My First BRRRR Deal in San Diego, CA!

Real Estate Deal Analysis & Advice
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My First BRRRR Deal in San Diego, CA!

Jon Khalil
(n/a) · Member since 2018 · 41 posts · 10 votes

Investment Info:

Condo other investment.

Purchase price: $490,000
Cash invested: $6,400

A 3 Bed, 2.5 Bath 1400+ Sq.Ft. Condo located 3 minutes away from SDSU. This property was purchased using 0% down and 0 PMI from our Credit Union. 6.25% interest rate. Closing costs were about $8300 and we received a seller credit of about $3350. We plan to fix it up doing all the work ourselves, get it rented by December 1st, and refinance once rates are back in the 2-3% range to see real cash flow.

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

It was the best way to get our foot in the door. After researching all different types of methods of investing in Real Estate, I found that the BRRRR method was the best for long term wealth and being able to cash-out refinance is the key to receiving tax free money to go buy the next property.

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

Redfin, we looked at comps and had to make an aggressive offer since this property was in a multiple offers over listing situation.

How did you finance this deal?

We invested 0% down and only paid closing costs, which after the seller credit we actually ended up getting about $4K back.

How did you add value to the deal?

TBD- we are planning on upgrading the floors, fixtures, paint, and Kitchen.

What was the outcome?

TBD/In process

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

Twana Rasoul is a great Realtor here in the SD area, and he made our transaction smooth and we were very happy with the end result. I highly recommend him.

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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
3y
Quote from @Tim G.:

This feels like a very thin deal, banking on rates in the 2-3% range is highly speculative and risky. Did the realtor you're referencing here back you up in this thought process? 

 I share Tim’s concern. I will say @Twana Rasoul and I typically have similar mindset but here are some concerns: 1) multiple offers basically implies you paid at least retail (there are some exceptions, but they are rare) 2) I see no value add costs and no ARV 3) the zero down implies to get anything from the refi will require at least a 25% value add (assuming #1 is correct) 4) these "high" interest rates are very reasonable by historical standards. We may never see sub 3 rates again. No one knows if or when rates will drop appr3ciably. 5) prices have fallen over the last few months. Assuming we are not at the bottom implies the value add must first recover any loss of value from the depreciation to even recover your value add costs.

Local Flippers have heavily curtailed their acquisitions over the last few months. No one knows what the future holds, but I would not acquire as an investor anywhere close to retail (I typically do not look at paying retail) at this uncertain time.  I may be interested at 20% below retail.  Even at 20% below retail, my holding costs will be greater than having paid retail at the beginning of this year due to rates doubling.  

I wish you the best and hope my concerns are all unfounded.  

Good luck

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  • Anthony To
    San Diego, CA · Member since 2017 · 34 posts · 15 votes
    3y

    How do your numbers work out at current rates? And when do you expect to be able to refinance at rates closer to 3% again? Please keep us updated, I’m also in the San Diego market and very very rarely do I see a deal here that works for brrr

    2Reply
  • Chun (CK) Kuo
    Member since 2019 · 1 post · 2 votes
    3y

    Could you share how to pay zero down to buy this condo?

    2Reply
  • Tim G.
    Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
    3y

    This feels like a very thin deal, banking on rates in the 2-3% range is highly speculative and risky. Did the realtor you're referencing here back you up in this thought process? 

    4Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    3y
    Quote from @Tim G.:

    This feels like a very thin deal, banking on rates in the 2-3% range is highly speculative and risky. Did the realtor you're referencing here back you up in this thought process? 

     I share Tim’s concern. I will say @Twana Rasoul and I typically have similar mindset but here are some concerns: 1) multiple offers basically implies you paid at least retail (there are some exceptions, but they are rare) 2) I see no value add costs and no ARV 3) the zero down implies to get anything from the refi will require at least a 25% value add (assuming #1 is correct) 4) these "high" interest rates are very reasonable by historical standards. We may never see sub 3 rates again. No one knows if or when rates will drop appr3ciably. 5) prices have fallen over the last few months. Assuming we are not at the bottom implies the value add must first recover any loss of value from the depreciation to even recover your value add costs.

