My BRRR on Steroids & Details on Structuring a Deal

[Joshua Watts]

Let me go ahead and let you know my BRRR has a lot of moving parts and might be a little mind blowing. Ok here goes, I purchase two buildings side by side. Building #1 is a furniture store and building #2 is a warehouse. Total purchase price is for $475,000.00 seller to pay my closing cost and prepaids. Seller takes a 2nd for 30% of the purchase price and bank takes a 1st for the other 70%. The seller of the building is also the owner of the furniture store. I negotiate a leaseback with the owner of the furniture store for a 2 year lease @ $2,000.00 per month all due at closing. This is right at 08/09 all hell is breaking lose in the economy and I was not sure the furniture store would be able to make it so I wanted my rent up front.

I told you this has a lot of moving parts. So at closing I get a check for $48,000.00! I take the $48,000.00 and another $75,000.00 (401k loan and cash) and build out building #2 to climate controlled self storage (I have other self storage in the area before I did this deal) and a small office. Three or so years goes by and I get a contract for another self storage facility in Chattanooga Tennessee for $950,000.00. The thing was I did not have any money for the down payment! So what I ended up doing is pledging my original buildings that I bought as the down payment for my new self storage facility. The trick was that my buildings would have to appraise for somewhere around $790,000.00. Luck have it my original buildings ended up appraising for $9000,000.00! It don't stop here. Before I closed on my new self storage facility in Chattanooga I called my 2nd note holder (the seller of the buildings) on the original building I bought and told him that (keep in mind I was going to have to pay him off no matter what) I came into some money and would he like to take a discount on his note to be paid off early. He was more than willing to take 15% off which saved me around $21,000.00. 

PART 2 OF THE POST IS COMING SOON!

[Joshua Watts]

Part 2 OF ORIGINAL POST

As of this past year I have pushed rents in Chattanooga up by 33% while keeping expenses about the same as they were when I bought the place. As for the original 2 buildings I bought, the furniture did not make it and moved out. I redeveloped the building into my new larger office and additional climate controlled self storage. The additional climate controlled area and my new larger office ended up costing another $110,000.00. All the buildings together are projected to gross somewhere around $355,000.00 in 2019 with expenses around 40% which at a cap rate of 9% would put the total project value at around $2,366,666.00. Back to the BRRR. My plan is to paint the outside of all the buildings in 2019 (cost will be around 20k) and to either refinance our cost back out of this deal or use these buildings as our next down payment on something larger.

The idea of this post is not to brag about what has been done here it is to share with you, that way others can use my ideas that I ended up doing to help with their real estate ventures. Keep in mind someone years ago shared these ideas with me. I sure was not able to think of all this myself. Below is a couple of bullet points information that you many be able to take from these two post.

#1 Ask the owner to take a 2nd mortgage of 20% of the purchase price this will help you have less money in the deal.

#2 When paying off a private note early ask if they are willing to take a discount. (10% to 15% is easy to get)

#3 While I did not post this part I always ask for the 1st year or 2 to be interest only I get that all the time with my loans.

#4 You don't have to refinance to do the BRRR if done right you can also just pledge the property as the down payment on your next deal. (this idea is more for commercial deals)

#5 If you are buying a building with a existing business try to get a lease before you go to the bank. (Banks love it when you have a lease in hand)

Good luck feel free to ask any question I will try to help...