My first BRRRR.... From purchase to refinance

[Jason D.]

Hello everyone! I want to chronicle my first BRRRR investment and hope to share a success story with all of you. My main purpose is to help new investors, that are thinking about jumping into real estate investing, get a real life picture of what to expect. This isn't HGTV and I am not some Guru, I am a 40 year old dad with two kids that is tired of working 50 hours a week so someone else can get rich. I want the freedom that real estate has the potential to give, and I want something that I can share with my daughters when they get older. I have never chronicled anything like this before, so bear with me.

Now, about me. I have some experience in real estate investing, but not much. I bought my first rental, a SFH in Cincinnati Ohio, in 2010. It was pretty turnkey and has cash-flowed well for me over the years. I moved to the Philly suburbs in 2013 and decided to keep that rental because of its low maintenance and good cash-flow. I also fix and flipped a house last year, just to do it, and made a little money but nothing to write home about. That's it, so I don't have a ton of experience and consider myself still very green in all of this.

So lets talk about the property.... I am scheduled to close next Thursday. 

It is a SFH in central NJ that was a VA forclosure, that I purchased for $55,000. It is a 3 bed, 1.5 bath that needs a complete rehab. I toured at least 20 homes and offered on 5 before landing this one. I utilized the BP calculators to analyze deals and this seemed like a winner. It's not a homerun deal, but will cash flow nicely and is in a good rental area. So here are the numbers....

Purchase price $55,000

Closing costs $3500

Renovations (my initial estimate) $35,000

Taxes $5000/yr

ARV $130,000

Target rent $1600/month

I am purchasing using a hard money lender, then refinancing through my credit union after 6 months "seasoning". The terms of the hard money are as follows.... 9 month, interest only loan at 10.5%, with 20% down payment and 4 points. The points are rolled into the loan so they are paid at refinance. So I will be putting out $22,500 of my own money to fund this deal. I'm going to use real numbers because I think too many people talk about "real estate with no money down", "get loans with 100% funding". For a new investor with no experience, It's going to be difficult to invest in real estate without money. So my suggestion for new guys and gals out there looking to invest, the first step is to SAVE MONEY! Very few people invest starting with nothing. It's much easier if you have something to invest.

Here are pictures of the property as it sits today.... And thanks for reading, I hope it gives newer investors the confidence they need to jump in and take the risk!!

[Jason D.]

@Mike Ventura congrats on finishing up your first BRRRR and good luck going forward.

As far as the Hard money goes, I had no idea what to expect and was, frankly, ill prepared in the begining. It will be a much easier process the second time. I had been working with lending home originally because they were one of the only lenders that were able to lend to me without an LLC. I had not intention of setting up an LLC until I had a more substantial portfolio, so this seemed like a good choice. What they failed to tell me was that in NJ, they DID require an LLC to lend me money, so that was a curve ball I was not expecting. I called a number of other lender and they all needed an LLC to lend. So I formed an LLC in order to expedite the process and I liked dealing with lending home. AIS Properties was born (AIS are the firs initials of my wife and 2 kids, so it's cool to have that connection to the business anyway) and we started going forward. After working with lending home for a couple weeks, they started to require an obscene amount of paperwork and had a lot more stipulations than they led on, so I started shopping for other options. I found Groundfloor financial after calling around and they seemed to be much more "asset based" than lending home. Less paperwork, quick decisions, and better terms. They did require a larger down payment because of my lack of experience but I was expecting that and I'll be able to refinance it all out anyway so its only a temporary outlay of money. They moved through the process, minus a few small hiccups, within 2 weeks and we were ready to close. My total loan breakdown looks like this....

Purchase Price $55,000

Renovation Holdback $40,000 (the lender is over estimating based on their assessment of the reno)

Total project cost $95,000

ARV $128,000

Term 9 months

Rate 10.5%

Loan amount $79,170 (They roll the loan fees into the loan to be paid back at payoff)

Loan to cost 80.65%

My down payment is 20% of total loan, or $19,000

Total due at closing will be $21,500

Sorry that it's been a few more days than expected. Still working 50+ hours a week and trying to get this property closed eats up a lot of time. 

So a quick update.... We were supposed to close yesterday but, SURPRISE, its been delayed. Two things happened to cause the delay. 1) In the city of Burlington, when you take possession of a vacant property, it has to be registered with the city as a vacant property. The VA never registered the house, or paid the fee, so I have to wait for them to do that. 2) I wasn't aware that because it is bank owned, I was responsible for getting the conditional certificate of occupancy and fire inspection. So I was at city hall this morning to get that scheduled. But, I have to say, the people at city hall were wonderful and the process was very straightforward. The inspections are scheduled for today at 2pm and they will email me the results. Hopefully closing can happen by the end of next week.

The contractor I found has been great so far. He is excited to build a long term relationship to where I can call him to come out to a property, before offering, and walk it with me to put together a rough bid and throw ideas at me. He is also bird dogging for me and has a property located off-market that we are going to look at next week. Promising so far, it all comes down to his work at this point.

On to the rehab....

The plan is a complete interior and exterior rehab, down to the studs. We are also going to move a few non-structural walls around to increase the kitchen size, convert the hall half bath to a full bath, and turn the current full bath into an en-suite for the master.

Exterior we are replacing the siding, windows and doors, and paint the brick white. We are also going to shrink the deck a little to increase the size of the usable carport for parking.

Interior is going to be completely renovated. The living room and three bedroom have hardwood floors that are in decent shape so they are going to be refinished, new flooring, either laminate or vinyl in the kitchen and hall. Completely new kitchen... Cabinets, solid surface counters, appliances. New bathrooms... Tub in the hall bath and stand up shower in the master. All finishes are going to be mid grade stuff, fairly durable but not too expensive. Complete new HVAC unit.... Air handler, furnace, condenser.

Total bid for all work was $32500. We may replace the roof if we can keep everything under $35000. I was pretty happy with the bid, but more so in myself for being pretty close in my estimate. As a side note, my brother-in-law is a licensed electrician so he is going to do any electrical work, so we were able to save a little there. Nothing major for electrical though, the panel is upgraded and nothing major is being moved. It's mainly cleaning up wiring in the basement and replacing outlets and switches.

If nothing else, this has been a great learning experience. I felt that I had learned all that I could from reading and educating myself and that the next step in me education was to simply jump in and see where it takes us. So far it's been a little stressful and time consuming but, for now, I'm so happy that I took the plunge and am searching for property #2!