Our First Rental - A BRRRR Success
The Property
A 1,100 sq ft, 3 bed 1.5 bath located a mile away from Broad Ripple, which is an area filled with a lively atmosphere full of cafes, shopping, restaurants and local businesses Also, just a few blocks away from the neighborhood park.
How We Found It
As we established our core four (deal finder, property manager, contractor, lender), we networked with as many wholesalers as possible. After we read ‘Long Distance Real Estate Investing’ by David Greene, we knew we had to find a trusted realtor too. On the Biggerpockets forum, a realtor was nice enough to run some comps for us on a potential deal a wholesaler had sent us and to make a long story short, he saved us from a bad deal. Our realtor sent us a couple of properties in the coming weeks and due to analysis paralysis, we decided to keep looking. We reconnected on Facebook weeks later and the stars aligned as he had a motivated seller willing to sell this property at a deep discount.
How We Funded The Deal
After speaking with our cousin who is also an out-of-state investor and dissecting his brain, we ended up going the same route as him with a Hard Money Lender (HML). The rates may scare people away, but we felt it was better to have more cash reserves on hand than to come out of pocket and eventually leave us with an empty wallet. Since we are first time investors, they required us to leave skin in the game, 10% to be exact and we really had no problem doing that. To pay back the HML, we are doing a rate and term refi.
What We Did Wrong
Forgot to turn on utilities prior to closing. The General Contractor was nice enough to start the rehab even without having the utilities turned on.
Overlooked the refi part of the BRRRR. We had to make sure our DTI was in line which meant paying down our debt.
Since we were working with a HML, we anticipated the draws to be instant. For instance, once the contractors finished phase 1 of the project and photos were sent to us, we figured the verification process would result in a quick turnaround. At times, draws took 2-3 days and as we all know, time is money, especially when you are trying to finish a rehab as quickly as possible. If the contractors were not paid on time, they would not work and could even pick up other jobs, leaving your project to be delayed. Our realtor recommended we set up a ‘floating' fund’ to keep the project moving along.
We set up the final walk through with the Property Manager prematurely. The rehab completed two days after our third party team walked the property and as a result, there were some fixes and cleaning that needed to be done before the tenant moved in.
What We Did Right
Like everyone says, you make your money when you buy the property. We were really confident with our numbers and felt like we were getting a really good deal on this SFR. We also asked our boots on the ground team about the area and assured us it was a GREAT area.
We kept a good line of communication with the realtor and contractor. We had weekly updates with photos sent every Friday on the progress of the rehab. As we became closer, we sometimes communicated daily.
The ‘floating fund’ enabled the rehab to complete 2 weeks earlier. Having the rehab complete early than planned allowed me to get a tenant in place quickly.
The Outcome
After months of networking, researching, educating ourselves and of course analysis paralysis, we took a leap of faith and closed on our first investment property May of 2020 (a day after FF’s birthday). There was so much emotions with this first deal—not only from being a first time investor, but also purchasing a home MILES away…without even seeing the property. We relied heavily on our team that we built and couldn’t have been more pleased. The rehab finished 2 weeks earlier than expected and although there were some minor hiccups, everything ran smoothly. The property boasts new flooring throughout lower level, a rec room (we call it a man cave) in the basement, a new kitchen with stainless steel appliances and new cabinets, a bathroom that is nicer than our primary residence, and higher-end fixtures. We love the deck the crew built in the back and our favorite part is the matching shed in the back. We can’t thank our team enough for having our first experience a successful one!
