Hey, BP!
My partner, @Eryka Santoyo and I completed our first BRRRR this past February and wanted to share as much detail as we could about the process because that's what was so freely and generously given to us as we started on this journey of real estate investing!
BACKGROUND:
We’re going to go way back here to how we got into real estate in the first place. I had known from basically the moment I graduated college that I wanted something more than the 9-5 lifestyle. Once I started full-time work in 2016, that was confirmed even more. Don’t get me wrong, I was grateful for the opportunities I received, but I wanted more. I wanted challenge, excitement and to break away from financial dependence and work towards financial freedom. Enter the world of real estate investing. I studied for two and a half years about everything to do with real estate investing, I became a BP Pro member (shout out to everyone who contributes to BP, the wealth of knowledge here is incredible and truly helped me figure out where I wanted to invest), I read tons of real estate books, and had been saving every penny for years to build up my cash to invest. I live in CA and I knew that I couldn’t “invest in my own backyard” comfortably, the risk was too high for me. I actually landed on my market, Huntsville, AL, through the help of my industry. Huntsville was being mentioned constantly because of the new growth projected to hit the city. Huntsville had already been on my radar, but the buzz around Huntsville confirmed I was on the right track. I booked a flight out to Huntsville and knew immediately I wanted to invest there! Everything I had heard about it (economic growth, new construction, rental population, etc.) I saw first-hand. Flying out there to check it out was the best move I could make. It helped me: network with local investors, meet with recommended contacts (PM, wholesaler, agents, etc.) and gave me the confidence to invest out of state.
So now what? I felt educated, I had picked my market, and then...analysis paralysis to the max. I already mentioned it took me 2 and a half years to get going, and it probably would have taken me even more time if I hadn’t had several honest conversations with Eryka. Eryka is my partner in real estate, but she is also my girlfriend of 13 years. Obviously, I was all aboard the real estate train; I was ready to make this my next move. At the beginning of this journey, and she’ll tell you this herself haha, Eryka wasn’t on the same page. This journey came at a time in our relationship when we were trying to figure out next steps for our life together and our ideas and thoughts weren’t aligning. We had some common threads though and it took several honest and really hard conversations to get to the point where we were ready to tackle real estate together, as a team. And that’s when this journey really took off! Eryka is the most action-oriented person I’ve ever met. She gets things done and she can manage the hell out of any situation. What we come to know now is that we are the best combo team for real estate, I have the visionary mindset and am able to develop the strategies to reach our goals, and Eryka can execute and manage the tasks needed to get there. And that’s exactly how we got this train moving forward.
So now, how we met our business partner. Told ya, we were going to really deep dive into this whole process! Eryka and I lived on BP, connecting with you all, chatting in forum posts, etc. And that is how we first found our business partner. He had posted about his first BRRRR in Huntsville, AL. We knew we had to talk to him because he was doing exactly what we wanted to do! Eryka reached out and he said he was hosting a BP meetup in the Inland Empire. We live on the Central Coast of California, which is 4 hours away from where our business partner is. And here's the kicker, we originally weren't going to go down for the meetup because, well...4 hours lol But, Eryka looked at me and asked if we were "really going to do this". And I said yes, so we took action and drove those 4 hours and met him. Our goals were aligned and after a few other meetings, we decided to partner up on our first deal together. And fast forward to a year later, we currently own 6 properties together and are scaling our portfolio. Action is everything!
The Deal:
Okay, let’s talk about how we found our first deal. Our partners had been investing in Huntsville for about a year already when we met them, so they had those valuable contacts made already: Wholesalers, Contractors, Lenders, etc. And it was through one of those wholesaler contacts that we found our first deal.
We bought the property off market for $65,000 cash (50/50 split between partners) in Aug 2019. It was a 4 bed, 2.5 bath in a great rental area. The area had re-zoned school districts and is close to Redstone Arsenal which is one of the largest employers in the Huntsville area. It was built in 1981 so it had good bones, but there was definitely work that needed to be done.
Financing:
Our ESTIMATED numbers:
Purchase: $65k (cash purchase, 50/50 split between partners on title)
Rehab: $20k
ARV: $110k
Rent: $950
We did our due diligence on the property, checked relative comps in the area to determine the ARV and rent.
Rehab & Renting:
Based on the statement of work we got from our GC (another one of business parnter's contacts), we underwrote $20k for the total cost of the rehab. Luckily, most of the work that needed to be done was cosmetic, but we budgeted for a new roof, new HVAC unit, exterior landscaping, along with interior cosmetics.
Our actual rehab cost ended up being approximately $14k. We came in way under budget and that was a result of being conservative in our numbers. We budgeted for a new roof and HVAC, but both of those only needed to be repaired, saving us thousands of dollars!
It took us about 4 total months to finish the rehab and to place a tenant. With our tenant moving in in December. This was a little more difficult timing because it was during the Holidays and the slow part of the year, but we still got someone placed, and got a higher rent than we expected ($1025/month).
The Refinance:
We started the paperwork for the cash out refinance process in month 5 (Jan 2020) so we could close as soon as we hit the 6 month seasoning period for the property. Prepare for tons of paperwork! We scheduled the appraisal of the property and created an info sheet for the appraiser, laying out the upgrades we did to the property and their values. After we submitted all of our paperwork, we patiently waited for the appraisal to come in….We calculated our ARV to be $110k when we first started but by the time we applied for the refinance we thought $120k was more accurate. The appraisal came back and it came in at $126,500! There is nothing sweeter than seeing a larger number than what you thought it would be!
The Result:
We were able to pull out $90,000 (minus costs = approx. $86k). So we not only recouped all the money we put into the deal, but we got a little extra payout! With our $1025 rent and monthly expenses (mortgage, PM cut, and accounting for vacancy, CapEx expenses, etc.), our cash flow is conservatively $150/month!
The money we were able to save on our rehab, the higher rent, and coming in above our projected ARV made this deal a home run!
Lessons Learned:
- Be conservative in your rehab numbers. This property was a -good- deal if the Roof and the AC needed replacement, and an -excellent- deal if they could be repaired instead.
- Don’t be afraid to pass on a property that doesn’t work for your goals or the risk is too big. We passed on a property right before this from the same wholesaler and thought we blew our shot at getting a deal since the market was so hot, but sticking to our numbers played out well for us!
First- Time Deal Lessons:
- Power of partnerships, relationships are everything. Partnerships and relationships are the cornerstones of real estate investing. They will always continue to move you forward.
- Have a “do whatever it takes” attitude. Don’t be afraid to take that massive action!
- Building credibility and reputability as OOS investors. If you invest out of state or want to, fly out to the market. Meet people, get to know them. Build that trust and credibility. Show them you are serious about not only investing in yourself, but in their local community.
- The BRRRR method is not a passive venture, but you will learn A LOT about the necessary systems, communication, and tools needed for every part of a BRRRR.
Before & After Pictures:
