Hi everyone, I would like to share experiences from my first investment property. I am at the cross roads about refinancing and would like to ask for any input from people on here who have experience with BRRRR method. I want to share all the lessons I learned, so prepare for a long read.
A little about myself…I’m 28 years old and have a corporate job in engineering. Just like most of us, I have been working from home since March, 2020. I work in the expensive market and do not want to invest there long term. My family lives in Columbus, Ohio, so I stayed with them for the majority of the quarantine. I have been following Bigger Pockets for ~5 years, reading books, and following numerous forums.
For the longest time I would research popular cities on Zillow/Realtor and could never find a deal that made sense. Even “good” deals would barely break the 1% rule. The big “AHA” moment for me was listening to the Real Estate Rookie podcast, where the guest shared his experiences with investing long distance. The lesson that stuck with me was that every popular city (Austin/Nashville/Columbus/New Orleans/Boulder/Seattle…) has institutional investors who pump money into the real estate there. I realized that as a newbie investor, I could not compete with investors with robust systems in place. I realized that smaller cities that fly under the radar of institutional investors are where I needed to look. Therefore, I expanded my search radius to 1 hour drive and found several small cities in Ohio with lots of affordable inventory. I spend a week calling listing real estate agents of the properties I liked and asked questions about the market. Eventually, I found a large 5 unit property for $80,000. The deal was too good to be true (It was). I kept calling the listing real estate agent for several days, until he finally picked up the call. We ended up talking for one and a half hours about the area and other inventory he was listing. I invited him to lunch, as I wanted to learn more about what he does and the area he works in. At lunch, I found out that this guy was not only an agent but also an active investor. He had all the systems set up to flip houses. After lunch, I asked him to show me 4 properties, as I was ready to invest. This was a bit of the leap of faith for me, but I was confident in myself to do the right thing. Location was key for me, since every town has good and bad areas. I picked a duplex right next to the private university, many restaurants/bars, and a large park. The duplex was listed for $94k. I ended up negotiating to $83k. The duplex is 3 bed 1 bath in one unit and 2 bed 1 bath in another unit. Most importantly, this house stayed on the market for over 120 days!
I went through a traditional financing as a primary residence to put the least amount of money down possible and spend the rest on rehab. The financing process was very difficult because I was purchasing a property far away from my work location. The appraisal process was delayed. All in all, it took 6 weeks to finalize the financing and I was ready to sign papers.
The duplex had 1 side occupied with long term tenants and the other side vacant. The long term tenants were underpaying ($600 for 3 bedrooms) and kept the place in a terrible condition (found mice in their unit). I was lucky that they were month to month, so I gave them a 30 day notice when I acquired the property. Lessoned learned there to always ask for the lease terms of the inherited tenants. I also realized that the person who owned the house did not want to be a landlord and did a poor job taking care of the place, which was a perfect opportunity for me.
Once the property was mine, I moved my office desk, blowup mattress, and few dishes into the vacant unit. I wanted to work from there and not waste time driving back and forth from my parent’s house, which was 45 minute drive, one way. Looking back, that was a great decision as I learned more about the area and every little detail about the house.
All in all, I spent $26k on remodel. I used contractors for 2 brand new furnace/AC units, siding, and gutters. Everything else I did myself, because I wanted to learn what it takes and be able to speak to the contractors in the future. Doing everything myself I learned what “sweat equity” really is. For 8 weeks straight I worked very single day till midnight to finish the property. It was a lot of dirty and difficult work. My hands were literally falling apart. What made the work worth it, was the interest I received in the property when I put it up for rent. I used Zillow property management tool to screen my applicants. In the first 24 hours, I had 18 applicants who paid $25 just to submit application. This was very surprising for me, as I am sure we all are worried about vacancy of the unit before buying.
I got lucky that I met the real estate agent/investor who gave me contracts of all reliable contractors and even shared the lease with me he used for his properties.
Before both units were finished, they were both rented. The 3 bedroom unit went for $875 and 2 bedroom unit went for $775.
My expenses for the property are Mortgage ($475/month), Water ($80/month), Trash ($50/month). Which leaves me with $1,045 for all the contingencies.
Considering that the property was initially appraised at $83k, I have been considering to refinance as all the gurus are preaching. However, I like my current cash flow and do not want to reduce it and lavage myself more, if I refinance and pull my down payment out. Also, I do not want my debt to income ration to increase. I have a great job that I can keep working to fund my next deal. Now I am focusing on paying off the $26k I spent on remodel and slowly building up the down payment for my next project.
I left A LOT of details out, so if you have any questions, please let me know.
