Hey BP,
I know we have ALOT of "I'm a new investor" posts, talking about strategies and discussing various topics. I posted that exact type of post about 6 months ago. However, you don't see near as many follow up posts from those individuals, talking about their first deal experiences and successes. So, I thought it would be interesting and encouraging to other newbies out there to share a bit about my first deal! This isn't to brag, or pat myself on the back, but to encourage others who are trying to get started and feel like they are just beating their heads into the wall and getting nowhere.
After MANY long nights (6 months worth) looking for and analyzing properties, and after looking and attempting many different strategies, I found a little duplex in the DFW area that looked appealing. The numbers worked well enough for me to pursue it. I offered sight unseen, because there were several other people interested, and I wanted to lock it up. I offered list price, and figured that I would find some things during my option period/due diligence that I could use to get the price down. I did just that...I got the sale price from $120k (list price) down to $107k during the option period, due to some legitimate work that needed to be done to the exterior of the property, and some foundation concern that may or may not need fixing.
So, I have the property under contract for $107k now! However, the lender I was working with has a program that will finance the repairs needed. In this case, we were going to finance the replacement of the siding, new garage doors, and the foundation work. However, due to the program, we had to extend the closing date by 30 days. I had to offer an additional $2,500 in order to get the seller to agree to extend closing. So now i'm in it for $109,500. Then came appraisal time, long story short & with the lender financing the repairs, the appraisal took a REALLY long time, and ultimately it appraised about $7k short of what I needed it to. So, now I was faced with a decision: Do I blow my entire cash reserves to make up the difference in cash to close? Do I let the deal go? Or, do I find a partner.
From the get go, my father had been wanting to partner on the deal with me, but I kept telling him "no, I don't want to give up half of the monthly cashflow and half of the long term profit". Well, I decided it might not be such a bad idea to have a partner after all, so obviously I called good ole dad and asked if he was still interested. Within 5 min, I described the numbers to him and he was all in. We discussed the partnership terms and came to an agreement. We were going to be 50/50 partners and pay cash for it.
In order to bring additional value to the partnership, I forfeited my $3,500 commission and negotiated a bit more and the new all cash price was $104k. Our strategy going into this was to put $10-15k into the property, raise monthly rents by $100, then refinance to pull most all of our cash out. I never intended to use the BRRRR strategy on this, but we just kind of stumbled into it. So, the details of the deal are below:
Purchase price: $104,000
Repairs: $10,000
Total cost: $114,000
ARV: $140,000
Refi Loan Amount: $100,500
Cash Invested: $13,500
Monthly Cash Flow: $600
CoC ROI: 53%
The best thing about this is, we have a solid deal, and we will be able to pull nearly all of our money out and go do it again. Furthermore, when you factor in that you have to let the property "season" for 6 months, so the lender will allow the refi based on the new appraised amount, we are going to be pocketing $6,000 of total cashflow between now and then. We are actually going to use all of that toward repairs, so all total we are only going to have $7,500 of our own cash invested, thus boosting our CoC ROI up to 96%!
Still a lot of work to go between now and then, but I wanted to share a little about my story. I have pursued everything from tax deeds, to foreclosures, to wholesaling, to flipping, to SFR rentals, and eventually stumbled into a duplex. I never imagined utilizing the BRRRR strategy and being able to do it all again in 6 months, but again, obstacles and circumstances kept forcing me to look at and research alternative options and ultimately find one that works. I never wanted to introduce a partner because I wanted to be in control and keep all the profits to myself, but ultimately a partner was a blessing in disguise. There is ALOT of peace of mind that comes with having a great partner to share the risk and stress with. So, to all the newbies out there, keep your head up and don't get discouraged. Best of luck everyone!
-Chris Torbert