    Local Flippers have heavily curtailed their acquisitions over the last few months. No one knows what the future holds, but I would not acquire as an investor anywhere close to retail (I typically do not look at paying retail) at this uncertain time.  I may be interested at 20% below retail.  Even at 20% below retail, my holding costs will be greater than having paid retail at the beginning of this year due to rates doubling.  

    I wish you the best and hope my concerns are all unfounded.  

    Good luck

    5Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    3y

    What's the over/under we see this property listed for sale by this time next year.

    Don't want to be negative but I don't see how you're going to rent that thing out for an amount to provide cash flow.  If you can, *that's awesome*.  It's just that's the most important metric in this whole thing and it was left out. 

    4Reply
  • Jon Khalil
    OP
    (n/a) · Member since 2018 · 41 posts · 10 votes
    3y

    @Tim G. Hey Tim! You’re right, they are certainly speculative. But I have multiple exit strategies. If rates don’t go down after this recession (which on average lasts about 17.5 months- you can fact check this on Google) then we will just use it as a medium term or long term rental. Worse comes to worse, we bought this deal under market value and we had instant equity when we bought according to our appraisal. We can always just sell it, take out the equity and move onto the next property. After adding value ourselves, we expect to win in the next 2-5 years, even if rates don’t come down.

    0Reply
  • Jon Khalil
    OP
    (n/a) · Member since 2018 · 41 posts · 10 votes
    3y

    @Dan Heuschele hey Dan. Thank you for your thoughts, and sharing your concerns. Ultimately, we found that we can make this deal work with multiple exit strategies.

    1) we bought below retail according to our appraisal report and data. A similar floor plan sold for $530K fully renovated in August. We bought ours at $490K. I know it's a thin margin, but we loved the location being so close to SDSU that we figured we can always have this be a rental in the long run. 2) We are renovating ourselves and plan to add value to get it to an ARV of $530K+ (Conservatively). 3-5) we are certainly speculating and you could be turn about the rates, but in reality no one knows. Whether they go up or down, we have an exit strategy to come out on top of this deal. If we can't BRRRR we can sell it. If we can't sell it, we can always have it be a short, medium, or long term rental depending on what our goals are at the time and what would be most profitable. Ultimately, we wanted to get our foot in the door with a property in a great area and we feel we can definitely make this deal work in a number of ways. The long term goal for us is cash flow, so that is why we hope that BRRING this deal will be the optimal strategy.

    0Reply
  • Jon Khalil
    OP
    (n/a) · Member since 2018 · 41 posts · 10 votes
    3y

    @Cody L. Renting per room we can cover our mortgage right now. Refinancing would just be gravy. Besides, we could turn this into a medium term rental and easily cash flow (with more cash invested for furnishing of course) but we don’t care in a year from now what it will be worth because in 5-10 years, especially in SD, it will be worth a whole lot more. It’s all about the long game my friend.

    0Reply
  • Jon Khalil
    OP
    (n/a) · Member since 2018 · 41 posts · 10 votes
    3y

    @Cody L. To give specifics, our Mortgage came out to $3339 and our HOA fee is $450. Giving us a total of $3789. We are hoping to turn this into a medium term rental where we can get anywhere from $4-5K per month in revenue.

    0Reply
  • Jon Khalil
    OP
    (n/a) · Member since 2018 · 41 posts · 10 votes
    3y

    @Chun Kuo Navy Federal Credit Union- first time home buyer program

    0Reply
  • Jon Khalil
    OP
    (n/a) · Member since 2018 · 41 posts · 10 votes
    3y

    @Jon Khalil didn't know about 3 and 4, if that's true and I cant Refi I can still take out a HELOC or sell. I also get the benefits of tax savings, appreciation, and rent increases over time whether I refi or not. I appreciate all the knowledge you provided because it's good to know, but I'm any worse case scenario, for my first deal, there is an Avenue I can take to come out on top.

