First (Unsuccessful) BRRRR House

[Donald S.]

Investment Info:

Single-family residence buy & hold investment in Saint Louis.

Purchase price: $44,900
Cash invested: $51,100

Contributors:
Naveen C Reddy

Single family house bought through a wholesaler, financed 100% with private money, and refinanced in Nov 2019. Ended up leaving ~30k invested into property after refinance appraisal came in lower than expected.
The Property had a lot of problems that didn't show up upon our initial viewing even though we walked through with our contractor to determine what work would need to be done. We should have had a professional inspection as well, but thought our GC would be enough, he was not.

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

The property is in a great up and coming neighborhood and the potential rent to cost ratio should have provided us a great opportunity for monthly cashflow and appreciation.

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

A wholesaler we know in the area who does a lot of deals brought this to us. We did not negotiate a lower price as we thought it was fair. Upon further review, we should have negotiated.

How did you finance this deal?

Private, no payment, loan from friends who were interested in doing lending.

How did you add value to the deal?

We planned on doing this as a BRRRR from the beginning and I performed a CMA to determine what we could reasonably expect the ARV to be for refinance purposed.

What was the outcome?

Had our initial repair estimate been correct we would have been able to pull out all of our money, as it turned out we ended up leaving about $30k invested in the property, but it will still profitably cash flow.

Lessons learned? Challenges?

I'm always doing an independent and professional inspection from now on. Even though our GC went through, he missed a ton of stuff that needed to be done. I'm also done working with wholesalers who pretend that they are the end buyer.