Follow along a Richmond Virginia BRRRR with a commercial LoC

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Follow along a Richmond Virginia BRRRR with a commercial LoC

Eddie Gonnella
Bangor ME & Richmond, VA · Member since 2018 · 166 posts · 106 votes

Just closed today on a BRRRR property in Richmond, Virginia. Bought this one with three partners @Elan Radbil, @Ben Hutto and @Jake Guhy using a commercial line of credit.

Purchase price: $95,000 4bd/3ba

Rehab budget: $40,000

Scope: Paint in/out, foundation work, new plumbing, new flooring, new decks, counter tops and converting a master bedroom into a 1/1 in-law suite. 

Closing/holding/finance costs: $20,000

ARV: $215,000

Rent: $2,200

Next step: Locking in contractors and getting the rehab moving

Any Richmond friends, give a shout if you'd like to check it out sometime!

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Ryan Wydler
Richmond, VA · Member since 2018 · 23 posts · 14 votes
6y

Awesome man, Keep documenting. I like the budget break down. I am working on my first BRRRR in the Fan right now too. Look forward to seeing yours play out. Do you attend in meet ups in Richmond?

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  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    6y

    Very cool! How did the deal come to you? What part of town is it in?

    1Reply
  • Eddie Gonnella
    OP
    Bangor ME & Richmond, VA · Member since 2018 · 166 posts · 106 votes
    6y

    Hey Taylor - we found it on the MLS. Acted pretty quick, toured and offered the first day on site. It's in Fulton Hill - 1520 Williamsburg Rd. We really like that area right now for the cashflow and for the future appreciation if some of the projected development happens like Stone and the Fulton Yard! Can't bank on either of those but they'd be a nice boost if they happen in the future. It's also our first deal as a partnership so there have been some awesome learning opportunities there

    1Reply
  • Ryan K.
    Investor · Richmond, VA · Member since 2015 · 139 posts · 43 votes
    6y

    Hey Eddie, congrats on the purchase! I've been through that house last year, it was being offered through various local wholesalers for a long while before it went on the MLS. Should be a good project, if I remember correctly it had a new roof and electric service and the interior had the bulk finished, and a new second mini kitchen. Sounds like you are converting it into a duplex? I agree that area is improving and getting more attention these days, and will likely continue to do so with the proximity to downtown.

    1Reply
  • Eddie Gonnella
    OP
    Bangor ME & Richmond, VA · Member since 2018 · 166 posts · 106 votes
    6y

    @Ryan K. Hey Ryan, that's correct! You've definitely been inside of it. I wonder whether the price dropped by the time it got to us? It was on the MLS for $105,000 but we negotiated down to $95,000. It does have a lot of the major systems upgraded already as you mentioned. The biggest areas of need are foundation repair and plumbing. As you mentioned, it appeared to have a mini-kitchen on the second floor, but actually none of that had any plumbing. That's our biggest line item right now is fixing most of the plumbing throughout the house. It was a bit of a shady coverup by the seller to have fixtures installed with no plumbing, but we think with the price reduction we still got a decent deal.

    Done some landscaping so far and it's already looking a lot better. We're shooting for a March 1st move-in date for tenants. 

    0Reply
  • Eddie Gonnella
    OP
    Bangor ME & Richmond, VA · Member since 2018 · 166 posts · 106 votes
    6y

    Update after one week: 

    Closing purchase costs came in around $8,000:

    • $4,500 in lender fees/points
    • $2500 in title/legal work (including multi-member LLC creation)
    • $1000 transfer fees

    Our total cash outlay up to this point is $18,523 and we owe a note of $119,283 at 9.375%. 