    0Reply
  • Tim G.
    Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
    3y
    Quote from @Jon Khalil:

    @Tim G. Hey Tim! You’re right, they are certainly speculative. But I have multiple exit strategies. If rates don’t go down after this recession (which on average lasts about 17.5 months- you can fact check this on Google) then we will just use it as a medium term or long term rental. Worse comes to worse, we bought this deal under market value and we had instant equity when we bought according to our appraisal. We can always just sell it, take out the equity and move onto the next property. After adding value ourselves, we expect to win in the next 2-5 years, even if rates don’t come down.

    I wish you the best, but your agent failed you.

    there’s no point in me saying anything else, I wish you the best and please don’t hesitate to reach out if things get ugly. We’re here to help. 
    0Reply
  • Jon Khalil
    OP
    (n/a) · Member since 2018 · 41 posts · 10 votes
    3y

    @Tim G. Tim, I think you see failure from your POV. Let’s look at the facts:

    1) I have a property that I got at under market value ($490K worth $530K)- instant equity

    2) I can now take advantage of Real Estate benefits such as tax benefits, appreciation, rent increases, and potential * cash flow

    3) I bought in a great location- 3 minutes from San Diego State University

    4) Multiple exit strategies- Sell, HELOC, Refi, or Rental

    5) I’m only 25 years old. I’m 10 years, this conversation won’t matter.

    Negatives?

    - higher than normal interest rate- 6.25%

    - high HOA fee- $450 per month

    - having to fix up everything ourselves- lots of work, time and money up front.

    Overall- you tell me how is this a failure at all? Maybe in your terms it’s a failure because you wholesale and buy at deep discounts to flip, which I understand, but that’s not my goal here. Short term profits are your game, long term wealth is mine.

    1Reply
  • Jon Khalil
    OP
    (n/a) · Member since 2018 · 41 posts · 10 votes
    3y

    @Tim G. By the way, by things “getting ugly” do you mean the market correcting? If so, I just hold and keep paying my mortgage and nothing happens. I’m really trying to understand your POV but with no context to your answer it’s hard to wrap my head around it.

    0Reply
  • Collin Wallace
    Homeowner · Joshua Tree, CA · Member since 2022 · 69 posts · 30 votes
    3y

    Sounds like rent by room is your only option to cash flow.

    I don’t see the property cashflowing as a MTR or LTR. $3750 + cap ex, vacancy, etc would put it over $4,250/mo in order to cash flow. 

    1Reply
  • Jon Khalil
    OP
    (n/a) · Member since 2018 · 41 posts · 10 votes
    3y

    @Collin Wallace yes, but there are more than 1 ways to get paid from real estate. Debt pay down, appreciation, raising rents, and Tax benefits will pay me a lot more than a net positive cash flow of $100-500.

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    3y
    Quote from @Jon Khalil:

    @Cody L. To give specifics, our Mortgage came out to $3339 and our HOA fee is $450. Giving us a total of $3789. We are hoping to turn this into a medium term rental where we can get anywhere from $4-5K per month in revenue.


    Is mortgage $3339 or is PITI $3339. The numbers are right between what I expect. P&I $3017, piti $3570. I hope for your sake it is PITI, $3789 + $190 (vacancy) + $125 (maintenance/cap ex) + 300 (PM) = $4.4K. Add $550 additional if number is only P&I.

    I am surprised if fully renovated property same floor plan sold for $530k that your property even appraised at $490k.  1) San Diego RE values are down >10% since May and down 2.5% in the last month. 10% alone on $530k is $53k and you purchased at $40k less than $530k.  This can be explained because $530k rose for ~6 months before stabilizing and then declining in value. 2) the comp property is renovated and yours needs renovation.  $40k difference on a condo for renovated versus Not renovated seems reasonable.  3) you indicated you had to beat multiple offers.  These bidding scenarios seldom result in a sale below appraised value.  Under such conditions, I question the appraisal. 

