My First BRRRR [Just purchased - renovation in progress]

[Jake Garrity]

A few years after graduating from college I purchased my first rental property. This first investment, bought in 2017, is a buy and hold single family house that I bought 50/50 with my brother. Ever since, I have read and learned more and more about other ways of building cash flow and equity. All signs pointed to BRRRR being a great option for building my real estate investments. Based on that, I have been working toward completing a BRRRR as my next investment.

After 10 months of running numbers on over 75 properties, making 12 offers, and getting to best and final negotiations on 4 properties, I have recently completed the purchase of my first BRRRR property! My target was to buy my first BRRRR property in 2019, and I made it with a few months to spare.

Before the real work [renovating and renting out the property] begins I wanted to post about my journey to purchasing my first BRRRR investment. The process of buying a property that needs extension renovation can be daunting, so I hope the details of my journey will help others.

The Property:

The property is a duplex, built in 1900, and located in Cincinnati, OH. Each unit of the duplex has 1 bedroom and 1 bathroom, and each unit is about 700 sq. ft. This property was found on the MLS.

Side note: I live in Dallas, Texas but grew up in the Cincinnati area, so I know that market well and, unlink Dallas, I am able to find properties in my cash buying price range.

Financials:

• The listing price for the property was $60,000.
• I completed the purchase for $51,250.
• I am currently estimating $35,000 in renovation costs.
• I am covering the $86,250 budget [purchase and rehab budget] with cash I have saved over the past few years.
• Buying the property with cash allowed me to move very quickly [about 20 days from acceptance to close] and to get a better price on the property.
• The ARV [calculated based on price/sq. foot of similar small multi families in the area] is $135,000. Since this is my first BRRRR and I don't know what all to expect, I have been a bit safe in my ARV calculation, subtracting 10% from the actual ARV [$150,000].

Renovations [Currently Underway!]:

The property needs a lot of cosmetic work. While renovations have not yet been completed, the link below is a video walk through of the property where I talk about the renovations that are planned.

https://www.youtube.com/watch?v=S39DN331DaA&t=2s

Check out the video and let me know what you think! I plan to post more update videos, and plan to do a full walk through of the financials and result once I get to the refinance stage.

Rent

Once renovated I should be able to rent out both units for $750 - $800.

Refinance

My hope is to refinance via the same local bank used for my first buy and hold property, but I have a few other local banks as backup options. Still a few months and a lot of work away from this step.

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I will continue to post updates and videos as I go through the BRRRR process. I hope this helps others who are new to the BRRRR investing process.

Feel free to comment or message me with with your thoughts, recommendations and/or stories!

Jake

[Jake Garrity]

@Alex Jones Hi Alex - here are my answers to your questions: 

• How did you come up with a maximum allowable offer for the property?

I have my own spreadsheet that I have developed where I estimated the costs for renovation, the anticipated rent, and the ARV. For my offer calculation, I followed the formula of: [(69%*ARV) - Repair Estimates] = Max Offer.

I use my own spreadsheet that has more localized cost data, my specific costs for the flooring, cabinets, and other finishings I planned to utilize, and my experience with contractor bill rates in the area. This is just a spreadsheet I have build over time.

For my max offer formula: You will see this same formula used across BiggerPockets articles, Podcasts, etc. with different percentages multiplied against the ARV, usually 70% - 75%. I wanted to build just a little more wiggle room in my numbers, so I generally use 69%.

After my initial offer was accepted, I did a full walk through and inspection of the property, and revised my renovation estimates. I also verified zoning was correct, confirmed my ARV, etc. Once this was complete, I revised my renovation numbers and updated the formula. For this specific house, I found a few issues that were not known at the time of my offer, and through negotiation I was able to negotiate the purchase price to a number that was in line with the calculation above.

• How did you come up with ARV in the area? via real estate agent? Yourself?

I calculated the ARV by looking at similar duplexes in the area that have sold in the last 18 months, and applying a cost/sq foot calculation to determine my ARV. I also had my real estate agent provide me with her independent estimate of the ARV, and used that to confirm I wasn't way off base. I then discounted my ARV number a bit as explained above to buy myself some room for error.

• What is your timeline estimate the project expected to be completed?

I initially had a stretch goal of completing renovations by end of CY19. I think this is still attainable, but more realistically renovation will be completed by February or so [just allowing some time for slow down around holidays].

• How come you didn’t use private or hard money lenders to fund that initial project?

The simple answer is because 1) I didn’t necessarily need to, I save a lot from my full time job and can fund the deal with cash, and 2) I figure it allows me to save on the points, financing fees, interest, etc. Those are all expenses that might make a good deal harder to find, especially given the market I am investing in is pretty hot right now. Not to say the way I did it is the best or right way, but that was my logic.

• Have you read the book published by David Greene? His newest book on BRRRR investing.

Yep, sure did.

• Have you communicated with the bank or mortgage loan office on refinancing a rehabbed property and the best way to proceed such as using HD 1 form and understanding the delayed financing? There are couple of things relating to refinancing where we need to be extremely careful.

Yes, I have a local bank that I used for the mortgage on my first property. I have spoken to them about their refinancing requirements and holding period. I also have another small local bank as a backup, and will probably get mortgage options from both and compare once I get to that point.

Hope the answers above are helpful.

Jake