Completed my first BRRRR. Lessons learned

[Michael West]

So, I finally completed my first BRRRR! It was a hell of an experience with a ton of great lessons learned. It took longer than expected. It cost more than expected. It affected my personal life more than expected. But it all worked out well in the end, better than I expected and filled me with even more confidence and knowledge that I'll be able to build from going forward.

Here's the story:

Although I had been saving cash and had smaller investments in the stock market, I needed more funds before I could begin my journey into this strategy for the "cash" purchase. I didn't want to go with hard money if I didn't have to. So, I got a HELOC on my primary residence for 77k and combined it to fund this deal.

As a realtor in my area, I know my market very well and set myself up with searches that I felt would bring me potential deals. I spent a ton of time analysing, as conservative as possible, until I found the ones worth putting in offers. I lost a few offers, as expected in this market, but ended up finding one after a few months. The numbers worked for me while offering more than asking and I knew I was competing with 7 other offers. No, I wasn't the highest offer, but I was able to offer better terms than some of my competitors which got me the deal and my numbers all worked out.

Here's my initial numbers(ballpark, missing a few expenses that I had expected)

Purchase price: $78,500.

Expected Rehab: $30,000.

Expected ARV: $135-145K

Expected Cash out: $101-108k

Expected rent: $1,100

Expected cash flow after refi (and all various expenses) $250~

Expected ROI: 45%+

I expected to leave about $1,000-7,500 in the deal. Anything less than 10k in the deal felt fine with me. I didn't need a home run with my first BRRRR, I just wanted a nice combo of cash flow and a good ROI and get the ball rolling. If my overall in was less than buying another turn key, it was a win.

I've spent 15 years working as a carpenter and had several friends in the industry as well who I was counting on giving me a hand with the rehab. The property had been lived in by the same owner for 40 years and there were hardly any improvements. So, I decided to go with nearly a full rehab. Electrical, plumbing, bathroom, kitchen, floors, Windows, doors, siding, gutters, landscaping, paint, a few walls, etc. All brand new. Only the roof and the furnace were left original (they each have a few good years left in them).

I originally expected the rehab to take about 3-4 months... That wasn't so. First lesson learned, You can't always count on the availability of other people. Many of my original helpers, for one reason or another, became unavailable for the majority of the project leaving me to tackle much of it by myself and/recruiting new helpers. I'm very thankful for everyone who jumped in and helped, I feel fortunate to know so many great people.

Lesson #2...it's incredibly difficult to manage 2-3 other businesses and a home life while also trying to focus on a rehab at the same time. So, the combination of both lack of labor and lack of time made this project last about 4 months longer than intended and ended up causing some personal struggles at the home life as well. From this, I know that going forward I will be looking to leverage out far more tasks. I'm building my systems for this right now. Added time, meant added holding costs (though those weren't incredibly high).

Learning opportunity #3: I went over budget.

I think that's pretty well expected for many projects, but nonetheless, it happened. After originally buying about 80%+ of all of my materials, I was targeting being about 5-6k Under budget. So I changed my scope of work to include completely re-siding the house instead of just repairing it. However, the rest of the budget crept back up with tons of little odds and ends that added up, increased labor expenses, plus the cost of the new siding. I ended up spending about $6k over budget.

Learning opportunity #4: FINANCING.

Because of my current employment status of a full time realtor (without yet having 2 full years under my belt just yet) I had to go with a DSCR loan instead of a conventional mortgage. I had originally talked about trying to jump back in briefly with my old company to try and qualify for conventional, but it didn't look like it would work out well.

I actually really loved learning about the DSCR loan and other non-Q loans and he creativity and opportunities they present. I can't wait to build this empire with so many different tools. However... This also meant that my interest rates and closing costs ended up being higher than anticipated as well. The difficulty of finding lending for under 150k posed another challenge with finding the right lenders... But I eventually got myself a few decent options.

The final numbers and evaluation of the success of this project now relied on the appraisal...

The happiest day of this whole process was when I got the results of the appraisal back:

I expected about 145, but it came back at $160k!

This turned my seemingly lower than desired results into a full blown success. BRRRRfect as I call it (when 100% of invested funds are returned).

The closing process took longer than ideal, but eventually we got it done.

Final numbers:

All in $116,800~

ARV $160,000

Loan amount: $128,000

-closing costs + taxes/instead of just over $9,000.

Cash in pocket $118,500~

Rent: $1,200 a month

Cash Flow after mortgage, capex, vacancy, repairs: $198.