First Buy & Hold - BRRRR in Houston

[Brian Alfaro]

Investment Info:

Single-family residence buy & hold investment in Houston.

Purchase price: $57,000
Cash invested: $17,000

Bought a 3/2, 1950s home from a wholesaler. I used a Hard Money Loan to purchase + rehab. First BRRRR!

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

First Buy & Hold Rental! This home was in a zip code that was appreciating and getting hot for flippers. It's a C/D class neighborhood with long term potential due to it's proximity to major city attractions and Downtown Houston.

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

Wholesaler. They wanted $65k, but we settled at $57k. I knew it needed anywhere from $40-45k in rehab to make it rent ready and my calculations were all based on a $130k ARV to be conservative.

How did you finance this deal?

Hard Money loan for $99k- I only brought $9,800k to the closing table after paying points, closing costs, etc. 75% of the ARV was financed.

How did you add value to the deal?

We turned the formal dining room into a 4th bedroom as it already had a window and coat closet. We also decided towards the end of the rehab to install a new painted fence around the property for safety & security and for curb appeal. This was not in the original SOW. In addition, the City of Houston repaved by garage driveway without notice which was great.

What was the outcome?

Rehab went a little over budget at $52k due to A/C challenges and fence addition. The post-rehab appraisal on the refinance came back at $145k, $13k more than the pre-rehab Hard Money appraisal. I was able to refinance without bringing any money to the closing table and have the opportunity to pull cash out if I wanted. The property will rent for $1,400 per month. Very little cash left in the deal!

Lessons learned? Challenges?

So much was learned! First, securing your A/C is important in these neighborhoods. The property was purchased with an A/C unit, but it was stolen on closing day. In addition, learning to manage the draw schedule and your cash reserves is vital to staying alive. You need to have good communication with your contractor and a clear plan up front on when he/she will be paid. I also learned to be more detail oriented when inspecting to get a property rent-ready.

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

Noble Mortgage - Hard Money Lender in Houston. They were great! Awesome customer service.