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All Forum Posts by: Dean OMalley

Dean OMalley has started 7 posts and replied 18 times.

Quote from @Greg Larson:

Hey @Dean OMalley, congrats on this deal!  Out of curiosity, what type of return did you see in the first 12 months?

 This deal has provided 12-17% cash-on-cash return and, with the principal reduction from the loan paydown, it's consistently been over 20% total return. Nothing too crazy compared to a lot deals out there, but it's solid, slow-and-steady growth, which is all I shoot for. 

Quote from @Michael Margarella:

@Dean OMalleySweet deal.  What property management company do you use?


 We use D&K Properties, which is based in Knoxville, TN, but also has an office in Johnson City. I'd give them 4 out of 5 stars. They're good at keeping the units full, but I wish they'd look for value-add opportunities and work toward raising rents a little more aggressively. 

@Jonathan Klemm Thanks! I'm really happy this deal worked out in the end. With countless delays and completely blowing out our build budget, all while watching the world shut down during the pandemic, I had more than my fair share of doubts along the way, but thankfully the housing market has boomed, which helped our valuations and rent rates in the end. And now I'm onto my next project, which is a ground-up build on six vacant lots (another first for me)...

Investment Info:

Single-family residence other investment.

Purchase price: $455,000
Cash invested: $865,000

My first BRRRR deal. Purchased an 800 sq ft 2bd/1ba single-family residence for $455k in 2019, which my builder/business partner Joseph Camile and I fully remodeled and added a bathroom (total cost: $80k). Remodel (i.e. Phase One) took about 2 months. Unit was rented for two years at $2900/mo. It has now been re-rented for $3395/mo. See below for Phase Two.

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

I've been looking for a good BRRRR deal ever since reading the BRRRR book by David Greene.

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

My builder buddy Joseph Camile found this deal and negotiated the purchase from the owner.

How did you finance this deal?

Funds used for Phase One: Proceeds from the sale of the Newport Beach condo (see those deal details in my profile).

Funds used for Phase Two: Remaining proceeds from Newport Beach condo + line of credit funds + stock sale proceeds.

At the conclusion of the construction, we secured a $1.2M cash-out refi with a $1.725M valuation, so we were able to recoup almost all of our invested capital. Loan terms were 7/1 Interest-Only @ 2.61% with a monthly payment of $2610/mo.

How did you add value to the deal?

After Phase One was completed and the unit was rented, we began on Phase Two, which was construction of a duplex on the back of the 7000 sq ft lot: a 1000 sq ft 3bd/2ba downstairs unit and a 1800 sq ft 4bd/3ba upstairs penthouse unit. Total construction time: 18 months (many Covid delays) and cost: $775k (many Covid cost increases). Leases signed for $3345/mo for the downstairs unit and $5145/mo for the upstairs unit, for a total gross monthly rent of $11,885.

What was the outcome?

After Mortgage ($2610), Taxes ($1114), Insurance ($250), Water/Sewer/Trash ($400), Landscaping ($100), Security ($150), Repairs & Maintenance ($350), Reserves ($625) and 5% Vacancy Loss ($600), the Total Monthly Cash Flow is $6286. Total Cash-on-Cash Return is 73%.

Lessons learned? Challenges?

- Everything takes longer and costs more than you expect, especially when you throw in a global pandemic.
- Builders are not always organized and good at record-keeping, so be careful when partnering with one.
- Do NOT overbuild. We spent too much and overshot the neighborhood, so the comps simply didn't justify the valuation we were hoping for.
- Be patient. This deal was supposed to be done in less than a year. Instead it took over two, but thankfully the num

Investment Info:

Single-family residence buy & hold investment in Surprise.

Purchase price: $282,000
Cash invested: $58,000
Sale price: $225,000

Rode the wave up and down through the financial crisis, but thankfully held on until the price came back close enough to where I purchased it to not take a huge loss.

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

I bought this property as my first true real estate investment at the height of the real estate boom of the early 2000's after seeing people making easy $50-$100k profits over the course of months, which was enough to lure me into the market.

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

I bought this as a new construction project through a real estate broker friend of mine working in Las Vegas and Nevada.

How did you finance this deal?

Paid cash for the down payment and financed the rest through Bank of America.

How did you add value to the deal?

The only "value-add" was through the actual construction when the property was built in a new development outside Phoenix. The problem with buying a property sight-unseen is that you don't really have a good idea what the area is really like. It wasn't until I visited after I'd purchased the property that I realized just how undeveloped the area was, but by then it was too late.

What was the outcome?

Within months, the property value had shot up, making me feel like a real estate genius like everyone else at the time, but soon enough the market peaked, then dropped...and dropped...and dropped...and dropped. Before I knew it, the property was worth less than half of what I'd paid for it, so I was underwater and things were getting worse by the month. Fortunately though, I had a tenant, so I decided to ride it out rather than do a short sale, which most people were doing at the time.

Lessons learned? Challenges?

