BRRRR Without the Rehab!

[Benjamin Hartman]

Investment Info:

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

Purchase price: $19,000
Cash invested: $21,000

Paid $19,000 cash, then refinanced it 6 months later at an appraised value of $24,000 without making any renovations. I was able to pull out $18,000 of equity which gave me an effective purchase price of $1,000!

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

It was my first deal, so I liked the purchase because of the low entry price. I knew I was buying it at a price below market value, so I anticipated it appraising for higher 6 months down the road.

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

I was looking for property managers in the region. I came across one and they advertised properties for sale (off market) on their website. I found a property I liked, so I bought it and the PM continued to manage it.

How did you finance this deal?

I had most of the cash saved up, but I did have to take out a personal loan for $6,000 using my car as collateral. I then paid cash for the deal.

How did you add value to the deal?

I honestly didn't do anything to increase the value. Throughout the couple years I've owned it I've made repairs and updates, such as replacing kitchen cabinets that were broke. But during the first 6 months I did noting to increase the appraised value. I just bought it well!

What was the outcome?

I did a cash out refinance and now continue to hold it as a rental. It brings in $850 a month in rent with only a few hundred dollars a month in expenses, plus the mortgage. It cashflows well, especially as a first deal!

Lessons learned? Challenges?

I've learned that management of class D properties can be quite a headache. The cashflow is good, but an investor needs to ask if the extra work is worth it. I've learned this even while having an excellent property manager.

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

Unfortunately the property manager I bought this duplex through has retired. But, if she were still open, I would recommend her to anybody!