First Portfolio BRRRR (Deal 1 of 4)

[Joseph Breamer]

The Deal:

Just like going to Costco, we discovered that you can find great deals if you buy in bulk! This was our team’s first experience buying a “portfolio” of homes and we learned so many lessons from this experience. This portfolio consisted of four single family homes and this post goes into detail on one of the properties that attracted us to the package. Future posts will detail the other 3 properties!

Deal Source: Local Huntsville Wholesaler; As a BRRRR investor, our goal is to ensure a quick, easy, and guaranteed closing. We we're fortunate enough to be recommended as a buyer to this wholesaler's deal from our main wholesaler (who we consider our friend and team member) due to the positive closings we have had in the past.

Property Details: 3 bedroom 2 bath SFH, 1,500 sqft, bonus room, down the street from our first property.

Strategy: BRRRR (Buy, Rehab, Rent, Refinance, Repeat)

Estimated Numbers: Purchase: $45k, Rehab: $12k, Rent: $950, ARV: $110k

Financing:

Personal Lending: All of our team’s cash was being utilized on property 1 and 2, but we didn’t want to lose out on this deal and we we’re willing to do anything to make it happen. We knew that this package deal would skyrocket our investment portfolio and teach us a ton of valuable lessons. I was familiar with the concept of “raising money” from BiggerPockets so I understood the value of building this skill, when our partner suggested we should try raising the money to make this deal happen we we’re all game!

Right before we stumbled upon this opportunity I completed the book BRRRR by David Greene, which is an essential read for anyone looking to BRRRR properties. The "Ultimate Package" included bonus material pertaining to personal lending and the material did a great job breaking down the personal lending process and explaining how real estate investors can offer huge value to their passive partners through personal lending.

Overall, we did everything the material taught us and we successfully raised the money required to purchase the entire portfolio!

Rehab & Renting:

For the most part this property only required a cosmetic rehab, but the project felt like it took much longer due to numerous little things popping up here and there. Like any rehab, unexpected things will pop up when you get deeper into the project. However, I am grateful that nothing major really occurred (but everything feels major in the moment when its your first time experiencing it lol). From the top of my head this is what we did for the rehab: replaced all the flooring with linoleum vinyl plank, painted the entire interior, cleaned up the bathrooms, used our leftover paint from property 2 for the kitchen cabinets, installed new kitchen tile, replaced the cabinet hardware, expoxy the counter tops, trimmed the trees, addressed minor electrical and plumbing issues, installed new ceiling fans, tuned up the HVAC, fixed minor dents and holes in the wall, and deep cleaned the entire property.

After we finished the rehab we sent our property manager out to perform the final inspection and she was very happy with the end result. She actually recommended we increase the rent from our originally estimated $950/month to $1,050/month, so we did! We got the property rented in about a week and we have been really happy with our tenant. We did have some ongoing HVAC issues for a couple of weeks after the tenant moved in, but nothing major came out of it and everything is running smoothly now (knock on wood, fingers crossed, etc.).

The Refinance:

The refinance process was very similar to our first deal; We started the application 5 months after purchasing the property and it took about a month and a half to close on the loan. The main difference was the world pandemic we we’re experiencing (and are still experiencing as I write this post). To be honest though, it didn’t have too much of a negative impact on the refinance. The process took a couple weeks longer due to the increased scrutiny of the deal, but we we’re still able to lock an awesome rate due to the economic fluctuations of COVID so it ended up being all good in my book.

The best part of the process though was the higher-than-expected appraisal. When we applied for the loan we assumed the ARV was $110k but when the appraisal came in it came back at $122k!! Nothing beats the feeling of a higher-than-expected appraisal! We asked the bank if we could pull more money out of the property and they had no issue with the request at all. They adjusted our loan based on the new ARV and we got to pull more money out!

The Result:

Purchase: $45,000

Rehab: $15,000

Rent: $1,050 / month

ARV: $122,000

Although the rehab cost a little bit more than expected, it was okay because the rent and the ARV ended up being a bit higher too. In the end we we're able to pull all the money out, pay our personal lenders, place a great tenant within a week, learn more about the rehab process, and cash flow $150 passively (considering all expenses and allowances). Today, this property is on autopilot and we hope to 1031 exchange it into an apartment down the road in about 5-7 years.

Lessons Learned:

Reputation is crucial in the real estate game; Always do what you say and keep your commitments. It may pay dividends in the future!

When raising money take a moment to analyze your current network before reaching out (your family, friends, coworkers, local group/organization members, real estate meetup members, etc.). I bet you’d be surprised the potential you can build on.

Unpredictable weather can add time to the rehab schedule, going forward we plan to do more outside rehab when the weather is good.

We plan to get better inspections of the HVAC during the due diligence period, HVAC always seems to be our most expensive item on our rehabs.

Before & After Pictures:

Available at: https://www.josephbreamer.com/deal3