I Got Another BRRRR!

[Jordan Mummau]

I know the BRRRR method is the buzzword these days on BP and for good reason! It's the best way (that I know of) to buy and hold real estate. In my experience with the couple I've done previously, there are different levels of success to BRRRR'ing. How you define if a BRRRR was/is successful is ultimately determined by how much money you feel comfortable leaving in the deal and what your return on that money is.

I recently went under contract on a duplex (Bank REO). My plan for this post is to simply take you through the entire process and hopefully help someone and if you're in my local market (Central PA) maybe create some new relationships. This post is going to basically put my thoughts to words as I analyze this and go through it. While I've done these successfully in the past, I'm always amazed at what you learn each time and/or someone else reading this may have a different approach I could learn from as well.

Here are some details. I'm paying cash and expected to close before 2020. The property is currently vacant. I went to sheriff sale for it months ago and it sold back to the bank. They simply wanted too much money at the time and there were still tenants inhabiting at that time. I was patient and it came back around on market for less money as an REO & vacant. I love vacant properties. I'll go into specific numbers after closing is finalized but there are a lot of things to consider when analyzing how to renovate this property. Each unit, one above and one below, are just over 1,000sqft each. Both are two bedrooms, 1 bath. The exterior of the property is in good shape along with replacement windows and decent roof. This place has a single oil heat source that is currently running both units. Additionally, it only has a single electric meter. The best bang for my buck (in my opinion) is going to be adding an additional meter, separating the electric and then evaluating which route to pursue when analyzing how to heat each unit. The property doesn't currently have natural gas running to it, however there is natural gas available. In my estimation to do a tap in and run the lines + add two furnaces + ductwork is going to cost around $9,000. Alternatively, since the electric will be separated and paid by the tenants, I'm considering just adding electric baseboard which is significantly cheaper for me, but would be more expensive for the tenants to operate on a monthly basis. Ultimately this decision will be based on comps i'll be using for the appraisal later.

There's a 3 car garage in the back of the property that needs a lot of help but could rent for $75 per door. I can rent both the two bedroom units for $900/mo which gives me a gross monthly rent of $2,025. ARV on this property based on comparable sales is $180,000. As mentioned, I'll get more specific numbers to anyone interested after closing but I estimate my ARC to be $135,000. My lender will require 25% down off of the actual appraisal when refinancing. More to come...