First BRRRR - 10+ units Twentynine Palms, CA

[Tom Murray]

Investment Info:
Small multi-family (10 units) BRRRR investment in Twentynine Palms, CA.

Purchase price: $450,000 (Mar 2018)
Cash invested: $300,000
Post-rehab value: $850,000 (Nov 2020)

First BRRRR, partnered with another investor 50/50 (work & money). Property is actually 13-units / 5 bldgs; first phase of BRRRR on this vacant property was to rehab 10 units and included lots of learning, many mistakes, and a ton of rehab. Result is 10 units online & rented and refi complete. Purchased from previous owner/operator who let property deteriorate and managed poorly. Used handyman and then contractors for all work. Rehab took 14 months in total; refi took another 17 months. Best part has been the learning! Now on to rehab the last 3 units and refi again.

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

Partner and I had been looking for small MFR that penciled to learn how to rehab and begin building a reliable passive income stream to supplement (and eventually replace W-2 income).

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

Our realtor invested in the same area, and our research uncovered a poorly marketed / vacant apartment complex.

How did you finance this deal?

Used seller-carried 1st (25% down); DP was covered from HELOCs against our primary residences. Along the way, used an LOC against another investment property and a hard money lender to cover rehab costs. Refinance was with a regional bank in CA.

How did you add value to the deal?

The apartments were run down and in need of all new kitchens (cabinets, counters, appliances), complete bathroom rehab, new HVAC (swamp coolers & furnaces >> mini splits), and the property needed electrical and plumbing updates.  We also cleaned up the exterior significantly, painted interior and exterior, and added an outdoor space for tenants.

What was the outcome?

Rehab was building by building, so we began placing tenants throughout rehab. Post-rehab and stabilization, we began to seek long term debt (early 2020); however, COVID slowed our financing search significantly. Stayed the course and used a broker to find us a CA regional bank willing to do a cash out refi. CoC return after 10-unit rehab is 7%; expected CoC after remaining 3 units come online is 12%.

Lessons learned? Challenges?

* Don't use handymen for big rehab, and don't try to remotely manage contractors (i.e., GC is critical).
* Everything costs more than expected, or... we need to do better at estimating.
* We got really creative with financing, and I definitely believe that if you have a deal, the money will flow.
* Hiring the right property manager (or wrong one!) can make or break you (we fired our PM 12 months in).
* So many others...

-Tom Murray, Pavo Group, LLC