Deal #4: First Portfolio BRRRR (2 of 4)

The Deal:

Here we go, part 2 of the BRRRR portfolio saga! This post is a continuation of Deal #3: First Portfolio BRRRR; Same portfolio, next property.

Deal Source: Local Huntsville Wholesaler; As I mentioned in my previous post, our goal as an investor is to ensure a quick, easy, and guaranteed closing. Due to our team being able to accomplish this in the past, we were recommended as a buyer to this wholesaler’s deal from our main wholesaler.

Property Details: 5 bedroom 2 bath SFH, 2,038 sqft, on the same street as another property in this portfolio.

Strategy: BRRRR (Buy, Rehab, Rent, Refinance, Repeat)

Initial Estimated Numbers: Purchase: $80k, Rehab: $15k, Rent: $1,050/month , ARV: $120k

Financing:

Personal Lending/Equity Partnership; Since all of our team’s cash was being utilized on property 1 and 2, we had to raise the money for the entire portfolio in order to close on it. Raising money for 4 houses in one sitting is a lot of money, so to ensure we could close we offered a 50% equity stake on this property to make our personal lending proposal more attractive.

This deal was the perfect property to offer this option; we speculated a higher ARV due to the size of the property and expected higher rent due to the neighborhood/number of bedrooms. We were stoked that the numbers still made sense after offering equity to a passive partner. So we found the right partner and closed on the portfolio! The saying “50% of a watermelon is better than 100% of a grape” seemed completely relevant for this deal. Without offering the 50% equity stake on this property we would have never closed on this deal, I’m very happy we structured the deal this way and got the deal done.

Rehab & Renting:

I want to highlight the beauty of having partners in this section. Since we bought four properties at once we had a lot going on in the year 2020. Each team member was handling different jobs and I think we executed pretty well. We were refinancing properties, rehabbing properties, managing tenant turnover, and keeping up with all the new COVID rules for landlords.

Rehab; One of our partners took the main role on rehabbing this property and he did a killer job! We brought some things up to code, performed a cosmetic rehab, built a deck, and addressed all the city notices to ensure the property was safe to occupy. This property was honestly in great shape, so we just had to get it to code according to the city.

Rent; After the rehab, we sent our property manager to perform the final inspection and she recommended that we increase our rent from $1,050 to $1,200 a month! The Huntsville market is hot and hungry for large houses like this one. She got it rented in a week and we have been very happy with this tenant!

The Refinance:

The refinance process was pretty standard, similar to deal one and deal three. We used the same lender from our previous refinances in order to keep a strong relationship and fortunately, COVID still hadn’t had a significant impact on the refi process.

This time we shot for the stars and landed on the moon. We initially thought the house was worth $120k but after our previous higher-than-expected appraisals we decided to submit the application at $150k. Although the appraisal didn’t come back that high, we still appraised at $140k, which is $20k higher than our initial estimate! They adjusted our loan based on the new ARV and we received 25% equity for $0! All our money back and then some!

The Result:

Purchase: $80,000
Rehab: $15,000
Rent: $1,200 / month
ARV: $140,000

Lessons Learned:

In a hot market, constantly check your comps during every step of the BRRRR process. Home values and rents can increase in just a matter of months, stay on top of it to yield the highest returns.
City notices; Don’t be afraid of them but get them done as quickly as possible.
Divide and conquer; This is a no brainer but such a powerful concept.
50% of a watermelon is better than 100% of a grape. Make deals happen even if it involves multiple partners or lenders.