    We've lined up a majority of work in our scope and scheduled out most of it: 

    • Plumbing for a bathroom and kitchen - $3,800
    • Crawlspace repairs to fix some prior shady work & even out some unlevel areas - $3,650
    • Tile 2 kitchens & 2 bathrooms - $1,800
    • Drywall repairs - $400
    • Add railings and supports to half-finished back deck - $2,800
    • Install 2 interior doors - $300
    • Fix a rotted Yankee gutter and repair some cracked fiberglass cement siding - $1,800
    • 2 full appliance suites (Kitchen/Laundry) - $6,000
    • Fix one broken window - $250
    • Relocate three HVAC vents - $900

    Still, a bit to be quoted/scheduled, but so far we are below our projected rehab budget of $41,250. As part of our LoC we have $33,400 in a rehab escrow account so ideally, we can keep below that number and not bring any additional cash out of pocket.

    0Reply
  • Bob B.
    Investor · Jasper GA · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    @Eddie Gonnella I grew up in Richmond, visit often and thing there are plenty of opportunities there.  Congratulations on your purchase.  

    1Reply
  • Eddie Gonnella
    OP
    Bangor ME & Richmond, VA · Member since 2018 · 166 posts · 106 votes
    6y

    Thanks, @Bob B.! Whereabouts in the city did you grow up and how long ago did you leave? I've only been here for about three years now. My understanding is that the city has drastically changed in the last 10 years, and even more so the last 30 years. If you're ever in the area, I'd be very curious to get your perspective on the different neighborhoods and opportunities! Good luck with your endeavors down in ATL

    0Reply
  • Bob B.
    Investor · Jasper GA · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    I left in 79. I've been here 40 years but still consider Richmond my home.  Grew up in Southside and lived Forest Hills when you could buy a duplex for under $30K. I was a repo guy in the early 70's and never went in the Churchill area after dark and always carried in the daytime.  You are right, a lot of changes.  I don't invest in downtown Atlanta.  My investments are in Cobb, Bartow and Cherokee counties.  

    0Reply
  • Ryan Wydler
    Richmond, VA · Member since 2018 · 23 posts · 14 votes
    6y

    Awesome man, Keep documenting. I like the budget break down. I am working on my first BRRRR in the Fan right now too. Look forward to seeing yours play out. Do you attend in meet ups in Richmond?

    2Reply
  • Eddie Gonnella
    OP
    Bangor ME & Richmond, VA · Member since 2018 · 166 posts · 106 votes
    6y

    @Ryan Wydler First BRRRR in the Fan?! That's sweet. I lived in an apartment on Grace St. last year. I am pretty terrified of that area due to the high purchase price and the age/complexity of those homes, but I'm sure if you do it right you can get a great deal. I'd love to see it sometime.

    I've only attended a couple of meetups since I got started in all of this about 18 months ago. I really wish I did attend more, the ones I did were beneficial. I travel a lot for work so they seem to always be the first thing I push off my calendar. I need to get more diligent on attending them! Do you go to any?

    0Reply
  • Ryan Wydler
    Richmond, VA · Member since 2018 · 23 posts · 14 votes
    6y

    @Eddie Gonnella yeah I’m always eager to meet other BP people in the area. You’re welcome to come by anytime. I’d love to check out your project too.

    I go to the RING meeting pretty consistently, really good information and networking and almost no ‘selling’. They meet on the second Tuesday of every month down at great American ranch in Midlothian. My buddy who does this full time goes to a bunch of other ones in the area.

    Anyways, looks great so far man. Keep putting out content!

    - Ryan

    0Reply
  • Iman M.
    Phila., PA · Member since 2018 · 6 posts · 1 vote
    6y

    @Eddie Gonnella congrats! Can you share any lessons from the commercial loan. Any tips on acquiring one. 

    0Reply
  • Eddie Gonnella
    OP
    Bangor ME & Richmond, VA · Member since 2018 · 166 posts · 106 votes
    6y

    @Iman M.

    Tons of lessons learned as this was our first experience with commercial loan products. 

    1. We could only get a loan if we purchased with an LLC - this was an increased cost because with four partners we had to get a lawyer involved to help us file the LLC and operating agreement
    2. Fees were a lot higher, for example, the commercial lender required an LLC doc review
    3. If we can get the rehab done soon enough, we'll be able to refinance in as little as 3 months because commercial loans have much shorter seasoning requirements

    Otherwise, the loan underwriting and process was very similar to a hard money lender. 9.375% rate with 2 points + some closing fees. We had to submit a rehab budget and they did an appraisal with an as-is and ARV calculation. They will lend 70% of the after repair value or 90% loan to cost (purchase + rehab), whichever is lower.

