Lessons learned from my first BRRRR

[Marsay Winder]

BeforeAfter

I did my first BRRRR deal back in 2017 and paid all cash for it at through a wholesaler (source of funds - HELOC). The deal was a fourplex and had 3 tenants at time of purchase but the rents were well below market value. I took the opportunity to renovate one of the units and did a pretty hefty overhaul that cost me about 20K. During that renovation, a second tenant moved out. Since I was already working on one unit, I opted to add new flooring, tile, and paint to the second. Nothing major, about 3K worth of work to get it rented out and to increase rent amounts. After renovations, the property appraised for 98K and allowed me to pull most of money back out.

Lessons learned from my first refinance:

1. I took out a 10 year not on the property instead of stretching out payments to increase cashflow.  While this would give the property free and clear much faster, it would not allow me to utilize leverage to my advantage.

2. I went after the interior first and not the exterior.  The renovated unit was really nice and the rent went up from 500 month to 650, but the return on these repairs would take forever to recapture.  Had I gone after the outside first, I believe I would have gotten a more significant bump in the first appraisal and cut down my renovation budget from 20K on the unit to about 10K.  

3. Working in my business and not on it.  At first, I did some of the demo work on my own after receiving sticker shock from some of the contractor bids (I grew up in construction, built my own home, and my father is a contractor).  While I was capable, I used up a precious commodity - time.  

Fast forward two years later, I opted to add new vinyl siding and vinyl windows. I put about 30K into the siding and windows on this go around. This bumped my ARV amount to 120K and I was able to refinance again and pull most of my repair money back out.

Lessons learned from the second phase

1. Double payments from having to do two closing transactions.  Ouch!!  If I had it to do over, I would have combined the two and worked smarter.

2. Systematically increase rents.  When I purchased the property, the pro forma for the four units rented out for 1735/mo.  We have systematically increased the rental amounts and showed our tenants the value ads to the property and currently we are receiving rents at 2165/mo.

Overall, this property taught me a ton.  There were several headaches and growing pains, but thankful for the experience.  It helped me tremendously as we've grown to 5 properties with the goal of adding 1-2 more before the year is out.