All Forum Posts by: Hatem Mahgoub

Hi Everyone! Excited to share my success story and lessons learned during my first BRRR and second investment property. Hopefully, everyone can learn from it!

Here are some lessons learned during my first SFH BRRR in Dallas-Fort Worth.

The Deal:

Purchase Price: $102,000

ARV: $150,000

Rehab: $20,000

Total Cash out of Pocket: ~$25,700

Estimated Cash on Cash Return: ~16%

PTIT Cash Flow: $500

Monthly Cash Flow: $339

(Vacancy 5%, Repairs 6%)

Lessons Learned:

• It's all about the deal- I put in so much work to "prepare" myself for the purchasing of the property. I wanted to make sure I had everything lined up perfectly. Team built, property management paperwork etc. I spent a couple of months getting ready to be a real estate investor. Then, I began searching for the deal and it took much longer than anticipated. My advice is to not worry about everything else-just go after the deal. Identify the critiical items necessary to purchase the deal. After you secure the deal, figure out the next step. Take one thing at a time and the very first is finding a deal.
• Cast a WIDE net. Tell everyone you're looking for a property, wholesalers, REI contacts, agents. Don't just depend on a couple of sources.
• Had to put down $5K non-refundable deposit to secure the property to closing with hard money. Be prepared to HUSTLE. Had to make a quick decision and get the money quickly to get the property. It all comes down to being consistent about analyzing deals, then once you get the hang of it, you will be able to quickly analyze and make a decision.
• After closing on the property with hard money, I had two weeks before closing. It took a significant amount of time to get contractors out there to make a bid. Do this as quickly as possible. Also, would recommend scheduling the contractor to walk through it with you. Each contractor had many questions as to what I wanted to do with the property and therefore created unnecessary back and forth communication. After closing hard money the two critical pieces were securing a rehab bid and getting insurance.
• Closing with hard money happened at 75% ARV with Hard money. Refinancing on the back end would be 75% as well. Cash out of pocket at closing was 11,000. Will incur closing costs on the back end because of hard money financing at 75 rather than 70%.
• Rehab:
• • Multiple Bids allowed me to compare and contrast what exactly needed to be done to the house and gave me reassurance that pricing was good. Especially for a new investor this is really beneficial.
  • Additional Repairs add up quick over time. Stick with the rehab plan and don't upgrade-It's just a rental! I upgraded on several features I should not have: A/C, painted the garage, textured ceilings. These upgrades will help if I ever need to sell the house, but significantly lowered my CoC return.
  • I probably could have stretched the water heater and A/C a couple of years, but wanted to include it with the rehab and BRRR. Figured it would cost me more down the line. No way of really telling if that was the right decision or not.
  • Permits. Part of my up front due diligence that I did not do well was ask the city if permits had been completed. Of course, luck would have it-there were no permits. I'm not sure what I'd have done if I found that out up front. I think I'd have still bought the property, just added the permits into my budget. My contractor was able to get a mechanical, plumbing, electrical, and remodeling for around $2K. This cost along with additional repairs really hurt the expected cash flow.
• Property Management
• • Managing it myself
  • Required Rental Insurance
  • Sites that brought me leads:
  • • Zillow Rental Manager (Zillow, HotPads, Trulia)
    • Cozy (Doorsteps, Realtor.com, Cozy)
    • Zumper (Realtor.com, Walk Score, Padmapper)
  • Do no use Rentals.com
  • • I paid $50 for a month and got zero leads.
  • Phone Screen is important, do not show the house to anyone you do not think would make a good tenant.
  • Pricing made a huge difference when renting out my property, if you are not getting enough leads/interest, lower the price to meet the demand.
  • • I originally posted for $1375 and had a few showings then shifted to $1345 and my phone was ringing of the hook.
• Refinancing
• • Currently, refinancing out of hard money 2 months afterwards.
  • You can start the refinancing process when complete with the rehab and it will take 30 days from there, unfortunately. I did not project this well on my analysis-was unsure as to the timing/process of it all.

While the Cash flow did not pan out as well as I had projected, I took action and now have learned ALOT more than continuing to "educate" myself. There's probably more, but that's all I came up with for now, hope it helps! 

Excited for the next opportunity!