Our BRRRR in Richmond VA with Before & After Photos

[Brett Alphin]

Hello BP!

I wanted to share our latest "buy and hold" deal with you. It was a short sale with some twists and turns, but in the end, a success. 

I actually found this one on Zillow, which is rare because everything on Zillow is usually a retail deal. This was a 4 bedroom 2 bath 1,728 square foot SFR, listed as a short sale for $130,000. And it was UGLY.

It was "Real Estate 101" though. The worst house on the nicest block. It was also at the end of a cul de sac with a nature preserve next door to give it some privacy. It was in a good neighborhood and a great school district. Thanks to the BP podcast, I know that the school district is very important when choosing a rental property. Even if the tenants you end up with don't have kids, good school districts attract better tenants. Period. 

It took two months to get an accepted offer from the bank at $115,000. The elderly lady that owned the house wasn't in great health, and her adult aged grandsons who had been living with her had nearly killed her. They were constantly in trouble, and cops were a regular fixture outside her window. She knew, the only way to get rid of these heathens, was to sell the house. 

The bank, at the last minute, wanted us to close in 20 days instead of the agreed upon 30. Luckily we have amazing escrow and title people, and they rushed to get it done. Finally, we were ready to close and we only needed one more signature from the owner, who was now in the hospital on her death bed! Her real estate agent didn't think she was going to make it. Which was terrible, in and of itself. But also, if she had died before signing, the deal would have been dead as well. Luckily, she recovered just in time and signed the contract. We had a deal, and she was feeling much better now that the stress of this house (and her criminal grandsons) was off her shoulders. The very last thing we needed to do was to record the sale at the county courthouse. That day, there was a bomb threat. The courthouse was on lock down and there was nothing we could do. Finally, after 7 long hours, they cleared the building and our title guy was able to successfully record the sale. 

These things happen in real estate...

Financing

We used private money purchase this property and only had to come out of pocket $26,533. We will refinance in one year to a traditional 30 year fixed loan and pay off the private money lender. Our cash flow will increase by $150 a month after the refinance. 

Renovations 

Renovations cost us $22,000 and took 3 weeks. I decided on this one, since the outside was so ugly, to compensate with much nicer finishings on the inside. This house would normally rent for about $1300 a month. But with our choice of laminate hardwood floors and stainless steel appliances, we have a signed lease in just one week for $1,595 a month! It cost us an extra $5,000 or so to go with the nicer floors over carpet, and stainless steel appliances over the cheap ones. But I credit those expenses with the great tenants we found, and in record time. I would consider this project a big success! Time to find another house... to hold. Thanks for reading!!!

Here's the numbers:

Purchase Price: $115,000.00

Purchase Closing Costs: $2,533.00

Repair Costs: $22,000.00

Total Cost of Project: $141,533.00

After Repair Value $178,000.00

Down Payment: $0.00 (we just paid the repair, points, and closing costs out of pocket)

Loan Amount: $115,000.00

Loan Points: $2,000

Private Money Loan Interest Rate: 7.000%

Monthly Income: $1,595.00

Vacancy $63.80 (4%) 

Repairs $15.95 (1%)

CapEx $15.95 (1%)

Insurance $48.00 (3%)

Management $127.60 (8%) 

P&I $670.83 (42%)

Property Taxes $113.50 (7%)

Total Monthly Expenses: $1,055.63

Monthly Cash Flow: $539.37

NOI: $14,522.40

Total Cash Needed: $26,533.00 

Cash on Cash ROI: 24.39%

Purchase Cap Rate: 12.63%

Before & After Pictures

[Mike Roy]

Exactly @Ryan K..  $9,570 over 25 years, which will not cover the new roof, HVAC, appliances, plumbing & electrical repairs, and several carpet replacements and paint jobs.  If this is a true buy-and-hold, you want to set aside a reserve that covers repairs and capex indefinitely.  For my multis, we usually figure about 10% of gross income, but you might figure more with a single family since it doesn't benefit from the same economies of scale enjoyed by multis.

Also, if you're hiring third-party management, 4% for vacancy probably won't cut it.  The market vacancy might be 4%, but you must also factor the tenant placement fee into your vacancy cost.  Even if you're self-managing, 4% vacancy is just 14.6 days out of 365.  Single family tenants do tend to stay longer, but if you're underwriting the deal at 4%, you're not giving yourself much breathing room!

And not to pile on, but I don't see an expense item for landscaping.  You've done a great job with it, and I assume you'll want to keep it that way?  Not a huge cost, but a cost non-the-less.

I think that the longer you hold this property, the thinner you'll find your actual margins to be.  If you can get $178k for it, I think it's a nice flip.