Before I begin discussing the details of this deal I want to thank @Brandon Turner and the BP community for educating me on how to execute the BRRRR strategy.
Although I have been involved in other aspects of real estate investing this was my first time attempting the BRRRR strategy and after doing plenty of due diligence it actually worked out as I had planned (with a couple setbacks).
About the deal...
This property is located about 2 1/2 hours from where I live (Stroudsburg PA) and was a Fannie Mae home path foreclosure. It was a vacant side by side 3 bed 1 bath duplex, originally listed for $124K. After a little back and fourth I was able to take it down for an all cash offer of $100k. Using private money @ 8% for acquisition and my own capital to complete a $28,884 rehab, I was all in at $132,509 including closing cost. I estimated the ARV to be between $180k and $200k, but was a little unsure do to the fact that there were not many "rehabbed" multi unit comps. I hired a local general contractor who was highly recommended by my property manger to handle all the renovations and I also spent a 1 1/2 days adding some "sweat equity". The rehab took a little over 3 weeks, which included all new windows, water heaters, new laminate flooring on first floor and wall to wall carpet on second, refaced kitchen cabinets, new counter tops, new appliances, bathroom vanity and toilet bowls, all new fixtures and of course complete paint job of all interior surfaces. Once the apartments were rent ready we had them leased up within a month at $1175 per unit. In late September I began the refinance process with a large well known bank and because the property was under my personal name I was offered a 30 year amortized loan at 4.875%. To back track a little, the reason the property was under my name and not my LLC was because I made the offer to the sellers agent in that format. While working with the title company I did make them aware that it was to be under my LLC and sent them the operations agreement and other docs need to do so. It was not till I got to the closing table that I realized the error, and at that point for a multitude of reasons it was too late to change the contract. I had a few options, refuse to sign (potentially forfeit my deposit), pay an extra transfer tax to switch to an LLC or roll the dice and leave it under my personal name, obviously I chose the latter.
Anyone who has gone through the mortgage or refinance process with larger banks knows exactly how tedious this can be but its the fourth "R" in this strategy and one if not the most critical step. When the initial appraisal came back at $118k my heart sank, I thought how could I have screwed this up, how could I have been so off, How am I going to payback my lender!?!?! Fear overtook me for a short while and my confidence was fading quickly. After reviewing the entire report I noticed a few discrepancy and immediately called the bank to let them know that the appraisal was inaccurate and wanted to dispute it, they understood my frustration and asked for me to put it in writing. Thats when I turned to BP and searched how to dispute an appraisal report, I found an incredible template and structured my letter accordingly. I challenged all of the comps and provided a few new ones I had found after doing a search with my agent. I included an itemized list of all the renovations, I also included current housing market data to show the appreciation trend in that area. The bank agreed to hire another appraiser at their expense and after a week of nervous anticipation the value came in at $185K! HALLELUJAH...It took almost 90 days to get this done but it was well worth the battle.
So the numbers look like this.
- Purchase price $100k
- Rehab costs $28,884
- closing cost $3,625
- Total investment $132,509
- Appraised value $185,00
- Cash out refi $129,500
- Cash left in deal $8,009
- Approx monthly cash flow $1,038 (not including 5% vac and main)
What I have learned along the way...
- Make sure your agent and title company are on the same page.
- Create a clear and well written contract with your GC.
- Using a big name bank may not be your best option.
- Read your entire appraisal report and don't be afraid to challenge it.
Im very happy with the returns on this deal and now use the numbers as a baseline for future projects. The momentum after this BRRRR has been incredible, I closed two more duplexes since and have a four unit under contract. Im currently working with a few small local banks to refi my second duplex in early March. Im very grateful that I stumbled upon this remarkable forum 2 years ago and want to again thank the BP community for their support.
Happy Holidays
&
Happy Investing
Before and After Pictures
Kitchen
Living Room & Dining Room Before
