BRRRRing a FSBO Deal From a Friend.

[Donny Hughes]

Investment Info:

Single-family residence other investment in Des Moines.

Purchase price: $150,000
Cash invested: $30,000

This is a SFH that I bought from a friend (FSBO) at $150,000. He was in the middle of a collection of projects and just wanted to put his hammer down. I picked it up and put 30,000 into it and refinanced it at $190,000 6 months later. Although this is a single family home, I rent it by the room to college students at the local university who want a communal living space, functioning similarly to a frat house. I personally know these tenants, so I have no fear of them destroying the place!

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

This deal revealed to me how real estate investing really is a business meant to help all involved. I knew I wanted to be able to invest again, so I thought a BRRRR deal would be ideal for keeping the cash rolling. My friend was in need of moving fast, and by buying his problem, I found that we would both win in the deal. This gave me inspiration to see REI not only as a means of financial freedom, but also as a community service.

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

Because the seller and I were friends, It made the buying process very easy. He had a deal on the table already, so I just bumped the offer up by $6,000 to seal it. I told him I'd get the paperwork all set up to take stress off him and make the process go faster. This was the main motivator for him; speed and efficiency was the fuel in the tank for this deal.

How did you finance this deal?

I took an inheritance I had from a family member ($40,000) and used it for the down payment ($37,500) and I had saved $30,000 from my W-2 for repair costs. In the future, I'd like to see if I can find private investors first before putting all of my own cash into it.

How did you add value to the deal?

I put in the first $20,000 worth of work into it myself. This included mostly cosmetic work, including paint, floors, kitchen work, etc. I had budgeted $15,000-$20,000 in repair costs originally, but my city's inspection standards were recently revamped, creating more requirements for me to meet, hence more work to complete. The last $10,000 worth of work I had to hire out because it was all work I didn't know how to do myself. Exterior storm windows and deck building codes were a most of it.

What was the outcome?

I refinanced at $190,000 getting my $30,000 back! I expected more of a profit; however, as far as a first deal goes, I think I did pretty well! I'm ready to recycle those funds into another property, but I'm looking to get some help from some private investors.

Lessons learned? Challenges?

I learned that you can't do everything yourself. It's OK to ask questions about things you don't know, because if you don't, you can definitely get a rude awakening! Much of this process was more about learning as you go; you don't need to know everything at once, but you do need to seek the answer. Challenges included not knowing exactly what my inspector wanted and finding private money to fund the deal. I could have asked more lenders to find an offer where I could put down 20% not 25%.