My wife and I started listening to Bigger Pockets about three years ago and soon realized that there lay many opportunities for us to invest in real estate and make a better return than what we were in the stock market.
In January of 2018 I started sending yellow letters to local absentee owners who had properties assessed at less than $100K. I got a roughly 10% response rate and on hand written letters and hand addressed invitation envelopes. I only sent letters until we got our first property under contract, which was approximately one month in after about 5 offers. The sellers of that property were a family who had inherited a house from their Aunt and were interested in selling because it needed extensive repairs. It is an 800 sq. ft. 2 bedroom 1 bath cottage on a 1/2 acre lot just off a country road. We acquired it for $45K and put another $85K into the rehabilitation. It appraised for just under $150K, we rented it for $1250/mo., and pulled out $110K on the refinance. After reserves it cash flows approximately $200/mo. on a 15 year note. The rehab took us just under 10 months doing a fair amount of the work myself. It wasn't a home run by any means, but we considered it a good start and very educational. That property has had the same tenant from the beginning. She is a terrific tenant and routinely texts us just to say how much she loves living in that little house. We have had one maintenance call in 16 months that cost about $90.
We purchased our second property while we were still finishing that cottage. The second was a 1 bedroom 1000 sq. ft. bank owned condo in an upscale property near the city where I work. We knew it would not be an income producing property, but my wife liked it very much and we are considering it for use as a residence when we are ready to downsize that significantly. We acquired the property for $94K and put $30K into the rehab. It appraised at $137K and by the time we refinanced out we have about $25K left in the property and after condo fees and reserves we cash flow about $150/mo. on a 30 year note. That one rents for $1300/mo. and took us approximately 7 months to finish with the help of my brother-in-law who works as our project manager for an hourly rate (which is included in our rehab costs). Our tenant loves living there and always pays on time. We have had one maintenance call on this property that cost $60.
Just after finishing the first property but midway through the condo rental I started my yellow letter campaign back up and acquired the next property. It was another 2 bedroom, 1 bath bungalow only this time it was right in the small town where we live. It is approximately 1000 sq. ft. and we purchased it from an older couple who had inherited it as a rental about 30 years prior. When they inherited it the property was occupied by a tenant his parents put in place. That tenant stayed and paid rent faithfully for the whole 30 years they owned the property. They never raised the rent on him, but they also did little to repair or maintain the property, which was in poor shape when they inherited it. We picked it up for $50K and put another $60K into the rehab. It appraised at $150K and rents for $1200/mo. After reserves and PITI for the refinance we cash flow a little less than $200/mo. We rented to a young couple we go to church with who moved in right after their marriage and they always tell us how much they love their "little house." They put a fire pit in the back yard and rocking chairs on the front porch and regular invite their friends over to socialize.
The last four properties we purchased from the estate of an investor. They are all townhouses in the two closest towns to our primary residence. It's funny to say that because we are actually living in one of them now because we sold our primary residence shortly after acquiring them and haven't found a replacement property yet. None of them are rented yet, but they are almost all completely renovated and we anticipate refinancing to get all of our money back and cash flowing about $1000/mo. on the group after our PITI on a 15 year note and our standard 20% set aside for reserves. These four have gone much faster on the rehab side, but we really have a system down now and have great contractors who come out for us right away. We bought the group for about $150K below market, put another $120K into them and will get it all back according to the closing estimates our mortgage broker just gave us. We are really excited about these because they should cash flow better than our first three. We used hard money (shout out to Jason at HouseMax) to purchase and got a decent rate 9% and 3 points on a 6 month term. We will refinance out at the 6 month mark and roll the money back into our operating account.
We run pretty conservative and probably don't make enough money in the cash flow to make the BRRR effort worth it for most investors. We remodel our homes very nicely with hardwood floors (laminate in the townhouses), all new carpet and paint throughout, new bathroom fixtures and cabinets, granite countertops, stainless steel appliances, and in unit laundry. We also pay for lawn maintenance and treat the exterior decks with Deck Over to make them maintenance proof. We command top of the market rents and tend to rent to people with incomes that could afford much more, but are happy having a clean little property that looks like it just came out of an HGTV show.
Our property manager (also my brother-in-law) goes by each property every few months to check and change the HVAC filter. When he does, he puts eyes on the interior to make sure nothing is being damaged, and so far has seen no problems.
We keep a 20% reserve for vacancies, repairs, and capital expenditures. That is probably overkill on newly rehabbed properties, but we don't need the money to pay living expenses and we prefer to play it safe.
Our next acquisition and rehab will probably be our principle residence, but while we are doing that we are happy knowing our 7 rental properties will be paying us a little and paying down their notes. The fact that they will be providing nice homes for people who love them is icing on the cake!
I hope this inspires others to give investing a shot - or keep at it after a failure. It isn't easy, but nothing worth doing ever is and you will regret not believing in yourself and taking the chance.
Best regards!
