On August 11th, 2020, I had a conversation with Michael Barnhart of Adventurous REI that inspired me to use the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat) to purchase an investment property. I decided on a market, put together a team, and started looking for properties. Four months later, on December 10th, 2020, I closed on a duplex in Oklahoma City that already had tenants and needed mostly cosmetic renovations.
Nearly 7 months after that closing, on June 1st, 2021, I signed the closing documents for the cash-out refinance which was the final step in my first BRRRR.
I learned a lot from this experience which I will discuss more in-depth in my next article, but first I want to share the numbers! Was it a home run, a base hit, or a strike-out? I’ll let you decide! Send me a message on Instagram @honorandequity or doug@honorandequity and let me know your thoughts!
The Purchase
Purchase Price………….$100,000
Closing Costs……………$2203.02
Agent Commission….$0
I used private money at a 10% interest rate to fund the purchase price. My agent brought me the deal, and she was paid her commission by the seller. The closing costs included title fees, title insurance, the home inspection, the notary’s fee, and other minor administrative costs. I had to pay a notary to bring me the closing documents because I was on a work trip in North Carolina at the time of closing.
The Rehab
I estimated the rehab cost to be $20,000 and my private lender agreed to lend this amount in addition to the $100,000 purchase price. The rehab went over budget by $5,115.80, and I contributed the capital to cover the additional costs.
Foundation
5 Steel Piers Installed……………………………………….$2,875.00
Exterior
New Gutter System…………………………………………..$1,439.67
New Porch including railings…………………………..$3,500.00
New Fascia and Trim…………………………………………$4,000.00
Paint entire exterior incl
new fascia and trim………………………………..$2,000.00
Remove overgrown vegetation……………………….$125.00
Plumbing
Faucet repairs……………………………………………………..$75.00
Water line repairs……………………………………………….$75.00
Kitchen
New tile in both kitchens installed…………………..$2,500.00
Windows/Doors
New windows for both sides, installed……………$5,676.13
New trim, caulk, and paint around
new windows……………………………………………$2,250.00
New storm door…………………………………………………..$300.00
Replace back door threshold on both sides…..$300.00
Estimated Time to Rehab………………………………….3 months
Actual Time to Rehab………………………………………..6.75 months
Total Rehab Cost…………………………………………………$25,115.80
Renting the Property
Thankfully, the property was already rented to solid tenants at closing, so there was rental income from day 1. The current tenants have leases through November of 2021 and January of 2022. They wisely renewed their leases once they heard the property was selling so they could lock in their current rate for another year! My property manager says that because of the work that has been done on the property, we will be able to raise rents $100-200 per side once the current leases are up.
Current Total Monthly Rental income……………………$1,465
Estimated rental income once current
leases are up……………………………………………………..$1,765
Total Rental Income from the first close to refi
(December 2020 – June 2021)………………………..$8,266
The Refinance
I worked with a mortgage broker to help me find a bank that would do an 80% LTV (loan to value) cash-out refinance with no seasoning period. This is a key component of the BRRRR strategy, because I wanted to pull as much capital out as possible and not have to wait 6 months for the loan to ‘season’.
Property Appraisal……………..$161,000
Closing Costs………………………$1,994.44
Loan Term…………………………….20 years
Loan Interest Rate……………….4.75% (Fixed for 3 years, then variable)
Loan Principal………………………$128,942.44
Origination Fees………………….$2,848.00
Appraisal Fee……………………….$600.00
Monthly P&I…………………………$838.15
Total Capital Invested…………$8,365.80
You may have noticed there are a lot of fees and costs associated with these transactions. Real estate has high transaction costs relative to other goods and services. I paid a total of $7,645.46 in closing costs and origination fees for the initial purchase in December and the refinance the following June. This is important to keep in mind when analyzing potential deals.
Private Money Lending
I used private money (a loan from an individual to another individual or entity) to fund the purchase price and rehab. I like this funding strategy because I’m able to provide value to the lender via interest income, and the lender makes a solid return on a low-risk deal. The loan is collateralized by the property itself, meaning that if I did not pay her back she would be able to take ownership of the property.
Lending Costs
Principal………………….$120,000.00
Interest rate……………10%
Lending Period……….6 months 23 days
Total Interest Paid….$6,750.00
So was this deal a home run, base hit, or strike out? Send me a message on Instagram @honorandequity or an email to doug@honorandequity.com and let me know!