First BRRRR Project in Lexington, KY [Infinite COCR!]

[Eric Martin]

Investment Info:

Single-family residence buy & hold investment in Lexington.

Purchase price: $55,000
Cash invested: $25,000

Brought a 3 bed/1 bath brick ranch in Lexington back to life by completing my first BRRRR project.

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

We saw from the tax records that this house was non-owner-occupied (a good indicator that the owner is most likely a landlord) and that he bought it 30 years ago. We cold-called the owner and discovered he was eager to sell and retire. The condition of the property was awful, which allowed for a low purchase price and significant room for rehab.

How did you finance this deal?

We utilized a hard money lender for the purchase and repairs which cost about $80,000 in total ($55,000 purchase price + ~$25,000 repairs & interest).

How did you add value to the deal?

To force appreciation and attract higher quality tenants, we made the following improvements:

-Replaced roof and windows
-Refinished hardwood floors
-Installed luxury vinyl plank flooring in the kitchen and bathroom
-Updated the bathroom
-Painted the kitchen cabinets, replaced countertops, added tile backsplash
-Painted the entire interior

What was the outcome?

Our property manager listed the house for rent at $1,050/mo and received a rental application within the first few days. We refinanced with a local bank that agreed to lend us 80% of the appraised value. The property appraised for $117,000, meaning we could borrow up to $93,600. We decided to borrow the full $93,600 at a 4% rate amortized over 25 years (5/1 ARM). This allowed us to not only pay off the hard money loan but also pull out about $13,000 extra.

Lessons learned? Challenges?

There are a lot of real estate horror stories that depict things that could go wrong. But this deal has been a textbook example of the magic of the BRRRR method. We acquired an appreciating asset that cashflows each month all while using none of our own money (infinite cash-on-cash return baby!). Now it's time to repeat the process!