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

[Mike Brown]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $20,000
Cash invested: $14,400

Detailed deal break down at http://303fleetwood.com.

SFH in Waynesville, MO, purchased from aging relative; purchased at $20k with $36k purchase/rehab loan from small local bank. Invested additional $14.5k cash for all-in amount of $50k; appraised for $102k after rehab. We're refinancing to 30-year fixed at 4.75% with local credit union the week of 20 Dec 2021; will get $44k cash-out, which returns $14k invested and gives about $30k additional. Big home run here!

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

This was purchased from an aging relative and she gave us a great deal on it. At $20k, I knew there was going to be an upside. It appraised in March 2021 based on our planned upgrades at $77k.

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

Our aging relative was already selling and they had a low offer from someone else. We offered $5k lower and she sold it to us instead.

How did you finance this deal?

We used the same small town local bank as our first BRRRR, The Bank of Iberia. They gave us a 6% interest-only purchase and rehab loan for $36k. We put $4k down and paid about $1k in closing costs. I figured it would take about $20k to rehab. I was way off because I didn't get any estimates from contractors. This was a dangerous mistake but it worked out. We paid out of pocket for some materials and did some DIY to make up the difference.

How did you add value to the deal?

We added the 3rd bedroom back as a wall had been taken out decades ago to convert it to a 2-bedroom; added a new metal roof since the carport showed signs of past leaking, new vinyl plank everywhere, new paint, gutted the kitchen, added new appliances and new cabinets, added beadboard panelling to the kitchen and one bedroom to cover up some old wallpaper, new baseboards, replaced all wood windows with vinyl, new carport ceiling, new wheelchair ramp.

What was the outcome?

Thanks to COVID, it appraised for above our initial ARV of $77k. It came in at $102k. We're all-in for about $50k. We'll get an 80% LTV for a 30-year fixed at 4.75% and walk away with about $44k, which returns our $14k invested and gives us an additional $30k to look for another deal!

Lessons learned? Challenges?

I should have had contractors give estimates. It worked out this time, but it could easily have not. My initial interest-only loan from the bank for the purchase and rehab didn't require flood insurance. We knew it was in a flood plain, but by the time I started refinancing out, I forgot about flood insurance or thought it wouldn't be required somehow. Initial quotes were pushing $200/mo, which would kill all cash flow and then some. But my all-star insurance agent found some for $40/mo.

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

Yes, we used dual-agency with our relative's agent. She was fine and a family friend. Now she's on the lookout for more deals for us.