's in the midwest because the price to rent ratio's are significantly more desirable than in our respective markets (Long Island, NY and Los Angeles, CA)

How did you find this deal and how did you negotiate it?

We narrowed down our target market and surrounded ourselves with the best of the best in that market that could help us find deals. We found this deal off-market from Jeff Wallenius, whom we built a relationship with during the generation of our business and team. He had a connection that allowed him to whole-sale the deal to us and helped walk us through our first BRRRR, giving us advice and mentorship along the way. We went out to Indiana and met up with the team that we built.

How did you finance this deal?

We funded it with our cash. Kwon Do and I opened an LLC and funded our bank account 50/50 with enough money to cover all expenses on these types of deals. We discovered what we wanted for our target market and demographic/property type and became very familiar with everything involved in making deals work out there. We then funded our account accordingly to make sure we had enough to do continuous BRRRR's.

How did you add value to the deal?

From discussing with our team members, we knew what would be necessary to get top dollar rent out in Shelbyville, Indiana without overpaying for rehab costs. We used fantastic contractors to give us guidance and rehab our interior/exterior accordingly to make sure the property was up to par with the up-and-coming surroundings. We networked with individuals in the neighborhood who were able to give us updates from the ground.

What was the outcome?

We are just waiting to refinance the property (obviously this may be the only cog in the wheel considering the pandemic) but so far our purchase+rehab+closing costs+holding costs were all exactly within our budget to ensure that our ROI was at least 15% and our monthly net cashflow was at least $100-150. We ended up renting for $50 per month higher than originally underwritten because of demand and quality of the rehab. We will be cash flowing even higher with a higher ROI than anticipated.

Lessons learned? Challenges?

We learned to make sure to continuously follow up on our contractors to ensure their original scope of work was completed. Part of the bid was to remove garbage in the crawl space but the interior contractor forgot to take care of it. Our Pest Control guy took pictures of the basement and asked if we knew there was still garbage down there. It is important to make sure everyone holds someone accountable and have multiple checks and balances of each step of the way.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

We worked with Contractors, Property Managers, Agents, Lenders, Inspectors, and Attorneys. We would recommend using Elisha Drake from Vue Property Management Group (rock star!!) and her team of brokers to help get the ball rolling. She connected us to an awesome agent, to Jeff Wallenius, to our Attorneys, and everything kind of snowballed from there in terms of networking. We vetted every single person using multiple references.

[Layton Gilbraith]

I'm currently doing something very similar but I'm on literally the opposite coast to my property. Let me tell you, if you can go to site it will be much better, but it can be done remotely.

In my current experience it comes down to
a. How much you trust your contractor

b. How much you keep them accountable and its on you to over communicate

For our contractor, he sends before and after photos of everything he does and we set milestones in the contract for payments.

Set communication expectations early and be a stickler. make sure the contractor knows what he's in for and us up to the challenge.
If you're frustrated with something talk to them about it early and ask them if there's anything frustrating them. Explain WHY you want the things you want and how they benefit you both. Most relationships with good contractors fall apart here over silly things that a good adult conversation can nip in the bud.