Australian in US looking to start investing - BRRRR strategy?

Question

Hi investors,

I've just found this site and look forward to spending days reading and catching up on the amazing content here, but wanted to intro myself and start networking.

I moved to the US (Denver, CO) for work just over 12 months ago and will likely be hear another 6 months at this stage. The past 12 months have been establishing social security existence and credit!

The market here as opposed to Australia seems very reasonable to find cashflow generating properties (which I like) as my goal is to build an income replacing portfolio to provide options.

Now, I am a qualified Carpenter and Builder back in Australia, so I think I could easily add value through a BRRRR strategy to maximize returns and get a few doors under my belt before I leave (or stay).

I can also get access to discounted building materials through my work (we're a platform to by building materials and negotiate volume discounts that are akin to national tier 1 contractors).

So this seems like an unfair advantage that I would like to capitalize on.

I have a couple of immediate questions I think:

• 1. what work can I do that does not require a contractors license
• 2. what work can be done to a property that does not require permitting?
• 3. are there any areas in Denver, CO I should target?
• 4. what's the best loan and investment vehicle to use?

I am looking to fast track my learning path in this new market and get started while I am still here, so I can learn the ropes and hopefully continue remote.

Maria Bakaj · Answer

@Chris O'Halloran I'm reading on Denver's permitting website that as a homeowner you cannot pull permits to do work "in" an ADU/townhome/condo/duplex.  The verbiage is not clear about building but it does goes into saying you must pass exams, etc.  To be certain, I recommend calling 311 (for any questions related to Denver County) and asking for the permitting Department.  They'll need to call you back, but they will within a day or two.

If you can't pull your own permits, maybe you can find a GC who can work with you on doing some of the work (electrical/plumbing) but allowing you to do the rest and let you buy your own materials.  My GC allowed me to buy my own materials like tile, flooring, fixtures.  I had him buy others like drywall and insulation because I didn't want to deal with ordering and shipping those items.

Jeff White · Answer

@Chris O'Halloran Welcome to Denver man!   Denver is a fantastic place to invest.

The BRRRR strategy is very challenging to accomplish here due to finding deals that work since a lot of local investors are fine buying fixer uppers for expensive prices. When the worst house on a block sells for 400k and the best house sells for 500k, it doesn't leave you much room to work with.

Basically, you will have to build relationships and find off market deals since that will be your best bet if you are looking to BRRRR.

Congrats on getting your Social Security # and establishing credit, check to see if it is possible to house hack by talking to a lender. It is easily the best strategy to maximizing returns while living in the property and eliminating your housing costs and sometimes make money living in that property depending on where it is located and number of bedrooms and bathrooms, etc.

Also, you have a competitive advantage with your background as a carpenter which will serve you will if you do all the improvements yourself.

To answer your questions:

1) Depends on the county, but most places if you pass a homeowners exam, you can do a lot of work yourself and pull your own permits.

2) It is always a good idea to permit everything since whenever you sell it , you want to disclose that, and it will give peace of mind for most future buyers. The only things that can be done without permits are when you are doing demo that's not structural, simple improvements (adding cabinets), like for like (ie. replace light fixture with new light fixture), but everything else is fair game depending on the county since they all want to collect permit fees.

3) In my opinion, the best areas in Denver are west Denver neighborhoods (Villa Park, Barnum, Valverde, Westwood, Athmar Park and Harvey Park. Also, the cities of Westminster, Arvada, Thornton, Northglenn, and Lakewood.

Those neighborhoods and cities are probably the last affordable markets for both BRRRRs, fix and flips, and house hacks since you can get more house for less price relative to the "popular" parts of Denver like SLoan's Lake, Highlands, Berkeley and Sunnyside and downtown.  You can easily find high quality houses in those neighborhoods for 400-500k.

4) For loans, if you are looking to do just BRRRRs, I would talk to hard money lenders such as Pine Financial, and you are looking at 10-12% interest rates for those while you are under construction and then refinancing into a normal conventional loan.

For house hacks, since you will be making it a primary residence, you can get a FHA 3.5% loan and a conventional 5% loan fairly easily.

Since you have an advantage with your background and ability to buy materials at a discounted price, you have lots of potential strategies. BRRRRs are definitely the hardest because you have to be able to find beat up properties off market, close with cash or a hard money loan or partner with someone that has the capital, fix it up, find tenants, refinance, and then repeat. Not impossible but the ones doing it in Denver have great off market deal marketing strategies and deep pockets to make it happen.

House Hacks are the easiest since you are usually finding properties that don't need a lot of work, putting only 5% down and then saving on living costs while building equity, cash flow and getting tax benefits.

You could combine both strategies and do a BRRRR house hack by moving into a house that needs a lot of work and you can add value by adding bathrooms, bedrooms and remodeling the kitchen and then refinancing to pull your money out, but again, it is a tougher strategy since most house hacks are livable condition.

Ben Rhodin · Answer

@Chris O'Halloran. Yes, Driving neighborhoods, or driving for dollars, is a great way and then finding the owners and mailing them, or just door knocking. There are tons of different strategies people use to attract off-market deals, and many implement multiple of them. Another one is pulling public records for absentee owners, or other criteria (Divorce records, Deaths, etc...) and mailing to those. There are services that help with this process, Propstream, and DealMachine are some, it will make getting the data easier, but you will need to pay for it.