    Examine exit strategies:

    Who provided your MTR rent estimate? It is grossly off. The MTR strategy will be huge cash flow negative. I have some of the longest STRs on this site and they are in San Diego.  Your numbers are too aggressive. 

    Selling: prices have fallen >10%.  Fed has announced further rate hikes are likely (virtually for sure).  Rates are likely to increase. RE is likely to fall further.  The selling costs will likely be in the 6% to 8% range. Selling in near term is not likely to be a good option  

    Rent by room is only non negative cash flow option that you mentioned.  It requires a lot of work but at least you will not bleed cash. Be prepared for student tenants and how poor they take care of things.  Be prepared for regular turn over. 

    You will learn from this   If you are able to hold 10+ years you will do fine  

    Good luck

    4Reply
  • Khari F.
    Kissimmee, FL · Member since 2018 · 150 posts · 27 votes
    3y

    Hi @Jon Khalil is that ARV based on a single property? What will be LTV if you do HELOC?

    0Reply
  • Account Closed
    Member since 2022 · 1 post · 0 votes
    3y
    Quote from @Chun (CK) Kuo:

    https://sniperpedia.com/difference-between-airsoft-and-bb-sniper-rifles/


    Could you share how to pay zero down to buy this condo?

    0Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    3y

    @Jon Khalil

    I don't know anything about the SD market, but I share some of the other concerns raised here.

    IF you can break even each month, and hold it for 10 or 30 years, then yes, you'll be OK.  But even if that's the case, don't you have a huge loan sitting on your personal balance sheet?  This can make it harder to borrow for other deals.

    And, I didn't see a clear break-out of actual expenses.  "Covering the mortgage" is not the goal with a rental.

    I'm not trying to discourage you, was just surprised to see this called a "BRRRR" when it's not. And not being a BRRRR is OK!

    0Reply
  • Jon Khalil
    OP
    (n/a) · Member since 2018 · 41 posts · 10 votes
    3y
    Quote from @Dan H.:
    Quote from @Jon Khalil:

    @Cody L. To give specifics, our Mortgage came out to $3339 and our HOA fee is $450. Giving us a total of $3789. We are hoping to turn this into a medium term rental where we can get anywhere from $4-5K per month in revenue.


    Is mortgage $3339 or is PITI $3339. The numbers are right between what I expect. P&I $3017, piti $3570. I hope for your sake it is PITI, $3789 + $190 (vacancy) + $125 (maintenance/cap ex) + 300 (PM) = $4.4K. Add $550 additional if number is only P&I.

    I am surprised if fully renovated property same floor plan sold for $530k that your property even appraised at $490k.  1) San Diego RE values are down >10% since May and down 2.5% in the last month. 10% alone on $530k is $53k and you purchased at $40k less than $530k.  This can be explained because $530k rose for ~6 months before stabilizing and then declining in value. 2) the comp property is renovated and yours needs renovation.  $40k difference on a condo for renovated versus Not renovated seems reasonable.  3) you indicated you had to beat multiple offers.  These bidding scenarios seldom result in a sale below appraised value.  Under such conditions, I question the appraisal. 

    Examine exit strategies:

    Who provided your MTR rent estimate? It is grossly off. The MTR strategy will be huge cash flow negative. I have some of the longest STRs on this site and they are in San Diego.  Your numbers are too aggressive. 

    Selling: prices have fallen >10%.  Fed has announced further rate hikes are likely (virtually for sure).  Rates are likely to increase. RE is likely to fall further.  The selling costs will likely be in the 6% to 8% range. Selling in near term is not likely to be a good option  

    Rent by room is only non negative cash flow option that you mentioned.  It requires a lot of work but at least you will not bleed cash. Be prepared for student tenants and how poor they take care of things.  Be prepared for regular turn over. 

