My first BRRRR deal - a breakdown at http://303fleetwood.com

[Mike Brown]

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $43,000
Cash invested: $25,400

See a detailed deal breakdown at http://303fleetwood.com

What made you interested in investing in this type of deal?

It was in my hometown, it was within my price range, and I was confident in what I could do after a couple of years of learning, mostly on Bigger Pockets, and getting my personal finances in order.

How did you find this deal and how did you negotiate it?

I found this on the MLS as a REO in late 2019, just before COVID hit. My realtor, also an investor, didn't want me to do it. It was listed for about $49,000, I believe. A couple of back and forths with offers and counters and we settled at the selling price. My realtor estimated the ARV to be $80,000, but I didn't have her pull comps.

How did you finance this deal?

This was a 25-year commercial loan with a 2-year balloon from a small local bank. I was worried about the 2-year balloon but the banker said they'd simply keep extending the 2-year loan but after revisiting the interest rate. Since I was still working on my improving my personal finances, this was a 7% interest rate. I eventually re-financed after the rehab was completed to a 30-year 4.125% rate with the credit union I bank with. All rehab money was out-of-pocket.

How did you add value to the deal?

We rehabbed the larger unit completely, replaced wood windows on the smaller unit with vinyl. Before and after pics are at http://303fleetwood.com

What was the outcome?

We refinanced out of the 2-year balloon commercial loan to a 30-year fixed with my local credit union. The duplex appraised for $117,500 and we bought it for $43,000, put about $25,000 into it out-of-pocket, including 20% down, rehab, and holding costs. We walked away at closing with about $57,000 deposited into our checking account. We used most of it to pay off debt to put ourselves in a much stronger position moving forward. We've since completed another BRRRR deal on a SFH in the same town.

Lessons learned? Challenges?

I'm not a typical DIYer, so doing all the work was hard for me. My father-in-law helped a lot, but it took a year to complete. It shouldn't have taken so long. I shouldn't have used laminate floors, there's already been some slight water damage, causing a few boards to curl at the edges. I also didn't estimate the rehab well. I didn't have comps pulled to estimate an ARV. It worked out well in the end b/c I went with my realtor's hand-waving of an ARV at $80k and it appraised for $117k.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I still work with my realtor, Lisa Ellis, but I've taken a note from Jerry Norton on YouTube and try to work with the listing agent on MLS deals so they're a bit more incentivized to help me out.