If I could solely rely on compensation for each time a new investor approached me about doing a BRRRR I could stop selling real estate. Hopefully this sheds some light on running a BRRRR full cycle. ;)
Overview: Initially I was planning to hold this duplex long term... but as many of you know it's nice to have multiple exit strategies.
Deal Facts
- Type: Duplex
- Built: 1939
- Unit Mix: 2/1 900ish sqft per side
- 2 Car garage
The nitty gritty
Purchase Price: $60,000
Rehab Costs: $40,000
All In: $100,000
New Appraised Value: $170,000
Market Rent: $1000/side
Cash out of my Pocket: $0 (I'll get to this later)
Why this deal?
I had been looking for smaller multis in Indianapolis for quite some time. However, the majority of small multis in Indy are in rough areas and very dated. That said, I was attracted to this property and area for a few reasons. One being that this property is located about 12 minutes from downtown. I knew that if I remodeled nice enough I could potentially get students or young professionals that would command a premium in rent.
The first time I drove the area I could see that the city was putting in new sidewalks and some other investors had already started renovating houses on the surrounding streets. I am not one to bank on appreciation, so I ran my numbers accordingly. If I could make this property work as a buy & hold rental I would move forward... well, it did!
How did you find this deal and how did you negotiate it?
The deal came from another investor who was burnt out after holding the property for many years with section 8 tenants in place. I had worked with the investor on other properties serving as his broker assisting in the liquidation of his portfolio. This was the last property that he was wanting to get rid of and I asked him if he would sell to me. He happily agreed after I offered him 5k more than what he originally paid and elected to forgo commission.
How did you fund the deal?
At the time I was going into my last semester of college and definitely did NOT have 60k to purchase the property let alone another 40k to rehab. I raised 100% investor money from friends & family. Luckily this was not my first deal, so I had already built some confidence in others as well as myself that I could run a deal full cycle. I was able to get money from three different parties ranging from 9-12%, no points, and a 12 month agreement to pay back the initial investment +interest. I did it in 6 months... under promising and over delivering goes a long way. :)
What value was added?
- Initially I thought that the rehab would be much lighter than what it turned out to be.
- Unit #1: Trim throughout, doors, luxury vinyl plank + tile in the bathroom, new vanity & toilet, paint, granite counter tops, new cabinets & sink, stainless steel appliances, and updated fixtures.
- Unit #2: Trim throughout, repainted doors, paint, saved floors with deep clean, vinyl plank in kitchen, new cabinets, backsplash, new vanity + toilet, and updated fixtures.
- *Entire exterior was repainted*
So, did you make any money?
After the rehab was completed I went to a portfolio lender to do my refinance. Since I did not have the income history this is the route I had to go. My appraisal came back at $170,000 and I was able to pull out 75% of that or $127,500. After the return of investor capital & interest I netted just over $8,500 after closing costs & fees.
During the refinance period I could really see the neighborhood turning around. Multiple homes around me were going up for sale for insanely high prices and I felt that it was the right time to exit. I ended up listing the home for $183,500 later closing it for $175,000. After loan pay-off, credits, commissions, closing costs, etc. I netted right under $16,000. Combining my refinance and sale proceeds I had a total profit of about $24,500!
Lessons learned... problems? C'mon share with the crowd!
I. Will. Never. Do. Another. Project. Like. This. Again.
Yup, I said it... I spent the same amount of effort (if not more) on this duplex as what I did to purchase a 19 unit apartment complex. When you are working small deals like this it become tougher to hire out more help. In hindsight I probably would have been better off to wholesale the deal. Oh well... you live & learn. Keep in mind we all have different goals of where we want to be.
Numbers wise I knew the deal made sense, but I tried to be as cheap as possible when it came to contractors. I won't dive too deep into this, but one of the contractors called me during the middle of the rehab to inform me he would be leaving the next day for Disney world.. :,)
What does the future look like?
Repositioning myself to get into larger deals! My day job consists of helping people navigate the Indianapolis market for residential and small commercial opportunities. I plan to build up my team of brokers so that I am no longer the bottleneck. Work on the business... not in it.
Cheers!
