BRRRR Plan for First Out-of-State Non-TK Property Purchase?

Question

Hello BP community!

After already obtaining a property in Indy via a TK, I've decided to bring my business to a whole new level by working with a fantastic local wholesaler in the area. After an in-depth market analysis, I've decided that  a post-1950 property on N Hawthorne and E 36th in Audubon Gardens was the right fit for a BRRRR strategy (expecting $700 / mo income in rent, $200 - $150 in cashflow with a mortgage). I'm expecting a reasonable rehab to get this rent ready, and was going to use a property management company that also does construction/rehabs to get it rent ready (that way, the PM is content in rehab quality in renting the property).

Do you have any thoughts on this approach? I am looking to close here soon, and welcome any feedback - since this is my first BRRRR, this one is important to get the cashflow going! Thank you for any help you can provide!

Jay Hinrichs · Answer

@Derek Clifford   Derek  what you don't know is that the tenant base can ruin you in that price range.. so be careful.. bottom line.. those price points in any mid west town are very very tough long term.. I hope you do well..

Mayank S. · Answer

I have done one BRRRR in Indy with the help of my TK provider. He was helpful enough to wholesale the property, got the renovation done through his contractors and renting out (inhouse PM). This all came after building a trusted working relationship with him as in this approach he didn't make enough but wanted to help me scaling up my rental portfolio and diverting from buying turnkey to BRRRR strategy. I would say if you already have some trustworthy local connections like local TK provider,Realtor,wholesaler etc, start from there.

Rodney Kuhl · Answer

@Derek Clifford Yes, I invest in Indianapolis. With the way prices are going now, anything with an ARV of $45,000 is probably in a rough area. Like @Jay Hinrichs warns against, that may be a tough avenue to go down, especially from a distance. Additionally, my original point still stands about finding a lender for that small of a loan, but moreso about getting the ARV you are after. I think wholesalers in Indy know what they are doing and know the prices they can sell good properties for. Why would they leave 30% on the table if they could sell it to a buyer who is more than happy to just buy, rehab, and hold it without the BRRRR strategy?

Derek Clifford · Answer

@Mayank S. That sounds like an awesome way to go! It sounds like he's just handing over his wholesale cut on the deal because of the business you guys have built. I'm starting to bring lots of people to the excellent TK provider I used for my properties as well, so that may be a good avenue to look down in the future! Since escaping the above mentioned property, I've been taking the approach of using a wholesaler to source the deal, and then use a PM with a GC in house (who was referred to me by Shawn H.). I'll hope that this works out well in the end.

@Rodney Kuhl Excellent advice - thank you very much for that feedback. I've since bought another property elsewhere in the city for $17,900 and a planned rehab of $12,000 which should get me an ARV of $43,000. I'll admit, not an excellent deal and not in the best neighborhood, but still a start for me to learn the process and start to get to know some of the local players out there. I think I'm good on the financing side, but I must admit that they're used to dealing with ARV's in the $60k range, so this is something to check. Next time, I'll be looking for deals that will ARV at around that price range as well. Do you invest in your market or do you go out of state?

@Mike Knowles Absolutely the truth! There is so much room for error, and it took me a year to do my due diligence with my TK provider, and they are the real deal. For now, I'm shifting my focus to reputable wholesalers and have been given so many recommendations here.

@Jay Hinrichs You know, I've been trying my hardest to find a deal that doesn't involve the "all-in" prices that TK's require (~$60k), but I'm finding that even through good wholesaling, at a general rule, that's approximately the price point in Indy for a good long term BRRRR investment. Luckily, I've been able to save up lots of cash in recent months to get these, but why buy one when you can buy two for that money? :^) quality vs. quantity is my main dilemma now! I already know what the right answer is here, but am struggling to not compromise and have both!

Jay Hinrichs · Answer

@Mike Knowles  pretty accurate assessment !  there is one who did a pod cast on BP and has gotten a lot of traction.. not that they are or are not scam artist but they are recommending buying 30 to 40k turn keys IE homes that all in cost 30 to 40k.. and we all know that pretty much in ANY major metro those are squarely in the hood.. war zones etc etc.. lots of hearts are going to be broken with that company in Indy... it will take some time but it will happen

Mike Knowles · Answer

TK = turn key. You'll see that phrase a lot here. Essentially, he bought a property that was recently rehabbed, already had tenants in place, and a local property management company to oversee it.

If it sounds appealing, that's because it is.  And because it's appealing to many investors, there are at least a dozen "turn key" operators in most major markets, many of which are just north of scam artists.  Caveat emptor.  If that's an avenue you pursue, do your own due diligence and find a reputable provider, then make sure you aren't over paying for the property.

Rodney Kuhl · Answer

I would think this may be a tough area to do the BRRRR strategy. What is the ARV you are expecting for the property? At best on the re-fi, you'll be looking at 70-75% LTV on the new loan, and many lenders have a minimum loan requirement. Maybe you've already move past this hurdle, and, if so, I'd be curious who your lender is. But if not, I'd be careful about this part of your strategy.

Jim McGovern · Answer

@Derek  In your post, you say "After already obtaining a property in Indy via a TK, I've decided to bring my business to a whole new level . . ."

What is "via a TK" mean?   I couldn't decipher it.  Thanks.

Derek Clifford · Answer

Hi @Patrick Cruse and @Justin Young,

Thanks for your guys' support. Since we're trying to do this all out of state, I had to rely on an inspector during our inspection contingency to help determine what the rehab would cost (ballpark). It turns out that the particular property I was looking at needed WAY to much work (mold issues, roofing and ventilation issues, replumbing, etc.) and would simply not be worth fixing up for that area. I am also beginning to build my team out of state, and understand that some of it will just have to be trial and error, along with BP referrals.

Thank you guys for contributing - next time I'll be more specific with my question, or come to ask the the question after a little more self-education.

Justin Young · Answer

@Derek Clifford since you are from CA, are you performing these rehabs from out of state or will you be in Indy for the process? I ask because I am in the same boat and would like to build a team in Indy to perform BRRRRs for me but am unable to stay there for long periods of time to watch the rehab from beginning to end. How did you go about getting your boots on the ground?

BRRRR Plan for First Out-of-State Non-TK Property Purchase?

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