Completed Long Distance BRRR of Turnkey Purchase

[Scott Passman]

I always see so many questions about turnkey properties, long-distance investing, and BRRR'ing properties so I thought I'd share my first investment experience since it consists of all these things.

Details:

Purchased this property in March of 2019 for $107,500 from a turnkey provider using traditional financing and 20% down payment at 5.875%. It is located in a Plainfield, IN which is a suburb of Indianapolis with a great school district, growing population, quick access to the airport and downtown, and is located near large shopping plaza. The plan was always to convert the den into a 3rd bedroom once the renters moved out, which I’d hoped wouldn’t be for a long time, but ended up being 9 months after purchase due to an unexpected death of my tenant’s father. The quality of work performed by the turnkey provider was questionable (at best), and I knew there was work to be done. After getting a contractor out to take a look at the den for adding a closet and converting it to an additional bedroom I learned the full extent of the cover up work done by the turnkey provider’s contractors.

Rehab:

Despite having new vinyl flooring installed upon purchase, the flooring was installed so poorly that it had to be completely replaced again less than 1 year later throughout all 1200+ sq. ft of the house. The house had several floor joists and trusses in the attic that were cut through in order to run venting and pipes that needed to be shored up, some rotted subflooring that was discovered in the bathroom, some drywall needed to be replaced, the whole house was repainted, added a water softener due to the hard water from the well leading to discoloration of the tub, and upgraded the fixtures to make it look nicer. All in, the renovation cost 12k and gave me some additional peace of mind because I knew there was some things that needed to be addressed following the poor work done by the turnkey company.

Refinance:

Last month I wrapped up my refinance of the property and was pleasantly surprised to see that it appraised for 152k which allowed me to refinance at a better rate of 4.75% and get much of my money back out of the property. I really struggled with the decision of whether or not to pull out as much as I could with an 80%LTV or to stay a little more conservative to improve the cash flow and give me more flexibility with my equity. I ended up staying more conservative and refinancing at 70% LTV which allowed me to pull-out about 19k and thus recouped my cost of rehab + 7k of my down payment back. This was initiated pre-COVID 19 and the refinance was a long process with a lot of setbacks and issues that came up. I have to thank @Michael Facchini for getting the loan to close and showing what a stand up job he and his team can do in a chaotic environment.

Financial details:

Pre-Rehab the property rented for $1225/month with a mortgage (PITI) of $732/month which after budgeting 10% for PM, 8% for cap ex, 8% for repairs, and 8% for vacancy left me with ~$75/mo cash flow. Post-Rehab the rent was only able to increase to $1250/mo, but I also had the vacancy in January and early February which made it more challenging to find tenants since it literally went on the market the first week of January after the holidays. So the numbers work out to $1250/mo rent and a new mortgage of $790 leaving me with a projected cash flow of $40/month. This is part of why I chose a lower LTV was to keep positive cash flow while still enabling me to pull out 19k to keep as reserves for the property which has proven especially important with the onset of the COVID-19 pandemic.

Doing this project from out of state presented a lot of challenges for me and I relied heavily on the contractors and my PM to provide me with updates, pictures, lots of phone conversations, and a great deal of learning for how to navigate a long-distance rehab. I found the contractors from a recommendation from another BP member (@Mike D'Arrigo) and they did a great job and were fantastic to work with. I relied a lot on the advice and recommendations from fellow BP members in the Indianapolis area to help get this project to completion so I appreciate all the help. While I know that BRRR'ing a turnkey investment from out of state will likely go south more often than not, this one has worked out for me and I look forward to growing my portfolio.