All Forum Posts by: Justin Melendez

 Yeah, I am sure we will regret selling it when we look back at it in a year lol.

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $104,000
Cash invested: $57,000
Sale price: $207,000

We initially bought and renovated this property with the intent of adding this to our long-term rental portfolio. The home is situated in an ideal rental location in our market and required us to repair most of the CAPEX items (roof, HVAC, water heater, appliances, floors, etc). Unfortunately Q2 of 2022 came with some pretty aggressive interest rate hikes which negatively impacted our pro-forma analysis. The cash-on-cash return (year one) for a long term rental went from 10-12% down to 3-5%.

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

This home is located in an ideal location of Fayetteville, NC. The property was a late 1980s build with 3 bedrooms and 2 bathrooms with a single car garage which is smack dab in the middle of our buy box.

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

We found this deal through our organic marketing channels. This property was vacant, and had been for over 5 years. We reached out to the owner via cold call and he informed us that he wanted the Zestimate value for his property and nothing less. We asked him to allow us to come out and walk the property and we would do our best to give him a fair offer. Our initial offer was about $50,000 off from his asking price, we both came to a mutually beneficial agreement and we closed in 20 days.

How did you finance this deal?

We used a combination of financing for this deal. The majority of this deal was financed with a business line of credit from a local bank, the rest was supplemented by cash on hand and a business credit card....that's right a credit card! While we were in escrow we applied for an American Express Blue Business Plus card and we were approved for $50,000 at 0% for 12 months -- game changer!

How did you add value to the deal?

Because we planned to keep this property as a long-term rental, we over-renovated this property. We replaced the roof, HVAC, duct work, water heater, kitchen appliances, kitchen cabinets, floors, renovated both bathrooms, light fixtures, paint, major landscaping, and much more.

What was the outcome?

We listed the property for sale for $212,000. The property was on the market for approximately 2 weeks. During the listing period we had about 20 showings and received 3 offers ranging from $202,000-$210,000. We accepted a VA loan offer at $207,000 and had a smooth closing in less than 30 days.

Lessons learned? Challenges?

This is actually the first full renovation we've completed since moving away from Fayetteville, North Carolina, I guess that makes us long-distance real estate investors! There were a lot of lessons learned here so I'll try and summarize a few. First, I think we overpaid for this property, emotions got the best of us. Second, we were uncertain of the exit strategy upon acquisition and that resulted in us spending too much on the rehab. Lastly, we have a lot of room for growth in project mgmt.

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

Ruben Monsato (Realtor)

Hey Raj, 

Reach out to me (contact info in the signature block), I can recommend a few folks for ya!

 Don provided you with a solid overview and some really good contacts in the area. I encourage you to reach out to those folks as you are getting started. Feel free to reach out to me as well, I'd be more than happy to hop on a call and chat Fayetteville!

Mike, 

The BRRRR model often times requires that you have a significant amount of equity in the property (25+%). Ideally you would purchase a rental property under market value, make improvements (forcing appreciation), and rent it out to a tenant. At this point your all-in costs (purchase + renovations) would be <= 75% of the after repair value (in a perfect world). You would then go to a lender and ask them to cash you out at 75% of ARV. If all goes well, you will get you purchase price + renovations (all your cash in the deal) back in your pocket. Hopefully at this point the rent you are collecting covers your debt service + some cash flow.

The BRRRR model doesn't necessarily work for traditional purchases where you put 20% down from the beginning and you bought at market value. Caveat, some markets have seen rapid appreciation lately and it's possible that someone purchased a home at market value and within 6 months their homes naturally appreciated enough to do a cash out refinance and pull out their initial down payment.

Here's a over-simplified example of a BRRRR scenario:

Purchase Price: $50,000

Repairs: $20,000

After Repair Value (ARV): $100,000

Rent: $1000/month

Cash-out Refinance [75% of ARV] ( $100,000 * .75 ) : $75,000

👆 This scenario has you pulling out the initial $70,000 in cash + an additional $5,000 and you have a home rented at $1000/month which will most likely cash flow on a $75,000 mortgage after all expenses.

Again, this is an oversimplified example. There are some more mechanics that go into this. BRRRR's like this are becoming harder to find, but definitely still doable. Keep doing more research and talking to more people and it'll click.

P.S. - BRRRR is a great tool, but not the only tool...

We are listen on Airbnb, VRBO, and Furnished Finders. Lead flow through furnished finders is definitely slower and also convert much less. However, we just landed our first 66 day booking on Furnished Finders after about 3 months of being listed and about 6 inquiries. Nice thing is that furnished finders allows us to direct them to our direct booking site so we are not getting hit with Airbnb’s fees. 

@Orrett Lawrence you’re welcome

@Demon S Rogers

I know someone who will furnish a property for you. Their fee typically ranges from $1500-$2000 and you can plan for about $10/sq ft. +/- ~$3. I’m sure there are some furniture stores that will deliver and setup but there will still be a lot of ancillary work left undone like decorations, bedding, curtains, kitchen ware, etc. 

@Andrew Gomez what kind of financing are you looking for? Personal or commercial? 

I had a similar issue when purchasing my new construction primary residence. There was a builder and lender incentive where they would both contribute 1% towards closing costs if I went with the preferred lender. However, midway through construction the builder raised the sale price of the property due to increased cost of construction (which we expected). At this point the builder increased their credit to reflect 1% of the new purchase price but the lender refused. The lender refusal prompted me to shop. Once I did, I found a lender that would not only make up the difference in builder/lender credits but would also close the loan with $5000 less in loan costs as well as a better rate. When I brought this up to my agent she was irate, she mentioned that the builder might back out if I switch lenders since the lender listed on the initial contract is no longer valid suggesting a breach. I rebutted, the lender 1% contribution from builder and lender is also breach since that’s also no longer true. That seemed to make sense to her and she began to cool her jets. We ended up switching lenders, my agent gave my hell anytime there was any bumps in the road and she made sure she kicked the dead horse of blaming the lender swap for any issues. We ended up closing a week late (apparently all my fault - whatevs) but I actually ended up saving $6k in closing costs and got $1000 back at closing. Personally I thought it was unprofessional for my agent to consistently try to dissuade me from using a lender of my choice, especially when it saved me $6k. I understand her perspective of having clear lines of communication and mature working relationships with the local lender, but if I had to do it all over again I wouldn’t change a thing. IMO the financial burden will be yours for the duration of your ownership. The agent can provide his/her opinion but do what’s best for you.