Never did I think it would take almost 12 years, but thankfully the market did finally come back and I was able to sell the property for close to what I'd bought it for without coming out of pocket at closing. I'd gotten the interest and depreciation write-offs and I'd had minimal cash flow from the renters along the way, so even though I had to stomach huge paper losses, I'm proud of the fact that I saved my credit and had faith in the real estate cycle.

Investment Info:

Condo buy & hold investment in Newport Beach.

Purchase price: $760,000
Cash invested: $300,000
Sale price: $1,460,000

Bought in 2003 as primary residence with a couple buddies. We all lived there for about 6 years, then one guy moved out to get married, so buddy #1 and I bought out buddy #2 to become 50/50 owners, then I bought out buddy #1 when he moved out in 2013 to become the sole owner. Rented out the other two rooms for the next few years, then moved out in 2017 to do a $100k remodel and then converted it into a short-term rental on Airbnb. Finally sold in 2017 to roll into other investments.

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

This "deal" happened organically. I bought the place with friends in 2003 at the age of 27 with no intentions of turning it into an investment property. It was the series of events that followed from that, along with the experience I picked up along the way that turned this into a money-making venture for me.

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

My two coworker friends and I decided that it made more sense to buy than rent, so we started looking for places in Newport, close to the beach, the restaurants and the bars. This was the first place we looked at and it was the rooftop deck that sold us. The previous owner was an NBA player looking to make a move, so we were able to make a quick offer, which he immediately accepted.

How did you finance this deal?

We pooled our available cash to put down 20% ($152k), then financed the rest with a 5/1 ARM loan (figuring there was no chance we'd stay more than five years...little did I know I'd own it for almost 17 years).

How did you add value to the deal?

Mostly small improvements along the way, but the biggest value-add project was in 2017 when I did a fairly major remodel, adding a front patio, redoing all floors, both bathrooms, added air-conditioning, etc. Total cost was just under $100k.

What was the outcome?

After many ups and downs along the way, none of which I was too concerned about, mainly because this place as "home" first and foremost, I was happy to have built up a good chunk of equity, through principal payments and appreciation, which I was able to roll into my next investments. House-hacking and Airbnb cash flow along the way was the icing on the cake.

Lessons learned? Challenges?

Be patient. This "deal" rode the real estate wave before 2008, making each of us seem like geniuses for buying, then crashed along with everything else during the housing crisis. Patience paid off though because it eventually came back and I was able to sell it for a nice profit after holding it for so long.

Originally posted by @Justin R.:
Originally posted by @Dean OMalley:

@Justin R., our project is on Preece Street, where are yours? Yeah, with loan limits and valuations what they are, we're not expecting to be able to pull all the invested money out of the deal, but we're hoping to at least get close. I agree with you that BRRRR in California isn't the easiest strategy.

I'm across Linda Vista Blvd in that east side pocket.  The rents in your original post are too high for normal long term rental rates - what sort of strategy are you using?  I ask because those rents could be a red flag during refi and make getting the valuation you're seeking impractical.

We weren't sure what rent we'd be able to get for the front house after we renovated it, but we listed it at $3000 to start to see if we'd get any inquiries. We ultimately settled on $2900, which brought in several qualified applicants. The guy we rented to is a solo young professional (physician at SDSU). He just signed on for his second year-lease. 

For the two back units, we figure $3500 is realistic for the 3bd/2ba, since it's brand new and has an additional bedroom from the front house. The 4bd/3ba may be a stretch at $4500, but it's 1500 sq ft and has a nice rooftop deck with views out toward the ocean. We're definitely on the high end for the neighborhood, but we've put a lot of money into the units to make them stand out, so hopefully they'll bring in close to our projections. 

How do you see these rents as being a red flag?  

@Jaron Walling, yeah, welcome to the San Diego rental market! It's pretty crazy. I was surprised we were able to get a renter in the SFR for $2900, but we actually had a number of applicants at that price point and had it filled in less than 30 days after listing. The $3500 and $4500 are projections and they're definitely on the high side for the neighborhood, but if the SFR is any indication, we feel they're pretty reasonable. All-in on the remodel/build side though, we're going to be in the $1.1-1.2M range, so it hasn't been a cheap project. My preference is still to buy out of state, where you can get a decent multi-family property for this price, but I'm taking a chance on this one, since it's my first BRRRR and I want it to be closer to home, so I can keep an eye on it.

@Brent Fosner, I'll keep everyone posted on this deal (I've been an avid BP podcast listener for years and I've gotten more active on the website lately, but this is the first deal I actually added to the site, so the interaction is new to me, but it's been great). My first real estate investment deal was almost 20 years ago, but REI just became my full-time "job" in 2017, when my portfolio was finally substantial enough to provide me with enough cash flow to live on day-to-day. As the saying goes, real estate is the get rich slow program...it starts small, but as long as you stick with it, before you know it, the numbers will start to surprise you.

@Justin R., our project is on Preece Street, where are yours? Yeah, with loan limits and valuations what they are, we're not expecting to be able to pull all the invested money out of the deal, but we're hoping to at least get close. I agree with you that BRRRR in California isn't the easiest strategy.