My First BRRR property (Philly)

[Niyi Odumosu]

So I decided to write a post about my first BRRR property. I realized that like me there are a ton of new real estate investors who are trying to get in the game, in the process of getting in the game or just got into the game and is figuring this **** out on the go. I belong to the latter category.

In February, I decided to purchase on a property in Philly. It's 4 br 1.5 bath home in East Germantown and the sales price was for $105k. The comps of homes that had been renovated in that same area and was sold within the 6 months prior to that ranged from $140k - $160k so I figured that if I got the sale price a little lower, I could potentially have a deal. The home needed mostly cosmetic work (new paint, new carpet etc.) so I put in an offer for 95k and it was accepted by the seller. The house had tenants living in it, and my realtor and I were very adamant about making sure they were gone from the house before we closed (that's a whole other story in itself). Once it was inspection time, we found out that the heater was an old oil furnace that no longer worked and the top and back roof needed a new rubber roof. There was also some termite damage 😳. The seller agreed to pay to fix all of those issues. This included a new gas efficiency heater, 2 new 2 rubber roofs and the treatment for termites. Negotiating these conditions taught me the importance of having a MOTIVATED SELLER.

At this point I knew the closing was imminent and I had to finalize my rehab budget to make sure this deal would make sense. Below are the numbers I was playing with:

Sales Price - $95k
Rehab - $25k
Total investment - $120k

ARV - $150
Cash out Refi (80% of ARV) - $120k

As you can see my margin for error was slim to none. After a bunch of delays with the bank and them ordering my appraisal, the appraiser finally went out to the house and appraised it. He did a before and after appraisal (which made me extremely happy because a lot of appraisers don't do that). The current AS-IS value was $100k and the rehab value was $155k based on the comps he had. At that point I was more confident in the deal and decided to get some contractors to walk through the house and give me a quote. For whatever reason, a lot of contractors I reached out to on Angie's list and HomeAdvisor only worked in the suburbs around Philly but not in the city itself (I wonder why 🤔). Ultimately, I got a contractor to come out and give me an estimate of $26k for the rehab. Below is the renovation breakdown:

Once the bank, title company, the seller and myself agreed on a closing date in April, the sellers paid for the installation of the new roofs and new heater. They already treated the termites by that time. Once I got the keys I reached back out to my contractor and told them that I was looking to start rehab in May. My first mortgage payment is June 1st and I knew that timeline was unrealistic to have it rented. So I am aiming to have it rented out by July 1st. They started the rehab this week on Tuesday. So far they removed all the old carpet and they put in a new drywall ceiling and wall in the master bedroom on the top floor. Lots more work to do but I'm excited for the process. New budgeting numbers:

Sales price = $95k
Rehab costs = $26.6k
Total costs = $121.6k

ARV = $155k

Cash out refi (80% of 155k) = $124k

I will be lying if I said I'm not nervous about the current housing market. The estimated renovated appraisal came in at $155k but that was at the beginning of the recession and when I actually refi who knows if the housing market will continue to tank. That is why my goal is to refi as quickly as possible but I do plan on shopping around for the best financier. So there's still quite a bit of work ahead of me. Nonetheless, I'm determined to make the deal work!