First BRRRR completed

[Casey Christensen]

Investment Info:

Small multi-family (2-4 units) other investment.

Purchase price: $60,000
Cash invested: $158,000

I just wrapped up the refinance portion of my BRRRR for this property. It is in the process of being rented out at this point for $1,200/month on each side with tenants paying all utilities. This was an incredibly challenging experience with lots of ups and downs and an incredible learning experience. I ended up putting in almost $225K into it over the last 10 months, between renovations, holding costs, some repairs etc. My first appraisal came back lower than I wanted ($270K). I had my GC go back out and change a couple things and the second appraisal came back at $305K, which was more than I hoped for. I was able to finance 70% ($213,500) and get most of my money back. I learned that closing costs for a refinance are very expensive. I paid almost $13K for closing costs and escrow expenses, only about $10K was lender fees etc. So I ended up with about $202K back or about 90% of what I put into it. So total my monthly expenses will total about $1,800/month including P&I, PM, taxes, insurance, lawn care, repairs and maintenance, replacement reserves and other. I am factoring about a 10% vacancy rate or about $280/month so with that my costs go to about $2,100/month. total monthly income will be $2,400/month for a net cash flow of about $300/month.

My cash flow wont be as high as I thought because the week we were closing on the loan my lender realized that the back yard of my property is in a flood zone and they still require flood insurance even though the house is not. Flood insurance added about $250/month in insurance costs. A good lesson learned here as I now know how to check that. I initially relied on my insurance agent who missed it in the flood zone. My lender also missed this the first time through underwriting and only caught it on a final review. I plan on working with a surveyor and seeing if I can get the flood map amended and have this requirement removed. If I am able to get it removed that will push my cash flow to about $550/month.

This was far from a perfect deal and I made several mistakes along the way. However overall the learning experience has been invaluable and it will still be a profitable deal even with all the mistakes I made. I am excited to take what I have learned and apply to the next deal. I have had some great team members around me to help along the way and that had made a ton of difference. I learned that you really do need good people around you to succeed. Also trust but verify. If I had just asked how to check for myself if it was in a flood zone or not, I probably could have had the map amendment process behind me before finishing the loan and not have been required to put flood insurance on it. Also if you are buying a property that needs a full rehab and has a tenant in there that hasnt paid rent in a few months, ask the seller to evict before closing. That was another issue I faced early that delayed the project 3 months.

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

I love the idea of recycling my money. I want to replace my income with real estate and the BRRRR method seemed like a good way to get there faster than buying a turnkey investment.

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

My Agent found it off-market and brought it to me. We were able to negotiate the price lower after the inspection since it was in worse condition than we originally thought. We started at $75K and closed at $60K by the end.

How did you finance this deal?

I used cash to buy the deal and to renovate as well. I used some of my 401K and some of a HELOC on my primary residence to get through all the rehab.

How did you add value to the deal?

We did a full gut job renovation. Basically everything is new; roof, siding, windows, electric, plumbing, HVAC, kitchens, bath, flooring etc. It was a big job that was complicated further with a bad tenant at the beginning and COVID delays along the way.

What was the outcome?

I was able to finance 90% of my money out of the deal and it is being rented for $1,200/month with residents paying all utilities.

Lessons learned? Challenges?

There were a lot. Most I addressed in the description. I now know to check the flood plane when looking in this area. I now know what to expect in refinance charges. I know to make the seller evict the troubled tenant they put in there if they havent paid rent in months. Always verify any information that could cost you money down the road, even when you trust the people as they can miss things and make mistakes. I will work on putting a better process in place to work with my GC in the future.

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

Yes Remington Lyman was my agent and is awesome. I have been using ERA realty solutions for my PM and have been mostly pleased with them. I used Chris Wharton of First Ohio Mortgage for my lender. I thought the costs of the refi were high, but that seemed to be true of all lenders I talked to. Chris was easy to work with, is knowledgeable and is great for investors.