The Deal:
We’ve made it to the last deal in the BRRRR portfolio series! This is the fourth and final property from the entire portfolio deal. Please check out my other posts if you’d like to know more about the other properties from this portfolio: Deal #3, Deal #4, & Deal #5. This deal took us some time to stabilize but it provided us with many valuable lessons. So what held us up? Inherited tenants and COVID regulations.
Deal Source: Local Huntsville Wholesaler; As I mentioned in my previous posts, the goal as an out-of-state investor is to ensure a quick, easy, and guaranteed closing. Due to our team being able to accomplish this on our previous deals, we were recommended as a buyer to this wholesaler’s deal from our main wholesaler.
Property Details:
3 bedroom,1.5 bath; Single Family Home.
1,322 sq ft.
Inherited tenants.
Located a few doors down from Deal #4.
Strategy: Traditional buy-and-hold to BRRRR; Since the property had inherited tenants we decided to continue renting to them so we could collect cash flow while we rehabbed the other properties from the portfolio. Since we bought below market value we knew we could still refinance the property after six months and pay back our personal lenders with that money.
Estimated Numbers:
Purchase: $70k
Rehab: $0
Rent: $895/month
ARV: $90k
Financing:
Personal Lending: Same as Deal #3, Deal #4, & Deal #5. 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. We implemented all the lessons from the bonus content of the book BRRRR by David Greene and successfully raised the money for the purchase price of the properties.
Rehab & Renting:
This was the second property in the portfolio that had inherited tenants. When we performed our due diligence the seller assured us that the tenant was a good tenant; the rental history checked out so we decided to keep the tenant and continue renting to them.
Similar to Deal #5, we were hit with an unexpected HVAC replacement a few months after closing and COVID continued to impact the world. Fast forward through all the accommodations, back-and-forth communications, and various attempts at finding win-win solutions with our tenants; we ended up not-renewing their lease and had to pursue an eviction.
This process took MUCH longer than expected due to the eviction moratoriums and court delays. Once the property was vacant, our contractor recommended that we send pest control to the property. We learned that spraying adds a significant amount of time to tenant turnover, but what are you going to do right? After spraying the property our contractor made some cosmetic repairs and deep cleaned the property. Our property manager already had the perfect tenant in mind so they were placed immediately after her inspection. By the time the property was rent-ready the rent skyrocketed to $1,200/month! That’s $300 more than what we we’re expecting, we LOVE the Huntsville, AL market!
The Refinance:
As I’ve mentioned before, the cash-out refinance is a pretty standard process. We started the refinance 5 months after closing so we can pull the money out as soon as possible to pay back our lenders. When we applied for the cash-out refinance we asked for $90k and the appraisal came back at $84k. In the end, we pull out $63k, leaving about $24k in the deal after loan fees. Numbers wise, our cash on cash ROI at the end of the year was about 20%.
The Result:
Purchase: $70,000
Repairs: $14,000
Rent: $1,200 / month
ARV: $84,000
Lessons Learned:
- We are never purchasing a property with inherited tenants again.
- Pest control adds a significant amount of time to a tenant turnover.
- Always check rent prices with your property manager.
