Modified BRRR using STR to make 500K

[Kathryn Morea]

Investment Info:

Single-family residence buy & hold investment in Culver City.

Purchase price: $470,000
Cash invested: $60,000
Sale price: $975,000

I bought this house to rent as a short term rental. I invested about 60K in remodeling. This was a modified BRRR. I used private high interest $ to purchase and rehab. Then refi'd with a local bank that did loan in name of LLC at about 5.75% interest business loan. I wasn't able to pull all the money back out, but it appraised high enough to pay off the private lender. I rented it short term for 5 years, making good cash flow monthly (about 2K/mo) and covering the debt service. It was labor intensive, but I had other ones nearby. At the end of 2017, riding the market appreciation in SoCal, I decided to sell (not sure about laws changing for Airbnb's in LA). We got multiple offers over asking, closed in 2 weeks and banked nearly half a million, in addition to 5 years positive cash flow. The 1st photo is the before photo, the others are after remodel and furnishing for airbnb.

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

I was doing fix & flips at the time and a bunch of real estate girlfriends & I went to Cabo for a few days. We were sitting on the beach drinking Margaritas and one of my friends had just bought a bunch of rental condos that we going to cash flow and be paid in full in less than 10 years. We were all so giddy talking about the cash flow and enjoying the beach, I wanted to do the same thing. I made sure the next deal I got would work as a short term rental (which I was already doing).

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

I used an app to make cash offers directly to listing agent. It was sort of a numbers game. I got this house under contract for 500K, it was in pretty bad shape. Once I did the inspection, I asked for a steep discount (about 30K) and surprisingly, the seller accepted.

How did you finance this deal?

I closed with private money loan at 12% interest. Once the remodel was done, I went to the same local bank my friend was using (I already had a credit line and relationship with them) and they did appraisal and I refi'd, paying off the private $ lender in full.

How did you add value to the deal?

I used a contractor I'd used for my flips. We changed the layout, added a bathroom, did all the usual stuff (skim coat, sanded hardwood floors, changed out doors, fixtures, new kitchen, new bath. I hired a designer to buy the furniture and pick the color scheme so it really popped in the photos on Airbnb.

What was the outcome?

I made a lot of money. I wish I had done 10 more of them at the same time. You don't always know it's going to be a home run. Looking back, I think this was a home run.

Lessons learned? Challenges?

Go on more trips to Cabo :-) Seriously though, make offers. Ask for discounts. Involve good people (contractor, designer). Keep looking for more deals.

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

I used an app created by @Will Barnard to make the initial offer. My contractor was Ordorica Construction. Ellen Baldwin did the design work. My lender was International City Bank in Long Beach.