BRRRR during a Pandemic in San Diego, CA

[Nicole Gilberts]

Investment Info:

Small multi-family (2-4 units) buy & hold investment in San Diego.

Purchase price: $810,000
Cash invested: $120,000

Completed BRRRR method and also added an extra unit to the property for a total of 3 units currently. Lot is zoned for up to 6 units which we plan to develop in the next year or so.

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

We wanted to complete a BRRRR on a multiunit property in SD that would cash flow and appreciate in value. Once we spotted this property we saw immediate value and upside since its a very charming Spanish bungalow. It also had an extra room that would be easy to convert into an additional unit which become a studio.

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

It was my full time job since we were on a time crunch with the 1031. Once we identified, we put in an offer $50K under asking. It was between us and a flipper and our agent wrote a bio on our behalf which ended up getting us the deal. We had to come up $10K to match the flipper, but still ended up getting the property for $40K under list price. We got in at just the right time and had a strong agent.

How did you finance this deal?

We did a 1031 exchange from our vacation rental property in Palm Springs to this 2 unit in San Diego. Proceeds from the exchange acted as the down payment and the rest was 30 year conventional financing.

How did you add value to the deal?

We remodeled the 100 year old Spanish bungalow and turned the living room into an extra bedroom, took down a wall in the kitchen to open up the floor plan, and added french doors off the dinning/living room to give it an indoor/outdoor feel. For the second unit (which was existing) we rehabbed the floors, kitchen, and bathroom and painted for $10K. The 3rd unit (studio) had to be permitted through the city and was completed within 3 months. All 3 units are now rented! 3/1, 0/1,1/1 in total.

What was the outcome?

It worked! We got the refinance done with $160,000 cash out and a new appraisal price of $1,375,000.

Lessons learned? Challenges?

We were about to complete our refinance March 2020 when funding was pulled due to Covid and we were stuck with about $90,000 in debt from our rehab. It took us until June to find another lender and 3 points to complete the refi.. We persevered and it ended up working out in the end, but not as smoothly as we planned.

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

Scott Demoss and myself!

[Jake Jaenicke]

Nicole - First of all congratulations on your successful BRRRR. Have you found it to be advantageous to invest in CA first or would an OOS investment, gain equity, roll equity through a 1031 into another property, and work your way into the CA market better? My girlfriend and I have the investment bug, but we live in Downtown San Diego and the housing cost in San Diego county is extremely high. It is hard to find any deals (for us as brand new investors) that cash flow.