First Out Of State BRRRR (During PANDEMIC!)

[Josh Feldman]

Investment Info:

Single-family residence buy & hold investment in Shelbyville.

Purchase price: $28,000
Cash invested: $72,000

Contributors:
Kwon Do Lee

Successfully built and managed a team to aid in the completion of our first BRRRR project located in Shelbyville, Indiana. Purchase price + rehab cost +Closing costs + Holding costs = $72,000 all in. Renting for $950 per month. Estimated ARV = $95,000 - $100,000. Estimated ROI after refinance >40%. All during a PANDEMIC! Huge credit to Jeff Wallenius (CEO of North Peak Investments and guest on Podcast #241) for mentoring us through the process.

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

We want to build our portfolio to 50 units in 5 years and create a long term wealth legacy for us and our families, using passive income to replace our current income down the line. We are starting with SFH's in the midwest because the price to rent ratio's are significantly more desirable than in our respective markets (Long Island, NY and Los Angeles, CA)

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

We narrowed down our target market and surrounded ourselves with the best of the best in that market that could help us find deals. We found this deal off-market from Jeff Wallenius, whom we built a relationship with during the generation of our business and team. He had a connection that allowed him to whole-sale the deal to us and helped walk us through our first BRRRR, giving us advice and mentorship along the way. We went out to Indiana and met up with the team that we built.

How did you finance this deal?

We funded it with our cash. Kwon Do and I opened an LLC and funded our bank account 50/50 with enough money to cover all expenses on these types of deals. We discovered what we wanted for our target market and demographic/property type and became very familiar with everything involved in making deals work out there. We then funded our account accordingly to make sure we had enough to do continuous BRRRR's.

How did you add value to the deal?

From discussing with our team members, we knew what would be necessary to get top dollar rent out in Shelbyville, Indiana without overpaying for rehab costs. We used fantastic contractors to give us guidance and rehab our interior/exterior accordingly to make sure the property was up to par with the up-and-coming surroundings. We networked with individuals in the neighborhood who were able to give us updates from the ground.

What was the outcome?

We are just waiting to refinance the property (obviously this may be the only cog in the wheel considering the pandemic) but so far our purchase+rehab+closing costs+holding costs were all exactly within our budget to ensure that our ROI was at least 15% and our monthly net cashflow was at least $100-150. We ended up renting for $50 per month higher than originally underwritten because of demand and quality of the rehab. We will be cash flowing even higher with a higher ROI than anticipated.

Lessons learned? Challenges?

We learned to make sure to continuously follow up on our contractors to ensure their original scope of work was completed. Part of the bid was to remove garbage in the crawl space but the interior contractor forgot to take care of it. Our Pest Control guy took pictures of the basement and asked if we knew there was still garbage down there. It is important to make sure everyone holds someone accountable and have multiple checks and balances of each step of the way.

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

We worked with Contractors, Property Managers, Agents, Lenders, Inspectors, and Attorneys. We would recommend using Elisha Drake from Vue Property Management Group (rock star!!) and her team of brokers to help get the ball rolling. She connected us to an awesome agent, to Jeff Wallenius, to our Attorneys, and everything kind of snowballed from there in terms of networking. We vetted every single person using multiple references.

[Josh Feldman]

@Jonathan Tran thank you! My partner and I started by reading David Greene's Long Distance Real Estate Investing book. There are so many good pieces of information in there that we used directly from the book to begin networking and educating ourselves. We started with his "core 4," which are the deal finder, contractor, property manager, and lender. We first connected with our property manager through bigger pockets, simply searched for one in our target area, found her email and property group info, and reached out to her. she got right back to us and we started a conversation and really liked the system she had to offer. we vetted her company by asking her for references, some of which came from BP. She connected us to our deal finder and our broker (our deal finder ended up becoming our project manager and we established a cut that we would pay him to still be within our target numbers), and we set up a phone call with them to tell them our goals and strategy. they were on board and helped connect us to contractors, all of whom we talked to over the phone and got multiple references. The lender was just from me and my partner calling as many community banks in the area as we could find and asking them if they have worked with out of state investors, and also telling them our goals and strategy. we found one that we really like and have been in constant communication with him the whole way. the final step for us was to go to Indiana and meet with our team, take them all out to lunch/dinner, and get to know them on a more personal basis and motivate them to work hard with us and for us, that we werent a flash in the pan investor group, and we were in it for the long haul and really believed in our system and market. we also jumped on one of the first deals he brought us to show him we werent joking around. we made it happen and our deal finder got his cut and everyone was happy :). No issues with tenant so far, our Prop Manager has a system in place to deal with issues up to a certain cost, and contacts us for issues above that cost.