My first BRRRR - 1,100 SF, 3 bed, 1.5 bath single-story SFH

[Jimmy Suszynski]

Investment Info:

Single-family residence buy & hold investment in New Castle.

Purchase price: $39,766

Foreclosure listed by Reverse Mortgage. Purchased for $36k, total purchase including closing = $39,766.

Incurred additional costs during rehab when I discovered that the bathroom walls/floor were rotted due to leaking shower walls. Added time and money to the overall scope.

Tenants pay $905/month + all utilities - I pay for trash at $16/month.

Anticipated cash flow is $180/month including property management though I plan to manage until I reach 5 units.
Goal CoCROI = infinite.

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

I wanted to try the coveted BRRRR strategy on a property bought purely as an investment. This property is lower cost and only a 1,100 SF, single-story home so maintenance shouldn't be too big of a problem. The neighborhood is very predictable - the ARV and rents are stable and the demographic is older.
I wanted something I could put my hands to work on and learn from experience. I've done flips before but nothing for myself.

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

I saw it listed on the MLS in the middle of the quarantine period. The price was high but I analyzed the numbers anyway. I determined what I could pay to make the deal work and forgot about it. I got an alert that the price had been cut and immediately reached out to the listing agent. My uncle went and walked through and estimated rehab costs (he's a contractor). I made an offer the next day.

How did you finance this deal?

Personal loan for the purchase price - the high-interest rate was built into the analysis.
0% credit card offer for the materials - the offer is good for 14 months, if SHTF and I can't refinance, I can always take advantage of a balance transfer to another card to restart the clock for a few hundred bucks.
Contractor in the family for labor & materials that he provided - I offered him 10% interest for anything he provides. The bill is due when I refinance the property in February.

How did you add value to the deal?

I added a 1/2 bath and installed tough flooring throughout to allow for small dogs and cats. When I listed it for rent, I had far more inquiries than I expected. I took a step back and relisted it at a higher price point. I still had a lot of messages but less applicants qualified due to income requirements. I interviewed a handful and picked an older couple who felt like the best fit.

What was the outcome?

I am still waiting for the seasoning period to end to do the appraisal/refinance. If it appraises where I'd like, I will be able to pull out everything I put in. If it comes in a bit low, I will still come out with a high CoC ROI.

Lessons learned? Challenges?

Plan for the unexpected to happen and keep the timeline modest. If the bathroom didn't end up being rotted, I would have gotten the tenants in on time. Since I needed to redo the whole thing, I had to push their move-in date by 2 weeks and lost the first month's rent. Could have been much worse.

Don't rely on family businesses to do work. If my uncle did what we agreed on, bathroom would have been discovered the weekend after closing, not a month later when I found it.