First BRRRR Deal to be buy & hold as a student rental property.

[Adam D Rinehart]

Investment Info:

Single-family residence buy & hold investment in Prairie View.

Purchase price: $110,000
Cash invested: $155,000

The house was a reverse mortgage foreclosure purchased as a 4/2 with 1,741 sf of living space and an attached garage. My renovation and rehab will convert the formal dining room to a 5th bedroom and create a 3rd full bathroom from an oversized second master closet adjacent to the dining room. The attached garage will also be converted to additional living space so that sufficient common area is available to the tenants as well as increase the appraisal value (hopefully).

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

The location of the University is outside of the development area that has surrounded the greater Houston metroplex over the last 10+ years. This lack of development in the immediate area around the University as well as the surrounding County as a whole coincided with a large increase in student enrollment over the last 3-4 years. The subsequent housing shortage has created a huge demand with a constant supply creating rent rates that aren't seen outside of student rental markets.

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

MLS deal. There was no negotiating, Federal Law requires reverse mortgage foreclosures to be sold for the appraised value they are listed at.

How did you finance this deal?

Unsecured business loan from "side hustle" LLC where I provide land development engineering services to small developers.

How did you add value to the deal?

Added an additional bedroom and full bathroom as well as increased the living space by approximately 500 square feet from a garage conversion. Upgraded the interior to current trends and demands.

What was the outcome?

To be continued...

Lessons learned? Challenges?

Finding financing was a huge challenge on this deal. I went from having a silent money partner one week, to not within the span of 10 days. My hard money lender approved me for 80% deals using my income and credit score, but then refused to fund the deal due to lack of available comps (rural area with housing shortage) and a minimum loan of $100k. I ended up getting a business loan for 100% of the purchase price and was able to be a "cash buyer".

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

Not particularly. I used the listing agent since she was also the HUD broker.

[Adam D Rinehart]

Now that I'm a little over 3 weeks into the rehab and renovation of this deal, I thought I would share some photos and give you an update on the exit strategy. Photo 1 was the formal dining room at the front of the house just inside the entry. The drywall replacement on the ceiling was damage that I thought was from old roof damage due to improper flashing installation that had since been repaired. I was wrong. When we turned the water on, we quickly found the cast iron sewer pipe from the upstairs bathroom had a crack in it running for about 15' feet. Add another $500 to replace that, day 1. Photo's 2 - 4 are the current status of this room and the primary value add to the project, where this room is being converted into a 5th bedroom with an added private bathroom (3rd full) and closet.

Photo 1

Photo 2

Photo 3

Photo 4

In case you're wondering where the space came from to put the bathroom and closet, the answer to that was taking it from the existing "master" aka downstairs bedroom. See Photo's 5 & 6 to see how I walled this room off and converted the seated vanity area and 2nd closet for this room into the value add.

Photo 5 (The vanity area to the rear left and second closet barely shown behind it. The open door to the right is an additional closet space under the stairs)

Photo 6

The next value add I'm doing is adding square footage to the house by converting the garage into additional living space. I did this by removing the existing garage door rails, secured the garage doors (self tapping screws) to the existing framing in the down position, built an insulated wall in front of the garage doors and added an HVAC duct in the ceiling. Since this house is in a residential neighborhood with an HOA, any exterior modifications would require their approval. Going this route bypasses them all together since the exterior remains unchanged but I get an extra 400 sf of living area for consideration during my cash out refi appraisal. This area will serve as additional common area space for the tenants that also houses the washer and dryer as well as the water heater. I wanted to do this primarily so that the kids had a flex space to make their own (within reason) so that I would be able to compete with amenities provided by apartment complexes. See Photos 7 - 9. If I ever decide to sell the house and it makes more sense to market it as a traditional SF home, it wouldn't be too much cost to tear down the wall and install new garage door hardware to reclaim the attached garage.

Photo 7

Photo 8

Photo 9

So that's where the big items currently stand. My GC said we're about 3 weeks out from completion which triggered me to contact the bank I've already lined up and start the cash out refi application process. Their internal due diligence placed the ARV at $250k and will send their appraiser out once the house is substantially complete but not quite move-in ready. The remaining items are run of the mill renovation work but I'll be sure to post more pictures as the finishes start going in and the bathrooms and kitchen transformations are ready for reveal.