House Hacking as mentioned is also a GREAT way of starting a portfolio, and one of the best return on investment you will ever make because of that low downpayment loan. A few caveats with it that I don't believe were mentioned above.

1. You do have to have the intention to occupy the home for at least a year, in order to get that low downpayment. So if you know you are going to be moving away in less than a year it will not work. You are able to get out of that term if there are certain circumstances...Like a sudden change in job, that requires relocation, or other life circumstances. But it can't be known prior to getting the loan.

2. Especially with FHA loans, they won't lend on a lot of fixer-uppers, as they need the home to be habitable at the time of purchase, as they expect you to move in right away. So they have very strict inspections and appraisals in order to approve the home. So unless it is just cosmetic stuff, they most likely won't lend on it.

I will also say that Multi-Family is tough to make work out here as well, because of the competition, as @Maria Bakaj mentioned for rehabs there are just a lot of investors and big players willing to pay premiums or cash, so it is hard to compete at a fair price.

I do like ADUs and more and more places are beginning to allow them, finding areas, where the lots are zoned for either ADUs or multifamily but, aren't utilizing it definitely provides value.

Greg San Martin · Answer

Welcome aboard!

consider buying single-family with large Lots and / or conversion potential and then building one or more accessory dwelling units (ADUs).

Keep in mind the size of the existing primary and rentability when you buy. If you build an Adu that you can move into, then you can rent out the much larger primary home and generate more rental income.

Chris Freeburg · Answer

@Chris O'Halloran Welcome to Denver! I hope you have enjoyed it - I think it's a great place to live! Also, a great place  to invest! You'll find a strong investor community on BP.

Certainly, leaning into your skills to add value seems like a great idea. While it may be a challenge to find traditional BRRRR deals, I think there are opportunities out there if you're clear on your goals and strategy:

Is it just a SFH home that needs work in an up-and-coming neighborhood?

Is is a home with a separate entrance that has potential for a house hack if you add egress windows, a kitchen, or finish the basement?

An ADU might work if it already has an existing outbuilding. Otherwise, you're looking at a $200k+ cost to add an additional structure with challenges like sewer taps, water, etc. Your investment $$ may go further with other value-adds that have less hurdles. Again, I suggest spending some time to develop a strategy with a target property in mind.

You'll find up-and-coming W. Denver neighborhoods south of W. Colfax and development is also pushing North above I-76 into Westminster. I'd look at the area around Regis. In the more developed areas in W. Denver (Highlands, Sloan's Lake, it's going to be more important to have a network to find off-market deals. Someone from my team is doing a flip on 38th in the Highlands (quiet street b/c of the bike in a very desirable neighborhood). She found it through her sphere. She's spearheading the project to maintain both control and a greater share of ROI, but has hired a GC to pull the permits. Happy to put you in touch with her for construction questions.

As others have mentioned, the 3% down house hack is an amazing way to go to secure a property for little cash down. Then, I'd look at an HUD 203(k) for construction. I'm no loan expert, but happy to put you in touch with my go-to lender.

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Chris O'Halloran · Answer

@Maria Bakaj yes it a cracking idea, the only thing I am not sure about is that I would like need a contractor license for the ADU for permitting won't I?

Chris O'Halloran · Answer

@Greg San Martin I have recent came across ADU's and was thinking about that as a strategy too - I am married with an 11 yr old son, so don't think I could live in an ADU, but certainly a good option for adding value to a house.

Maria Bakaj · Answer

@Chris O'Halloran Given your background with construction, @Greg San Martin's idea of finding a lot zoned for ADU and building is a great idea.  You can House Hack in the existing property while you build.  Chaffe Park was just rezoned to allow ADU's which really helps open up options.  Cash on Cash return, building an ADU is the best option in Denver and an even better one for you.  To help with numbers, a nicely done 1 bed/1 bath ADU in Berkley with street parking (south of 70) rents for 1400/1500.  Chaffe Park would get you slightly less.

Chris O'Halloran · Answer

@Ben Rhodin thanks for your thoughts.

I hadn't considered partnering with others, but that is certainly something I would be open to, especially to accelerate my learning curve in the US market.

I don't need huge returns on the improvement, mainly looking at the BRRR option to buy a little cheaper, save on the material and repair labor to improve the rental return yields.

What strategies are people using for finding off market deals? Driving neighborhoods and letter dropping or is there another hack here?

Chris O'Halloran · Answer

@Jeff White thanks for the reply.

Great tip regarding the homeowner exam and permitting!

Nice idea regarding the house hacks, not heard that term before, but after reading some posts, I can see that would be a great strategy to reduce my own living costs. If doing this, I would likely also consider a duplex or triplex vs SFH.

Given my construction background and ability to get discounted materials, it just seems like a waste not to capitalize on it.

I have heard that this placed boomed in the last 5 years, so I may have missed the boat. If the numbers won't generally work in CO, perhaps I will look into something more turnkey or quicker to fix up over a short holiday on an interstate purchase, maybe the midwest Montana or South Dakota.

Australian in US looking to start investing - BRRRR strategy?

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