All Forum Posts by: Derrick Deese

Investment Info:

Single-family residence buy & hold investment in Columbus.

Purchase price: $50,600
Cash invested: $25,000

This was my first BRRRR. I found the property online at auction.com and won the bidding. The property was in foreclosure and had existing tenants who lived in the property. They were cooperative and moved out fairly quickly. I went in and repaired the property and did the following updates:

The property appraised for a little under than what I expected, but I gained a few insights from the initial BRRRR. The numbers worked out as follows:

Source of Funds: HELOC on primary residence
Acquisition: $50.6K
Rehab: ~$24.4K
All-in: $75K
Appraisal: $92K
Cash Out Refi @ 70% LTV (since the loan was slightly under their general guidelines): $64.4K
Less closing costs the amount back to me was $58.3K.
Total Cash in Deal: $16.7K ($75K - $58.3K)
Monthly cash flow on rental: $363
Annual Cash Flow: $4.4K
Estimated Cash on Cash Return: 26.3% ($4.4K / $75K)

1. I did not update windows on exterior, but likely should have. I am sure those would have added more value and also increase curb appeal on the unit.
2. Look for updating furnace and/or hot water heater. While furnace is expensive, having it completed will save issues down the road.
3. Look into further increasing curb appeal through updating fence, adding shrubbery.
4. I would have put a little more money into the bathroom, and added tile to the shower instead of a surround.
5. I would have likely replaced the exterior door with a new frame.

All in all, now that the first BRRRR is under the belt, I am looking forward to finding another and applying some of the points above. I am am overall happy as I have the property, paying tenants, and cash flow. While I did not recoup everything back from this first deal, I view it as a learning experience; I didn't think it was reasonable to think I would come out on top with the first BRRRR. I'm hopeful that some of the additions above will be able to add more value to a future property and get closer to no money in the deal for an infinite CoC return!

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

Based on reading bigger pockets forums and podcasts!

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

Auction.com bidding.

How did you finance this deal?

HELOC on primary residence

How did you add value to the deal?

Rehab.

What was the outcome?

Cash out refi on the property.

Lessons learned? Challenges?

See notes above.

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

Lending One on Refinance Loan.

Investment Info:

Single-family residence buy & hold investment in Columbus.

Purchase price: $50,600
Cash invested: $25,000

This was my first BRRRR. I found the property online at auction.com and won the bidding. The property was in foreclosure and had existing tenants who lived in the property. They were cooperative and moved out fairly quickly. I went in and repaired the property and did the following updates:

- All new flooring throughout entire house
- New stainless steel kitchen appliances
- New Paint on both interior, exterior, and basement
- Updated landscaping
- Minor roof repairs

The property appraised for a little under than what I expected, but I gained a few insights from the initial BRRRR. The numbers worked out as follows:

Source of Funds: HELOC on primary residence
Acquisition: $50.6K
Rehab: ~$24.4K
All-in: $75K
Appraisal: $92K
Cash Out Refi @ 70% LTV (since the loan was slightly under their general guidelines): $64.4K
Less closing costs the amount back to me was $58.3K.
Total Cash in Deal: $16.7K ($75K - $58.3K)
Monthly cash flow on rental: $363
Annual Cash Flow: $4.4K
Estimated Cash on Cash Return: 26.3% ($4.4K / $75K)

1. I did not update windows on exterior, but likely should have. I am sure those would have added more value and also increase curb appeal on the unit.
2. Look for updating furnace and/or hot water heater. While furnace is expensive, having it completed will save issues down the road.
3. Look into further increasing curb appeal through updating fence, adding shrubbery.
4. I would have put a little more money into the bathroom, and added tile to the shower instead of a surround.
5. I would have likely replaced the exterior door with a new frame.

All in all, now that the first BRRRR is under the belt, I am looking forward to finding another and applying some of the points above. I am am overall happy as I have the property, paying tenants, and cash flow. While I did not recoup everything back from this first deal, I view it as a learning experience; I didn't think it was reasonable to think I would come out on top with the first BRRRR. I'm hopeful that some of the additions above will be able to add more value to a future property and get closer to no money in the deal for an infinite CoC return!

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

Based on reading bigger pockets forums and podcasts!

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

Auction.com bidding.

How did you finance this deal?

HELOC on primary residence

How did you add value to the deal?

Rehab.

What was the outcome?

Cash out refi on the property.

Lessons learned? Challenges?

See notes above.

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

Lending One on Refinance Loan.

