I’m in the process of completing my first BRRRR real estate investing deal in Fayetteville, North Carolina, and I am pretty excited.
For some background, I’m a 31-year-old investor who works in the finance industry and lives in South Carolina. I’ve been primarily investing in stocks up until recently, through REITs, MLPs and gold stocks. My first real estate investment was made in December when I purchased a single family home (turn-key rental) in Milwaukee through Roofstock, an online marketplace for investors.
For 2019 and 2020, I’m going to be focusing really hard on completing several BRRRR (buy, repair, rent, refinance, repeat) deals as the potential upside is much greater than investing in turn-key properties [please read my above article on BRRRR for more details].
My Fayetteville BRRRR Deal
Fayetteville is a city in North Carolina with a population just over 200,000. It is a very affordable real estate market, with average home prices just north of $100,000. The city is home to Fort Bragg, a major military base which employs much of the local workforce. It’s about a 3-hour drive from where I live, too.
I did my research and I think this is a great market for single-family rentals. As a local agent explained to me, there are a lot of foreclosures in the city as military members and veterans can purchase homes with zero money down through VA loans. It’s a competitive market for investors, with homes mostly selling above list price.
I spoke with two realtors and was added to the MLS, receiving foreclosures daily. After about 2 weeks or searching and not finding anything, one of the agents sent me a list of 4 properties they had analyzed for my criteria. One of the properties was listed through an auction and didn’t work out (it was a total mess), but another one we bid on successfully.
The numbers on my deal
(3 beds, 2 baths, 1,200 square feet, built in 1989)
Price: $75,000 (CASH)
Repair budget: $12,000 (CASH)
Rent estimate: $900 – $950
After-repair value: $116,000 (based on comps)
Neighborhood rating: B
The list price was actually $69,500, but since we were very confident in the comparable homes and the condition of the house, I decided to bid well over listing price to secure the property.
The home is a single family bank owned home and is located in a pretty nice neighborhood, which I would rate as “B” (from A – F scale). The comparable homes sold in the area range from $112,000 to $120,000, and my agent thinks $116,000 is a pretty good after-repair value estimate (that’s the estimated appraisal value after we’ve made repairs).
The house needs a new roof, interior paint, light fixtures, a new oven, an HVAC tuneup and other minor repairs. I visited the property in person and met with my realtor and contractor, and the house looked nicer than I thought it would. Now we’re just waiting on a termite inspection and HVAC inspection.
Why is this a good deal?
So far, this looks like a solid deal because my total investment looks like it will be around $87,000 (not counting lender refinance costs). My plan is to refinance the loan via delayed financing with a local lender, who told me I’ll be able to pull out up to 75% of the property ARV.
To clarify, that means if the house appraises for $116,000, I’ll be able to pull out $87,000, which is my entire upfront investment (minus closing costs).
For the loan, I’m assuming a mortgage rate of 5.3% and paying closing costs of $2,500 out of pocket.
Using these numbers, the house will cash flow at $48/month, I’ll just have the $2,500 in closing costs paid out of pocket, and I’ll have made about $27,000 in equity from the deal.
(The numbers on the deal from the BiggerPockets BRRRR calculator).
Okay, I’ll admit that the 10.49% cash-on-cash returns don’t look spectacular. BiggerPockets has said that it’s possible to get infinite returns on BRRRR deals – that means having no money in the deal and receiving positive cash flow.
Another nice “pro” to BRRRR is the fact that your capex and maintenance should be much lower in the early years of ownership, since you’ve just invested in improvements. For example, we’re replacing the roof, which should have a 15 year life, while the HVAC is only 7 years old.
I think I’m OK with these numbers for my first BRRRR deal. While it won’t cash flow a ton, I’ll have created a bunch of equity, and, if all goes smoothly, I’ll only have $2,500 invested in a $116,000 house and $27,000 equity. Pretty cool, right?
The cons to this BRRRR deal
I’ll admit that this deal is making me a lot more nervous than my first deal through Roofstock. While the numbers look very good, there are definitely risks to consider for BRRRR deals such as this one.
- For one, I’m going to have to commit close to $90,000 in cash(!) to get the deal done. I’ve been saving up for years and years. That is the result of a lot of hard work, blood, sweat and tears!
- After closing (scheduled for mid-February), it will likely be at least 4-6 weeks until the repairs are done. I don’t know what I’m going to do to contain my excitement. I will probably bug the contractor more than a few times.
- The repair budget is $12,000, and I’m hoping we don’t go over that figure, but anything can happen!
- After repairs are done, we need to get it rented out, which could take a while since it’s not peak season for rentals.
- Finally, the house needs to appraise for my target price to get my money out of the property via a cash-out refinance. The sales comps are strong, but there are no guarantees.
What do you think about my first BRRRR deal?