Attempting First BRRR

[Brian Gallagher]

Good Evening,

I recently sold my first property and am trying to rough out some numbers to execute a BRRR strategy with the proceeds. At this time, I am looking at two different multi-family properties in the Cleveland area and would appreciate any advice I can get.

Property 1:

Side-by-side duplex, 1,300 SF units w/ 3 beds, 1.5 baths each. Decent bones but needs new A/C for each side, new roof in the next 5 years, and upgraded finishes. I will do about half the work and hire out the rest. B class area, family-friendly neighborhood.

Purch Price: $140,000

Est repair costs: $45,000

ARV: $215,000

Est Rent: $2,300/mo

Est. Cash flow: $1,275/mo

Property 2:

Traditional up-down duplex, 1,100 SF units w/ 3 beds 1 bath each. Someone attempted a rehab but ran out of money halfway through. Roof/siding/windows have been replaced, just needs a new driveway and finish the kitchens and baths. Again, I will perform a lot of the work myself. C-class area, but in a trendy, up-and-coming neighborhood.

Purch. Price: $72,000

Est. Repair Costs: $40,000

ARV: $150,000 (with a lot of opportunity to appreciate down the road)

Est: Rent: $1,700/mo

Est. Cash Flow: $900/mo

In either scenario, I am planning on using conventional financing with 20% down and fund the repairs w/ cash. My numbers are pretty tight for Property 1, and it is possible I would need to use a HELOC if I have any overruns. My cash flow numbers only include mortgage, insurance, taxes, routine repairs, and vacancies as expenses (I will manage and maintain the property myself). I plan on holding either property for about a year after rehab to build up some cash before refinancing. Just wanted to get some input on whether I am on the right track with my numbers, and get some opinions on which would be a better deal. My analysis says that Property 1 has better cash flow, but Property 2 has more potential.

Thanks,

Brian

[Account Closed]

@Brian Gallagher

ALWAYS buy near police stations in rougher neighborhoods if you can. Very good. That information seals the deal. Police stations tend to be anchors for what I call "pocket neighborhoods," little localized areas within neighborhoods that are significantly nicer than average. Knowing where those pocket neighborhoods are another advantage the local fixer has over other types of investors.

If I were you, I would do exactly what you're saying, but I'd refinish the flooring if I could save it. I know that luxury vinyl plank is very popular these days, but 3/4 in. hardwood sanded clean with three coats of oil-based poly on it will take a monstrous beating in a rental and still come out strong. The best advice I can give you as a fixer and self-maintainer is to always save solid hardwoods if you can for practical purposes.

I like the idea of your tile floors as long as you're the one laying them and you do really solid work. There are way too many crappy installers in Pittsburgh for me to feel comfortable ever contracting out that job with what I can afford to pay for it.

As far as the rest of it goes...that's all my wife's job. I have been wrong so many times and she's been right that I've just completely given up on matters of taste. It's always smarter to go with what she recommends.  But since you're self-funding the repairs -- you mighty want to think about holding off on the granite for now. Do a mid-price option like Corian. If the neighborhood does explode in value and trendiness, then your next upgrade is going to be exotic granite that looks great in photos, because one exit strategy is to sell it to an investor that lives fifteen states over as a safe-bet turnkey and plow the money back into the next up-and-coming Cleveland neighborhood. Once you have granite down, it's not easy changing it out again. Corian now is less expensive and will keep you flexible.

Does this duplex have a full basement with separate laundry facilities?