2020 BRRRR Success Story - Lessons Learned

[Sean Sloop]

2020 was a crazy year for everyone I imagine. It definitely was for me. I wrote a similar 2019 post on my experience with the BRRRR process which seemed to help some people.

In 2020, I decided to partner with a colleague of mine to help scale our portfolios quicker. The end goal is cashflow. I had already been investing in Lansing, MI market and we decided to continue since the price point was a good place to start. 

Over the last 4 months of 2020, we closed on 4 buildings. 3 Single Family Homes and a Duplex. While I am sure I could dive into each deal more specifically, I will give a high level overview of what we did and the outcome. 

Property 1: 3 Bedroom 1 Bath - ~1200 sq ft. Purchased August 2020
Purchase Price: 48000
Estimated Rehab: 15,000
Estimated ARV: 75,000
Final Rehab: 22,000
Final ARV: 115,000
Timeline: 6 months

Property 2: 3 bedroom 1 bath - 950 sq ft. Purchased October 2020
Purchase Price: 46231
Estimated Rehab: 10,000
Estimated ARV: 70,000
Final Rehab: 18,000
Final ARV: 95,000
Timeline: 5 months

Property 3: 4 Bedroom 1 Bath - ~1400 sq ft. Purchased December 2020
Purchase Price: 37500 (purchased in package with Property 4)
Estimated Rehab: TBD
Estimated ARV: 75,000
Final Rehab: TBD
Final ARV: 80,000
Property is tenanted and we have not done any updates yet. 

Property 4: 3 Bedroom 2 Bath Duplex - ~1350 sq ft. Purchased December 2020
Purchase Price: 37500 (purchased in package with Property 3)
Estimated Rehab: 37,000
Estimated ARV: 95,000
Final Rehab: 40,000
Final ARV: TBD
Timeline: 4 months
This property has not been refinanced yet. 

In April, we pursued commercial refinance to refinance this package of 3 properties (excluding the duplex since it was still in rehab). The appraisals came back significantly more than we anticipated when we ran the initial deals. I had expected the ARVs were higher than when we estimated them conservatively at purchase since the market continued to rise and good comps popped up nearby, but we never expected the results we got. 

After refinance of the 3 Single Families, we were able to pay back the line of credit we used to purchase the properties, pay back the money we had in for rehab, AND put another 30k in the bank for the next deal! 

Lessons Learned 

1. Commercial Financing: While commercial financing was definitely convenient, we had a tough time finding favorable terms. We ran into minimum property values, or seasoning requirements, or short terms. In the end, we ended up on a 15 year Amortization @ ~5% with a 75% LTV. This was NOT ideal and really kills the cashflow. When we started, we had assumed we could get a 25year amortization with Commercial lending, but after calling over 20 local banks and lending institution, we picked a small credit union. Even then, after the underwriting the underwriters only gave us a 15 year term.

2. DIY & Timeline: For the first property, I thought I would DIY to save money. After running our numbers, I committed to doing a bunch of the rehab. Turns out, when you live an hour away, are not that handy, AND you work a demanding day job... DIY is not realistic. We ended up wasting a couple months because everything took longer than expected and once we finally turned the project over to a contractor, there was still a lot more to complete. So this caused us to go over time and over budget. 

3. Sewer Scope is WORTH IT: So for Property 2, we had thought it was great deal. Bought it under value and only needed some minor repairs. After a miscommunication with my PM, they scheduled the rental inspection which required us to get a licensed plumber to permit the bathroom remodel. Once the plumber got it, they got in the finish the bathroom remodel, they identified the entire sewer line desperately needed to be replaced. This property is on a slab so that was a few thousand of additional expenses. Not to mention, we may have a larger expense later with the sewer line by the street. Long story short, a sewer scope is always worth it to avoid unexpected surprises. 

Next Steps

So now we have these 5 units coming into 2021. The cashflow on the refinanced properties is not great. We expect we will likely try to refinance into better terms once we have more properties and can qualify for rates with the local lenders. I wrote a blog post on my investment strategy, but basically we are trying to scale heavily in the next few years and then start paying down a portion of the portfolio. 

Our goal is to continue to BRRRR properties and try to buy turnkey multi family or portfolio of properties (since we were able to cash out a chunk of money for a downpayment)

I know this is mostly at a high level, each of these houses could be a post on their own, but happy to answer any questions you may have!