First BRRRR project Atlanta, Georgia

[Paul C.]

Okay, so here is my first "real" deal. It is a duplex (2/2.5 on both sides) in Marietta, Ga in a multifamily neighborhood surrounded by pretty nice single family subdivisions. My wife and I are planning on living in one side for a yearish as we plan to quickly renovate one side and slowly renovate the other and then eventually refinance to start the BRRRR process. It is not a great deal, but I think it is decent for my strategy which is long term buy & hold using the BRRRR process. Any constructive advice is much appreciate, but please don't be too hard on me :) . Posting a before picture now and will update as progress is made.

Sale Price: $245,000

Down Payment: $50,000

Rehab Budget: $80,000

ARV: $355,000 (This is the hard part as there are very few multifamily comps if any that have been fixed up). Sfh's in this area that are in good shape could get this price for sure if not more.

Cash left in deal after refinance: $44,000

Mortgage + Expenses + HELOC payment = $2500

Rental Income = $3,000

Cashflow = $500/month

[Mitch Messer]

Hi @Paul C. and congratulations on your first "real" deal!

That said (and I promise to be gentle)...

I'm concerned you are way overpaying for this deal. Assuming it legitimately needs $80K in repairs, and ARV is only $355K, how did you determine that $245K is the right price to pay? You'd be nearly upside-down from the minute you closed!

Let's forget about the refinance for a minute and focus on the inflow/outflow numbers: If you bought this deal with $50K down and put $80K into it, how much monthly cash could you realistically get out, net of taxes, insurance, mortgage payment, maintenance, vacancy, and management? Maybe $700 to $900, under the best of circumstances?

So, you invest $130K to get back $10,800/year, or 8.3% cash-on-cash, at best. That's way low: I generally look for deals offering at least 10-11% CoCR.

If this were my deal, I would definitely push back hard on that sale price.

[Bill Hampton]

@Paul C., congrats. 

[Karam A Tascoe]

I would caution that you really be sure about that purchase price, ARV and the rental income you're projecting. $1500 for a 2br in an older townhome is going to be a bit of a challenge in that part of Marrietta. But I understand you have to get in the game somehow

[Paul C.]

@Mitch Messer

Thank you for the advice. It makes sense what you are saying, but I'm looking at it after the cash out refinance meaning I invested ~$44,000 making $6,000 a year so I calculate that at ~13% CoCR. However, I agree with you that this is by no means a homerun, hoping to hit a single and keep the process going!

[Julie Kern]

Completely agree with @Mitch Messer @Chad Carrodus and @Karam A Tascoe Take a hard look at those numbers. Rent projection is way high, along with ARV.

Have you already purchased the property?

[Alex Babayev]

@Paul Callaway

I have been investing in Atlanta since 2011 and have done many deals similar to your. I know this area well and this property should be $245K after a full renovation. If you are just entering at the $245K price point plus your renovation costs this is a bad deal.

The appraisal will never come back as high as you are predicting. From my experience cash out refis come in lower than market value since the appraiser is conservative and especially you said yourself there are not many surrounding comps to compare the property to.

[Paul C.]

@Chad Carrodus @Julie Kern Property is a duplex so $1500 per side per month after a nice renovation(Rent would be $1000 a month per side with no renovation). Also, I already have new tenants planning to move in at these prices so it cant be that out of whack.... 

You guys have done a pretty good job of discouraging me(I'm admittedly sensitive), but the property is already mine so there is no going back. Instead of just telling me it's a bad deal I would appreciate advice on how to make the best of it going forward.

[Paul C.]

@Alex Babayev That makes sense. I have a conventional loan on the property and it was appraised at $245k as is so it will be interesting to see how it turns out after renovation as well as what happens with the market. Fingers crossed!

[Julie Kern]

@Paul C. not trying to discourage you - I wasn't sure if you were still in DD on this property or if you had already closed.  

Given that you've already closed, of course you need to make the best of it.  But I think everyone on here was a little unclear as to whether or not you had finalized the purchase or not, and if not, encouraging you to rethink the deal.

But... since you're in it, if you've gotten someone to agree to $1500/mo, that's great.  I'm a little surprised based on what $1500/mo can get you in Marietta, but if you've got it already lined up, then awesome!

I would recommend not over-rehabbing it, though.  What is the breakdown of your $80K?  $40K (per unit) is a healthy rehab budget for a 2/2.5 rental unless it's completely distressed, but if that were the case, I'm not sure that it would have been listed at $245K? Maybe you can post here what you're planning to do and get some input on ways to bring that rehab down? I would be shooting for no more than $20K per side, less if possible.  Sweat equity since you're going to be living in one side for a year would definitely help bring those costs down.  I see minimizing your rehab (and still being able to command that $1500/mo rent you're expecting) as the best way to make sure you're keep your cash in the deal as low as possible and not going upside down.

At the end of the day, if it all plays out the way you had expected, then you can come back and tell us we're all wrong :)  I hope that's the case.  But it's a long-term hold, so in 20 years or so, even if you did overpay a bit to get in the game and get started, it shouldn't matter, as long as you keep learning and improving on each deal.  Lots of folks have done that and gone on to have great success (just listen to this week's BP podcast, as one example). 

