My First BRRRR - Houston, TX

[Samir Solanki]

I've bee holding off on posting this until the properties were rented and stabilized. So, here it goes. 

I did my first BRRRR deal and learned a LOT of lessons along the way.

First off I've never owned any real estate before other than the house that I live in. So getting my feet wet in an already hot Houston real estate market was seemingly daunting. I started off by contacting any and every real estate agent I could find to get an understanding of the market and good buying opportunities. Most RE agents never got back to me or entertained me for a few days and seemed to fall off. I did, however, make two solid connections with real estate agents whom I ended up buying properties from. 1st lesson is to keep networking and keep asking questions and you'll eventually find some good contacts. 

The realtor I made contact with catered to investors and was on top of finding off market and on market deals as soon as they popped up. I was particularly looking for duplex, triplex, or more plex deals as my first purchase. 

My realtor calls me at 9PM on a Friday and tells me of a triplex that has just come up for sale. She has a very keen eye because the property was incorrectly listed as a single family but had three individual homes on one large lot. Property was listed for $200K and she told me the potential rent for each home was around $1100. There was some work needed, of course. She called the seller's realtor at 9:15PM and we made an appointment for the next day to go see it. We showed up and the property was fantastic. Great location in pretty good condition. I estimated about $30K to get everything done. We made a full price offer that same morning and the seller accepted. It wasn't until a few days after that people started realizing this was a multifamily property and the sellers started getting calls about the property, but we already had it under contract by then. 

We put in a total of $35K into the property and got all units rented (one of them was already rented to a previous tenant, we just increased her rent to market). Purchase price $200K, down 25%, PITI = $1,185. Total rental income = $1,100 + $1,000 + $1,100 = $3,200/monthly.

Six months down the road I went ahead with a cash out refi. The property valuation came in at $330K and I was able to pull out around $70K after closing costs. New PITI = $1,450. Still a very decent amount of cash flow from the property.

Immediately after I found a single family home for sale close to the downtown area that is very up and coming. It was an older house, but didn't need much work and the asking price was $135K and needed about $20K in work. Used the cash out refi money for the down payment @ 20% and spent about $17K on the house and immediately rented it for $1,400/month. PITI = about $800. The ARV of the house is now at $250K and I'm contemplating another cash out refi, but would like the rent to be a bit more stronger before I do that.

Lessons learned:

Find a good contractor. I went through 4 different contractors and wasted a few thousand dollars before finding a good one. Thankfully I found out they were useless before getting too deep into the work. Don't trust a "friend of a friend." Or someone that does this "on the side." These are the worst! Find a reputable contractor, ask to see their work, ask for recent references, get some quotes then make a decision. 

Keep an eye on your monthly costs including mortgage before considering cash out refi. Make sure you're able to afford the extra payment if it goes beyond your monthly rental income. 

Shop your loans. I found multiple loan officers selling me products I didn't need. I'm a bit on the risk averse side and wanted a fix low interest rate for my properties. I'm sure other products work for other people, but for me I wanted something stable so I'd be OK if the market took a downturn (nothing variable). 

More than anything, just keep at it. I probably wen through dozens of properties, missed out on tons of deals to other bidders until I found this one. I know this is not how it always works out, but getting a good deal is possible if you're consistent enough.