Updated almost 10 years ago on . Most recent reply
First BRRR Deal!
First BRRR Deal
The Buy
This property is literally just down the street from my personal residence. I have noticed it for the last year since we have moved into our house. The paint was chipping and it was just obvious no one had lived in the house for several years. One day on my way home from work I noticed a few people painting the exterior. They didn’t look like professionals so I guessed they were the owners. So I pulled over to talk with them and the conversation went a little like this.
Me -“Hi my name is Jake, is this your house?”
Owner – “Yes it is”
Me – “Do you mind me asking what you plan to do with the house?”
Owner – “fix it up and sell it”
Me – “How much are you asking?”
Owner – “Well Taxable value is $38,000 so that makes it worth $76,000 so that’s what we want”
Me (trying to hold back excitement) “That sounds fair, do you mind if I take a look inside?”
After a brief look inside I see this is a 4 bedroom 1 bath house built in the early 1900’s. It needs a slight rehab and some updating done. I went home and grabbed my girlfriend to show her the house. We chatted with the owners for about an hour and agreed to a purchase price of $75,000.
The house ended up appraising for $115,000 and we closed on 8/14/2015.
Purchase price $75,000
Closing costs $4,000
Estimated rehab budget $15,000
All in for $94,000
ARV $150K-160K conservatively.
The Rehab
The rehab was pretty smooth and came in just a bit over budget at $15,600 and we finished about 7 weeks after purchase. We used a mix of contractors and ourselves to do all the work. We hired someone for drywall, HVAC, a glass block window, carpet and a flat roof replacement. Everything else was done by us. I also was able to experience our first time having to fire a contractor. The flat roof they installed was done poorly, it still leaked and they caught my house on fire. Luckily it was caught early and no real damage occurred. I guess you should screen your contractors like your tenants (lesson learned).
Renting – This is in a nice suburb of Grand Rapids, MI and we were able to rent it within 1 week of posting it online to a nice family with a couple of kids. Property rented for $1,300/month tenant covers all utilities, yard and snow removal. Tenant moves in 11/1/2015.
Refinance – If we decide to refinance this after the 6 month waiting period for my bank it should appraise for a minimum of $150,000 but more likely upwards of $170,000 this spring. At 70% LTV that is $119,000 in cash I can pull out if I decide to. If we refinance my monthly payment with taxes and Ins. Would be right around $1,000 per month and the property would still cash flow positively.
Summary using simple quick math
Purchase price $75,000
Closing costs $4,000
Actual rehab $15,600
All in for $94,600
Cash invested (rehab + down payment) $30,600
Rented for $1,300/ month.
Current payment of $530 including taxes & ins.
Less any other expenses (vacancy, maintenance, etc.) $100/month
+$670 per month in cash flow.
If refinanced cash flow will go to $200/ month but we will have $119,000 in cash to work with.
Probably the best deal we have purchased this year.
See below for some before and after's.
Most Popular Reply
Nice job, but I have a question:
If your expenses are currently $530/month, and if you decided to refinance $120,000 which would add about $680/month in debt service at 6% over 30 years, your monthly costs will be close to $1,200, leaving you with CF not worth mentioning...
Now, I may be off by $200 - let's say I am. In this case your choices are:
Sell the house for capital gain of $50,000+, or
Hold it for unleveraged CF of whatever you say, or
Hold it for leveraged CF of $300 or less (or less :)
So - what makes you think that putting a tenant into the house and holding on is the best option? Do you anticipate huge appreciation? You can't reasonably afford to leave your money in the house, so I am assuming you'll pursue the refi. But, there's no sense in holding for $100 of CF unless there's is going to be appreciation. What's the plan?