BRRRRing through the Pandemic

[Raina Bayas]

On Friday, March 13th, my husband and I got the email that our new investment property closed. We were sitting in a midst of toys with both kids, now out of school for the foreseeable future, scrambling on our laps and pulling at our hair (they’re 4 and 2), wondering if we just made an insurmountable mistake. At the same time, our phones beeped with the emergency alert notifying us that Colorado was under a stay at home order, ordering us to refrain from leaving the house unless on essential business. Talk about an ominous Friday the 13th.

This was our third property in Memphis. We started our investment journey November, 2019. At the time we closed on this deal, we had one property being rehabbed and we were waiting on the appraisal after a cosmetic rehab of our second property.

Despite all the unknowns, our real estate agent telling us that we could back out of the deal any time before we closed, no successful BRRRRs yet, we decided to push forward. Why? Because after hundreds of hours listening to success stories on the Biggerpockets podcast and reading books on real estate, we knew we needed to feel the fear, do it anyway and get in the game.

Here’s how it unfolded:

List Price: $103,100, 4 bedroom, 2 bath SFR

Purchase Price: $60,934

How did we get a deal so far under list? First and foremost, our real estate agent is a rock star. The property had been on the market for almost an entire year and we figured the seller was probably desperate to get rid of it. The property was also unrentable in its current condition, so neither owner occupants nor turn key investors were even considering it. We gave them a low offer of $60,000 based on what we deemed the value was at its current condition and they accepted. We closed on this deal on March 13, 2020.

Renovation Pro Forma: $11,430 (labor) + $6000 (materials) + $6000 (HVAC), Estimated Time to Complete: 30-45 days

Actual Renovation: $11,610 (labor) + $ 10,581 (materials and HVAC), Time to Complete: 63 days

The renovation included prepping and staining the hardwood floors, installing new LVT in the kitchen, entryway, and downstairs extra bedroom, painting kitchen cabinets, full interior and exterior paint, installing a new shower pan and fixing tile issues, fixing drywall, building a fence on 1/3 of the property, installing a new HVAC system, and re-finishing some of the concrete driveway and front step.

The project was significantly delayed but I’m not sure how much of that can be attributed to the Stay at Home order. Home Depot, Sherwin Williams, and the other home improvement stores were open and had inventory, so we know availability of items did not cause a delay. However, increased demand did delay our ability to get the roll off trash container and concrete delivered to the house. Our contractor could have also been working with a smaller crew than he usually does to abide by social distancing.

Total All In: $87,764

Estimated ARV: 118,000

Appraisal: $123,500! Received May 22.

We were worried that housing values would have started to go down two months into the pandemic, however, this was not the case. Anecdotally, we noticed prices either remaining steady or slowly creeping up as inventory lessened. During this time we were outbid by other investors on properties that sold for more than the numbers justified. The appraisal report confirmed our suspicions and found that days on the market within the last 3 months were shorter (42 days) than the prior 4-6 months (95 days) and prior 7-12 months (131 days), and sale house values significantly higher within the last 3 months.

Equity Remaining: -4,861

We did delayed financing and were able to pull out this extra money in addition to our all-in costs.

Rent: $995

The property manager listed the house for rent a few days before Memorial Day and received 14 applications that weekend! When we asked about whether that type of activity is normal or if the rent was set too low. She said before the pandemic she would have worried that the rent was too low but that the pandemic brought a significant increase in rental showings and applications.

So that’s the scoop on what effect the Stay at Home order and the beginning of the pandemic had on this property. I’m so glad went through with this deal despite all the unknowns.

I hope everyone is staying safe and healthy. On to the next deal!