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Second BRRRR Deal in Progress: The Numbers

Posted on April 16, 2019 by FearlessFrankie

Just a few weeks after completing my first BRRRR deal, I’m already onto the next deal.

If I learned anything from my first deal, it’s that the BRRRR strategy really works. Finding a deal is likely the most challenging part, although repair delays, going over budget on repairs, and not getting the home appraised well, are also some main concerns.

All-in-all, I’m pretty happy with how the first deal went, even though the numbers aren’t as good as I originally estimated, as I’ve left approximately $6,000 invested in the property (the ultimate goal is to have no money left invested, with positive cash flow – thus, infinite returns). Here’s why my second deal should be better.

Second BRRRR Deal

I’m pretty excited about my second deal. I saw a house listed for $55,000 on the MLS. It needs a bit of work and had been on the market for over 5 months, so I lowballed at $44,000.

To my and my agent’s surprise, the offer was accepted by the seller without a counter.

The house needs approximately $21,000 in repairs – new roof, HVAC, siding work and paint, and some other minor work.

BRRRR figures

This means that my total investment in the property will be approximately $66,000.

However, the after-tax value of this house, when all the repairs are completed, is likely to be around $90,000 (my agent has stated $93,000 – $96,000, but I like to be conservative). There is a home down the street that sold for that figure and it’s very similar to this particular house.

Like my first deal, I plan on doing delayed financing. The repairs and other expenses like homeowners insurance go on the HUD-1 statement at closing. You then can get back 75% of the ARV once repairs are done and an appraisal has been completed.

There is no seasoning requirement for delayed financing, which means you don’t have to wait the typical six months to refinance. The timeline just depends on when the repairs are done and when you can get the appraiser out there. It really worked out well the first time.

So, if all goes as planned, I’d be able to pull out my entire investment ($66,000), while holding a mortgage on a cash-flowing property. I would have created about $24,000 in equity and $63 in monthly cash flow.

How this deal’s different than my first

This house is actually already rented out at $725/mo. The tenants have been there for several years and intend to stay. However, we do plan on increasing that rent to $825/mo once the repairs have been completed; that figure is about fair market rent.

The rental should bring in around $63 per month in cash flow, when factoring in vacancy, capex, repairs, insurance, etc. That may not sound like much, but the plan is to have no money invested in the house – infinite returns!

The risk is that I’m inheriting a tenant whose credit, income and background I have not checked. But this tenant is on a month-to-month lease and could move out if they are unhappy (a worst-case scenario would be eviction).

The other potential issue is this house has polybutylene plumbing. This type of plumbing was used pretty commonly in the 80’s and early 90’s before it was banned. The stuff is apparently all over the Carolina’s, as well as other areas of the South and the Pacific Northwest.

The issue is the pipe fittings tend to fail over a period of time, leading to leaks. So, I eventually may need to replace the plumbing, which would be an expensive fix. But there’s the possibility that it may be covered by homeowner’s insurance, and there’s no telling how long the plumbing could last for.

I am cautiously optimistic about my second BRRRR deal and expect to close by the end of the month.

 

 

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Frankie is a 31-year-old real-estate investor and blogger. Join me as I grow wealth through investing. Let’s take the fear out of investing together! Read more on the About page.

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