All Forum Posts by: Randy Smith

@Melanie Stephens

After my wife and bought two turn key properties in Kansas City, MO, we decided to try our hand at the BRRRR strategy. Since my wife and I are long time Dave Ramsey followers, she was able to leave her job last year and focus on real estate investing as well as pursue some other passions. We have been BIG Bigger Pockets fans for a few years, and we've listened to most of the podcasts, read most of your books, and are huge advocates for the brand.

We started researching markets based on advice from one of your podcasts - employment growth, income growth, crime, industries etc.  We landed on Atlanta because we had some personal interest in the area and the culture.  My wife took the lead from there as I am still working a W-2 as a professional sales person in financial services.  She is very much the analytical person and I'm the "salesy" guy.  She started shopping for real estate agents, contractors and property managers and was able to make some good connections fairly quickly.

We decided on a realtor who brought us some properties to review. We decided on a 12-- sq ft, 3/1 just outside of Atlanta but within the perimeter. Our estimates showed that we could pay $50,000, rehab for $50,000 and then cash out refi for about $160,000 ARV. Our realtor suggested a contractor and we were off and running without ever seeing the property as we live in Phoenix, AZ (obviously, we are living where we want to live but investing where the numbers make sense).

Now, bring on the challenges.  Here's just a small list of some of the opportunities (challenges) we ran into:

-Day one presented our contractor with a squatter that was washing his clothes in our kitchen sink

-City of Atlanta is very difficult to work with on permits which delayed construction probably 60 days overall through the process

-Contractor spent two months determining if our house was in a flood zone

-Contractor had not worked on residential properties before.  He was primarily a commercial contractor

-Contractor was not a communicator and really struggled with follow through

-When we flew out to meet with contractor and check on update, we visited the property before we were to meet with him.  When we walked in, we found that his crew had "accidentally" gutted the entire house down to the studs even though we were planning on only replacing 2 full sheets of drywall

-Contractor's project managers were fired because they were stealing from the job site

-Rain, rain, rain - Need I say more...

-COVID - need I say more....

The list goes on and on, but thankfully, we are now 12 months in, the project is almost complete, and we are having weekly check in calls with contractor.  In addition, we wrote up a contract addendum that is now charging the contractor for every month we go over the target completion date (now 5 months ago).

We should have our property ready to be leased within 30 days, cash out refi completed in same time frame, and we've almost completed our 2nd BRRRR with another contractor just down the street with much better results. In addition, we just had an offer on a duplex down the street accepted and we are having that property inspected as I write this post.

We've learned so much from this first BRRRR, and we're so excited to continue to grow our net worth through this great tool. Specifically, I would suggest the following to new investors thinking of using the BRRRR strategy:

-Always, always, always get an inspection on the home before you close on the property

-Interview your contractors diligently.  Ask the tough questions like what happens if you go over budget, the time line, run into problems, who will be managing the project, what will the communication look like

-Have regular phone meetings to check on status of rehab and budget (we do weekly now on all of our projects)

-Create your own scope of work based on the inspect and then ask the contractor what is missing

-Work with multiple contractors

-Don't leverage yourself financially so much that you go broke if you go over by 20% or the project runs much longer

Overall, this has been such a fun experience for my wife and I to work through.  We've grown stronger as a couple, and it's caused us to clearly identify our own strengths and weaknesses.  We are very excited about our future in real estate investing, and our goal is to have 50 paid off doors within 5 years so let's connect some time to see how we can help each other reach our goals.

@Jake Peetz

First of all, congratulations on the completion of your first BRRRR and especially on successfully completing the project by pulling $10k out and still cash flowing. Looks like a win to me at every possible angle.

Secondly, I suspect you'll find that your 2nd and subsequent BRRRRs will lead to similar if not better results so you are well on your way to a successful real estate investing career.

The question I have for the group is what Return on Equity do you look for on your properties if you are using the BRRRR technique. I think that is probably a better measurement of success after completing these projects?

I personally use a HELOC to purchase BRRRR projects as well, and I'm trying to determine what the best ROE should be for me. I don't have an income problem and I'm more concerned about long terms net worth growth over time.

