McHenry BRRRR - not a good experience

[Carrie Alluri]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $145,000
Cash invested: $79,000
Sale price: $199,000

Newly renovated including brand new bathrooms and large, bright kitchen with lots of cabinets. Brand new Central AC. All mechanicals are new within 5 years. Large lot with shed on S side of property. New flooring, carpet and fresh paint throughout. Nice, quiet neighborhood with a view of the Fox River.

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

The owner was very motivated to sell the house as he was moving out of state for a better job opportunity and to be closer to family. The property also had another lot attached to it, giving it a very large yard with a large barn/shed.

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

I was referred this property from a fellow member of LCPIA who didn't want to take on the rehab.

How did you finance this deal?

I took out a hard money loan for 80% of the $145K purchase price and funded the rehab myself. I then refinanced at the end of the rehab and rented it out for $1905/month.

How did you add value to the deal?

I painted the kitchen cabinets, laid LVP on the whole first floor minus the bedrooms and rehabbed both full bathrooms. Then I had the whole interior painted.

What was the outcome?

Unfortunately, the appraisal came in at only $160K. I tried to dispute it but the appraiser wouldn't budge. Also, I rented out this property starting Feb 1, 2020 to a terrible tenant. COVID shutdown went into affect soon after the tenants moved in. They ended up not paying any rent due to the moratorium and have disappeared after moving out in Jan 2021. I had to repaint and put down new flooring due to the damage they did to the house. I ended up selling it for $199K.

Lessons learned? Challenges?

If I ever rent to tenants again, I will not allow pets over 25lbs and will base my tenant selection only on their credit and background checks. I let their sympathetic letter to me cloud my judgement and paid for financially in the end. I will also shop around for a refinance load if I do another BRRRR deal. I shouldn't have settled for the bad appraisal just because I purchased the house with the that company.

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

None that I would recommend.