    The way this particular line of credit works, we had to prove $50,000 in liquidity and this allowed us to get access to a line of credit. So first we are approved for the line of credit and underwriting for that, then each property loan application goes through an underwriting process similar to a hard money loan experience. 

    Let me know if you have any other questions! 

    0Reply
  • Eddie Gonnella
    OP
    Bangor ME & Richmond, VA · Member since 2018 · 166 posts · 106 votes
    6y

    So it has taken a lot longer than expected and of course this COVID-19 has us concerned about tenants, but here's an update of how things are going at our BRRRR.

    • Installed 700 sqft of LVP from Lowes for a total of $2,250 installed
    • Installed 4 new cabinets in the new kitchenette for $800
    • Painted the entire interior trim/ceilings/walls for about $500 - did this ourselves
    • Painted the entire exterior for about $500 - also did this ourselves 

    Still to come: 

    • New countertops for downstairs and upstairs - $2,500 installed
    • Electrical panel upgrade and other electrical - $3,000
    • Fence - $4,500
    • Front deck - $2,500 

    We've learned a lot from this project and I would say two major takeaways right now are:

    1. Find better deals so that you can avoid doing any of the labor yourself and focus on finding future deals
    2. Find a better GC relationship instead of trying to half GC ourselves and half GC with a GC

    We're running into some trouble with the refinance at this point due to a lot of lenders putting a pause on their rental loans for investment properties. We may need to try to engage a more traditional bank now and look for a commercial loan. 

    Hoping to have the place on the market on April 1st for rent! 

    @Jake Guhy @Ben Hutto @Elan Radbil

    1Reply
  • Eddie Gonnella
    OP
    Bangor ME & Richmond, VA · Member since 2018 · 166 posts · 106 votes
    6y

    Our property is finally on the rental market! Here's an updated review of our current financial results: 

    • Purchase price: $95,000
    • Closing purchase costs: $8,000
    • Rehab costs: $41,000
    • Holding costs (interest, utilities, taxes, etc): $5,000
    • TOTAL COSTS: $149,000
    • Target After Repair Value (ARV): $215,000

    For rehab, while we will do some of the work ourselves, ideally we are outsourcing all of this to contractors so that we can focus on the business side of the project.

    But we have to have some fun ourselves! 

    So now that rehab has been completed, what's next?

    1. 1. Buy
    2. 2. Rehab
    3. 3. Rent: Currently have the property posted on Zillow and some other rental software.
    4. 4. Refinance: We are actively searching for a lender to complete our refinance out of the short term line of credit. We would like to find a long-term loan at a lower interest rate to help us keep the property as a buy and hold.
    5. 5. Repeat: If we can hit our target ARV of $215,000 then we should be able to refinance out all of our initial costs and get all of our cashback to do another deal. We still think Richmond is in an excellent position to keep growing so we will continue to buy in this market right now as long as our BRRRR numbers check out!

    Here are some before and after photos:


    And finally, here are some of the professional listing photos that we had done. Well worth the $300 investment in a good photographer.

    1Reply
  • Eddie Gonnella
    OP
    Bangor ME & Richmond, VA · Member since 2018 · 166 posts · 106 votes
    6y

    Here are the photos!

    Fun:

    Before and after:

    Professional photos:

    1Reply
  • Ryan K.
    Investor · Richmond, VA · Member since 2015 · 139 posts · 43 votes
    6y

    The renovations look nice, congrats! It’s good to see another property cleaned up in the city. I originally thought you might covert it into a true duplex with two distinct units, was that not feasible for the house? I haven’t seen any SFRs rent for $2000-2200 in that area, even ones with four bedrooms and/or a large square ft footprint, but with two units you might net that total amount even if you cover utilities if that can’t be separated. 

    0Reply
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