Great post @Todd Powell.  I am currently 34 y/o and hope to be in your position within the next 6-7 years.  I agree it is a hustle and time investment, but worth the payoff.  There are a lot of things that resonated with me, in particular:

1. There is good debt - I don't agree with a lot of "traditional" financial wisdom similar to what you've mentioned.  I have the same alaska card you do, and pay off each month, and get TONS of benefits from flight miles to take "free" vacations.

2. I use a HELOC on current property to buy others. I recently just completed my first BRRRR, and am already looking for the next deal.

3. I don't believe there is a magic number.  There is a real struggle of having fulfilling work, family life etc.  There are also benefits to being a W2 worker (structure, consistent pay, potential friendships, among others).  For me, the reason to leave is more about freedom - having to work because i WANT to not because i HAVE to.  I will probably never stop "working" but what I do will be much different in several years vs. what I do today.

4.  Value add opportunities I believe are some of the best options out there.  It seems like you've gone down that route through some of your deals.

Congrats on all your accomplishments thus far.  And enjoy that grandkid (I am a father of a 1.5 y/o and my parents barely notice me anymore :))

@Jeff Copeland - thanks for the reply sir. It was storage vs. manufacture/production.  I actually own another property on the same street with two tenants that have caused no issues in the past - I think this is an unfortunate one-of.  Agreed on the leverage for price reduction - I am pretty sure that the warrant for the unit caused some damage (broken windows, etc) that will have to be fixed/replaced and would like to discuss with seller. 

Thanks again for the reply, appreciate it.

Good morning BP: 

I had a question about a potential legal issue and was hoping to get some advice.  It is something I haven't encountered and have struggled to find information about this particular issue.  

Situation:

I am looking at a deal for three duplexes.  In one of the duplex units, a search warrant was issued, and the police found thousands of dollars of illegal drugs, as well as weapons.  I've contacted the police department, and there are no code enforcement issues with the property.  However, I have heard that the owners could be at risk if they knew of this issue and did not report it. 

The transaction has not yet closed yet and we are still in process of doing so, but I do not know whether we should simply a) walk away from that unit or b) continue as is given there are no code enforcement violations. 

I am also unclear of what potential risks we may face in the future with the unit (i.e. if there are additional warrants, etc). 

if anyone has any experience with a situation like this I would be forever grateful for advice.  

Thank you in advance!

Regards, 
Derrick

Congrats on your success @Johnny Situ! best of luck as you continue down the path to financial freedom.  I have been on a similar path (have three units, two properties total) and have been using traditional financing as well.  I too have children (6 month old) and I want to continue to build over time to transition to investing full time in the future.  Your story is inspiring and appreciate you sharing!

Hi @Bob Juengel -

I've borrowed against brokerage before (I have Fidelity, rate is close to 9%).  I thought of it as a "bridge" loan to use, then pay off with cash later. I don't know if there is a right or wrong answer, as there are several ways to obtain capital (this being one).  I suppose the best way to think about would be the opportunity cost of borrowing against brokerage, your holding period and payback vs. the capital gains on a sale.  If borrowing < cap gains, then borrow, but if cap gains < than holding period, then sell the shares. 

E.g.

Borrow $100K at 6.5% (assuming simple interest) - 6.5K/year

Sell $100K of shares (depending on cost basis, any taxable losses, other tax implications throughout the year) - will you owe less than the $6.5K you would have paid to borrow for a year?

In my case, it was the former as I only borrowed for about 2 months. 

Hope this helps - good luck!

@Lou LaMedica my mom is a wegman addict :) they actually live close to the town center where wegmans is located ( I want to say its woodbridge town center but could be wrong, they have a bunch of restaurants/bars there).  I've been and it's an incredible store!

So for out of state, it was mainly through word of mouth and recs by friends.  So to start..

A close friend of mine moved to Columbus from Seattle (where I currently live).  He bought a house there and referred me to his agent. We closed on our first property recently, and he's also my eyes on the ground for renovations and repairs. 

Property manager was recommendation from the agent. 

Contractor I honestly found through yelp.  I am using two right now to get a sense for how they work and then will go with one based on the jobs.  

Kind of luck of the draw I suppose, but all started with recommendation.  

@lou 

@Lou LaMedica I agree on out of state - once you take the first step the riskiness seems to abide.  I'm investing in Ohio currently (cleveland/columbus) as I like the economics of both cities and overall population trends, jobs, and economic engines like schools, hospitals etc.  

I am actually from the VA area (grew up in Springfield, parents live in Woodbridge now) and agree it's too expensive on a relative basis there!

@Isaac Lipscomb have you made any progress in OH?  I have a property in contract in Columbus and would love some referrals for the contractors you mentioned for rehab/repairs.