Long Distance BRRR Strategy in Chattanooga, TN

[Steven Hasslinger]

Hello BP!

I am seeking an initial BRRR investment in Chattanooga and want to build the team to get started. Feedback is welcomed:)

My criteria:

• Safe neighborhood, good schools.  Comfortable walking after dark. (C+/B- or >)
• Total investment (purchase and repairs) max of 75% of property's ARV or put simply 25% equity upon rehab ending.
• 1% rule upon renting (e.g. all in purchase cost 100K then rent=$1000/month).
• $250 cash flow per door/month upon refinance

My Budget:

• $55K cash
• $22K home equity line of credit (on another rental).  Applying for increase to $45K.
• Lines of credit at HD or Lowes for materials.

Strategies:

1)   Cash Purchase 

Example: Purchase 75K and finance 30K rehab with Lowes, ongoing savings of 4K per month and credit lines/cards =$3K holding costs

All in $108K. 6 month rehab and 6 months rental seasoning. ARV $145K allowing $100K cashout at 70% LTV.

Leave $8K in the deal, rent at $1350 allowing me to cashflow $300 after refinance with ~$45K equity.

2) Hardmoney purchase and rehab allowing for a better product in a better neighborhood. Assume 2.5 points, 12% interest, 25% down as this is my initial BRRR and hardmoney loan.

Example: 150K purchase + $30K rehab=$180K.  Loan of $135K (75%).  Put in $45K cash + $12K holding costs ($1800 x6 mos while rehabbing and $150x6 months while rented) =$57K all in.

ARV $250K allowing $175K cashout at 70% LTV. Rent at $1700 monthly allowing me to cashflow $300 per month after refi. Leave $17K in the deal with ~$75K equity.

Goal: Repeat it every 9-12 months over the next 5 years.

How realistic are my thoughts on this? I look forward to establishing a team and learning from your feedback.  Thanks!

[Kelly Rastatter]

Looks like good strategies. One of the biggest hurdles here right now is a trades bottleneck. Getting material in a reasonable amount of time, finding good contractors who will actually work and are reasonably priced, and banks and appraisers are so swamped that it's very difficult to get your loans on the refi. I just had it take 6 weeks to get 4 appraisals and then they came in about $40k low on every single one because they didn't bother to try and find legit comps. Brrrr in Chattanooga is tough right now. It can be done but you'll need patience and boots on the ground that you trust and know in real life. There are big players here who have large operations and are taking advantage of out of town investors. Do your full due diligence on everyone you consider working with and don't take their word for anything. 

You may be better off trying it out closer to home before you branch out to another state. The strategies are good though!