    You will learn from this   If you are able to hold 10+ years you will do fine  

    Good luck


     Dan, 

    This is great stuff. Thank you sincerely for providing me with numbers, logic, and data behind your concerns and helping me actually learn something. 


    To answer your question: 
    My ALL in cost (PITI) is $3789.25. + $190 (Vacancy) + $125 (Maintenance/CapEx) + $0 (PM) We will be self managing = $4104.25

    Exit Strategies: 

    By MTR, I mean that I would MTR per room because that is much more profitable and from looking at other listings on Furnished Finder I have come across similar properties doing anywhere from $3200-$5000 depending on location and how nice the property has been renovated. Our property is a 5 minute walk to Alvarado Hospital in SD, making it an ideal location for Traveling nurses. Id much rather rent to them than to college students. 

    Selling: We do not plan to sell in the short-term at all. We want to ride the wave of appreciation in San Diego. Data shows that prices will increase tremendously over the next 5-10 years. Short-term? Yes rates will rise and RE will continue to drop- no question. However, the average recession lasts about 17 months historically. Source: https://www.forbes.com/advisor... after 17 months things should stabilize and steadily rise again once the Fed is done raising rates, we definitely plan to hold onto this for at minimum 5 years. 

    Rent by Room: This is our plan. You are right about student tenants, but ultimately we get to decide who our tenants are. We are targeting Military Personnel and Traveling nurses to rent our extra rooms out. 

    I appreciate your sentiments and taking the time to teach me something, I really appreciate this discussion! 

    0Reply
  • Jon Khalil
    OP
    (n/a) · Member since 2018 · 41 posts · 10 votes
    3y
    Quote from @Nicholas L.:

    @Jon Khalil

    I don't know anything about the SD market, but I share some of the other concerns raised here.

    IF you can break even each month, and hold it for 10 or 30 years, then yes, you'll be OK.  But even if that's the case, don't you have a huge loan sitting on your personal balance sheet?  This can make it harder to borrow for other deals.

    And, I didn't see a clear break-out of actual expenses.  "Covering the mortgage" is not the goal with a rental.

    I'm not trying to discourage you, was just surprised to see this called a "BRRRR" when it's not. And not being a BRRRR is OK!

    Hey Nicholas, 

    Regarding the loan on my balance sheet- yes. However, there are plenty of ways to still buy a 2nd, 3rd, or 4th home. From my understanding, and asking other RE professionals, it actually gets easier after securing your first home to borrow and buy more. 

    You are also correct that "Covering expenses is not the goal with a rental" and thats not my goal, I was speaking in worst case scenario terms, id like to at least break even every month. My goal is to cashflow positive. 

    It may still be a BRRRR if I can refinance and pull money out if/when rates drop below my current rate of 6.25%. If I cannot do that, then we will explore other exit strategies. 

    Thanks for chiming in. 
    0Reply
  • Jon Khalil
    OP
    (n/a) · Member since 2018 · 41 posts · 10 votes
    3y
    Quote from @Khari F.:

    Hi @Jon Khalil is that ARV based on a single property? What will be LTV if you do HELOC?


     1) Yes, that is the only property with the exact same property that has been sold recently. 2) I do not know. 

    0Reply
  • Eric RoenkerPro Member
    Carlsbad, CA · Member since 2008 · 22 posts · 7 votes
    3y

    Wow, lots of tough love going on in this thread.  Long term wealth starts with buying something and holding on for years/decades.  Even if you have to hold on by your fingernails, lol.  This is a thin deal, but if you can make it work during the lean times, it will only benefit you in the end.  If/when we get interest rates back to 3/4%, you can laugh at all of negative-nancy's in this forum.

    Good luck Jon!

    2Reply
  • Thripura Vemireddy
    Flipper/Rehabber · Alpharetta, GA · Member since 2014 · 65 posts · 22 votes
    3y

    Jon

    Though it is Thin deal, the good point is you put things into action.

    Tomorrow recession comes you can jump in easily with this  experience.

    0Reply
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