Also, from a tax standpoint, does it ever make sense to create a slightly negative cash flow situation to help offset W-2 income if you are right on the verge of going into another tax bracket?

@Caleb Bryan

Congratulations on your recent win.  Can you share how you found your hard money partner and what the fees were?

@Christina Tkacs

This is a really great question for the new investor, and one that doesn’t have a perfect answer. It’s more important to ask if this fits into your personal investment strategy.

I listened to BP podcasts, read books and talked to everyone I know about real estate investing for years and never took any action until I heard another podcast with a turnkey operator out of Kansas City. My wife and I decided to take the plunge with turnkey and bought two SFRs within two months.

After we got these two turnkey homes stabilized, we decided to start BRRRR'ing and begun the journey of determining the best market, finding realtors, contractors and property managers, and zeroing in on the perfect neighborhood.

About 18 months into our real estate investing journey, we've bought two more SFRs and we're about to rent and refinance both of them. We're also trying to BRRRR 8-10 more this year.

We’re cash flowing on the two turnkeys and we saved about $3500 in taxes last year because of those purchases. In addition, the two properties have increased in value about $30,000.

More importantly, the two turnkeys gave us the courage to move into the BRRRR strategy and we're well on our way to owning our target of 50 paid off homes in the next 5-7 years.

Turnkeys might not be right for everyone, but I’m sure glad we took the plunge versus sitting at home watching Dancing with the Stars.

@Cedrick Mahieux

Great presentation, and I loved the word clouds.

Thanks for all of the work on this.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $50,000
Cash invested: $50,000

Full gut rehab on 3/1 for our first BRRR investment.

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

My wife and I like the BRRR strategy because it allows you to create instant equity and some nominal monthly cash flow. In addition, the tax benefits of the added construction costs help to add more savings in the first year.

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

We are located in Phoenix, AZ and investing in Atlanta, GA due to the price to rent ratios. Since I work a traditional W-2 and has been able to transition from her 9-5, she networked with local real estate agents and found one that she felt particularly comfortable working with. Our realtor found this property on the MLS, suggested we look at it, and we made an offer that was accepted.

How did you finance this deal?

My wife and I practiced Dave Ramsey's Baby Steps which allowed to us create some financials success so we had the money to pay cash for this property.

How did you add value to the deal?

This was a full gut rehab with many surprises along the way. First we had to overcome some flood zone issues which threatened the whole deal. Then we had to work through permitting in Atlanta, GA which proved to be extremely difficult, and then we ran into COVID. Ultimately, this will be nearly a brand new home with new flooring, drywall, kitchen, bathrooms, fixtures, roof, and everything else you can imagine for a full gut rehab.

What was the outcome?

We are now coming up to 12 months of rehab, and we hope to have the property rented for $1200+ in July or August at the latest. Our hopes is that the property will appraise for about $150,000 so we can pull all of our money out and move on to the next property.

Lessons learned? Challenges?

Lessons learned are very lengthy, but here's the short list: Always check flood zones, work with a contractor that is used to working with the city and pulling permits, work with a contractor that is used to working with residential properties versus commercial, schedule regular meetings with your contractor to check on status and hold accountable, be sure to consider permitting time when calculating holding costs, and lastly, be sure to have reserves in case of natural disasters (i.e COVID)

@Shiloh Lundahl Unfortunately, I’m unable to attend on Wednesday evenings, but I’d love to connect with this group somehow. Any suggestions?

I just subscribed as well.  Interesting in learning more.

I wasn't able to attend last night, but please include me in future invitations.

My wife and I are new to real estate investing, and we are getting ready to do our first flip.  This particular property has recently been renovated, and is about to go into foreclosure so we will have very little renovations to complete.  

We're looking at a local hard money company, Active Funding Group, and it sounds like we need to set up an LLC in order to use them. Does anyone in the BP community have experience with this hard money lender, and can anyone suggest a company to help me set up an LLC? Also, I've heard that many investors set up their LLCs in NV or DE. Can anyone suggest a strategy and why one would chose a state other than the state where the property is?

Best,

Randy