If I can ever answer any questions or help, let me know.  I have good vendors in this area and I'm happy to share (plumber, electrician, HVAC, etc.). They're reasonable and responsive.  

Best wishes to you for future success!

[Ryan Rominger]

Hi @Paul C.!

I operate a property management company in Indianapolis called Intrigue Indy. I am also a licensed real estate broker with Nottingham Realty Group and I have had a lot of success helping investors (both local and out-of-state) buy investment properties, repair them, and either lease them to quality tenants (BRRRR) or sell them as a flip (BRSR). Let me know how I can help! I'd love to connect for coffee if you're ever in town!

[Ethan Henning]

@Paul C. I personally like this deal. I am not sure exactly where this is at but if you are in Marietta and sandwiched near homes that are worth 350K+, I think you found a good little first base hit that will teach you a lot and help propel you forward to future deals. 

Don't let people beat you up on it. Duplexes in Marietta are hard to come by and finding a property that you are comfortable with living in (thats not in a sketchy area) would cut down your options even further.  

Your rent projections aren't "crazy off" and I have friends that would personally pay around this price per door to rent out something in this area. See below rental comps just off the MLS for duplexes 5 miles from Marietta. Pretty spot on.

If you get this rented out on both sides at $1500/month, then your projections of it being worth over that 300K mark are not far off either. A lot of BPers are extremely value oriented, especially wholesalers ;) , and may not take into account all of the reasons that this deal is a solid base hit for you. Save on costs by doing some of the work with the wifey and relish in the fact that you are taking action on this. Some people in these forums may not even own properties.

Beats the heck out of sinking money into a large personal home or continuing to rent for the next 5 years.  

Please don't hesitate to hit me up if you ever need anything man and good luck on future deals! 

[Greg Houts]

@Paul C., congrats on this deal and for taking the first step!!! Thanks for having the guts to post up the details. As mentioned above, everyone is just trying to help.

I'm just wrapping up my first BRRRR rehab down in Newnan (while living outside the US). Just taking that first step was the hardest part (the BP book on out-of-state investing is fantastic BTW). My CoCR isn't stellar. But it's a start! I would likely be mortified to post it up and see the critiques! That said, I have learned so much that the experience alone makes up for the gap between an amazing versus average return. As @Ethan Henning mentioned, it's a solid base hit and it got you into the game. I never expected to nail a homerun on the first at-bat. But it's so addictive once you get started, you'll be hunting down the next one before you know it!

Great advice from @Julie Kern. I went into mine wanting to make a starter home look like a palace. Luckily, my agent and lead contractor were nice enough to point me in a sane direction, and it's saved me thousands. Stay on top of your budget like a hawk and understand the level of home that you're rehabbing. Make sure that any enhancements you do are in-line with other properties of a similar type. Best of luck and have fun with it!

[Paul C.]

@Ethan Henning @Greg Houts thank you for the pep talk and advice! I'm in process of demo'ing now. Although I did not take @Julie Kern's full advice on reducing the rehab, I did reduce our scope of work a lot so that hopefully we do not overdo it.

Scope:

New flooring - laminate downstairs, carpet upstairs

New kitchens & bathrooms - complete guts

New Roof

Electrical work to remove wall

New Privacy Fence

Small things I plan on doing myself:

Landscaping

Paint

White wash fireplace

One thing that is giving me anxiety is the house has those stupid textured ceilings :)  that are harder to get off than normal popcorn ceilings. I think I had a quote of $2000 per side and can't decide if I should just leave it or not. Thoughts?

[Julie Kern]

@Paul C. Don't waste your time on those ceilings. Smooth ceilings aren't going to move the needle on tenant pool or rent. You don't get any additional ROI on that.

Also,  i’ve done laminate flooring in rentals, and I would encourage you to consider LVP flooring.  Laminate is so susceptible to water damage- I put some beautiful laminate in one of my first properties and the tenant had an unauthorized dog who peed on the floor and warped it in numerous places. 

LVP is my go to for rentals and I have rentals that are renting between $1400 and $1500 a month in Kennesaw.  You can get some really nice looking stuff for under $2 a square foot.  Check out ReallyCheapFloors.com in Dalton.  I got 4mm LVP with a decent wear layer (don’t remember the exact mil’s) for $1.29/sq ft for a flip I did at the $180k price point in Dallas. Looks beautiful and so much more durable than laminate. 

If you have already bought the laminate, then obviously disregard, don’t want to stress you out, but if you haven’t, you might look into LVP.

Be sure to take lots of pics as you go and post! 

[Paul C.]

@Julie Kern Thank you for the info on LVP. I've heard that as well so that is what we are going to try to do. I'm all about materials that will not show wear and tear and wont damage easily :)

[Peter Philando]

@Paul C. Congratulations on your first real deal. Its been a year now and I'm curious about how things have turned out. Could you give us an update?