How To Add $189,000 of Value to Your First BRRRR Investment Property (No Prior Experience Required)
🪄 I created $189,000 of value in my very first investment property.
In this video, I'm going to share 5 takeaways so you can do it too!
Hey friends, welcome back to the channel. If you're new here my name is Sunny and I'm a real estate investor based in Northeast NJ.
On this channel, we explore tools and strategies that help us live happier, healthier, and of course, wealthier lives.
Today's video is about my very first BRRRR property. If you're unfamiliar with the acronym, BRRRR stands for Buy, Renovate, Rent, Refinance, and Repeat.
BRRRR has become an incredibly popular strategy for buying rental properties because when done right, you can own a cash-flowing asset with none of your own money left in the deal.
But today's video is not about what BRRRR is and isn't. Today's video is about how my team and I created almost $200K in value on one property in the span of 15 months.
Let's first go over the high-level numbers and then I'll go into how we created so much value in very little time.
- First, we bought a 4-family home for $240,000
- Next, we spent $160,000 on renovations, which put us all-in at $400,000.
- After filling all 4 units at market-rate rents our total monthly rent-roll is now $5,295, which is up from the $3,600 per month when we bought it.
- That's a $1,700 increase per month, or $20,000 per year!!
- Finally, when we went for a refinance into long term fixed rate debt, the property appraised for $589,000!!!
That's $189,000 more than our $400,000 cost-basis!
That means every dollar we put into this property yielded 1 dollar and 47 cents in return.
Now I'll be the first to admit that we got lucky with the current market. Values are inflated and we definitely benefitted from that, but we also put in a good amount of work and executed our business plan flawlessly.
🏆 If I had to attribute our success to 5 things, they would be:
#1. Strategic Partnerships
#2. Going Off-Market
#3. Focusing on Value Add Renovations
#4. Sticking To Our Numbers
#5. Knowing Our Comps
Stick around if you want to hear a more detailed breakdown of each.
Let's get into it!
#1. Partner With Someone Who Has Complimentary Skill Sets
I'm pretty good with most things finance related.
I'm really into spreadsheets, I can raise money, and I understand all the different types of lending options.
However, I have a huge blind spot when it comes to renovations, managing contractors, and dealing with tenants.
I'm way too soft and people tend to walk all over me because I'm a gigantic people pleaser.
In fact, the biggest fear I had when I first considered investing in real estate was getting ripped off by a contractor. The truth is I’ve been ripped off by a contractor before and I was afraid of making the same mistake again.
I also knew I didn't want to manage the day-to-day operations of a rental property. So I partnered with someone who had experience in both categories. Not only did they manage the renovation, but they also continue to manage the property and the tenants, making this a completely passive investment for me.
If you're interested in learning more about how my partners and I structured our partnership, leave a comment below. While you're at it, hit the like and subscribe button as well.
#2. Buy Off Market Deals!
If you want to really create value, you have to buy off-market deals.
There are investors out there that claim they find deals on the MLS, but I just don't see how that's possible in today's market.
Look, if you're not trying to add value through forced appreciation and you just want to find something where you can park your money so the rent covers the mortgage, maybe you can find something on the MLS.
But that's not my strategy.
I'm looking for cash flow, but more importantly, I'm looking for massive equity gains.
Don't get me wrong, cashflow is nice. But $200 per door per month isn't moving the needle for me.
It would take me 150 units to get to my number.
So far, it's taken me 13 months to acquire 11 units.
At this rate, it'll take me 15 years to get to my number.
I'm way too impatient for that.
That's why I try to prioritize equity creation.
That's where the true wealth is.
I look for distressed properties with deferred maintenance and problem tenants.
That's where I find tired landlords who are looking to sell their property for pennies on the dollar.
This property is a perfect example:
I bought an 8 bedroom 4 bathroom 4-family home for $240,000.
At the same time, there were 4 bedroom 2 bathroom duplexes selling around $360,000.
So how did I get the property for so cheap?
The previous owner lived in North Carolina and couldn't properly manage the property from there.
There was A LOT of deferred maintenance and some of the tenants were a headache.
That's where I stepped in. I offered to solve his problems in one quick cash transaction and the property was mine.
#3. Value Add Rehab
We did a lot of work at this property:
We installed a new roof, revamped the electrical, and even updated some of the plumbing.
None of that is really value add though.
No tenant is going to pay more in rent because the roof is new or because the plumbing and electrical are in slightly better condition.
These improvements help with the appraisal, but not with the income.
So how did we achieve rent bumps of $400 per unit?
Simple, we did the sexy stuff too.
We installed new kitchens with stainless steel appliances.
We completely replaced each bathroom.
We pulled up all of the carpets and redid the flooring with LVT.
We repainted and remolded all the walls and installed new doors throughout each unit.
But we didn't stop there.
We also built storage units in the basement for each apartment.
That way, the tenants could keep their spaces less cluttered.
The storage lockers were a huge hit and incredibly inexpensive to install.
If you have extra common space in your small multifamily property, I definitely encourage you to try adding storage units.
#4. Stuck To Our Numbers:
The first time I walked this property was with a contractor.
A few days later, we received a bid for $90,000 for a full cosmetic rehab + a new roof.
The bid came out to roughly $22.50 per square foot: right in line with our expectations.
After we went under contract, I had an inspector walk through the property during the due diligence phase.
The report the inspector came back with was scary!
There were numerous fire hazards with the electrical, safety hazards with the stairs, and multiple locations throughout the building with plumbing issues.
We immediately forwarded the report to our contractor and asked him to rebid the job with this new information.
The contractor's bid increased to $136,000 because of what the inspector's report uncovered.
Our renovation budget increased by 50% overnight.
I almost walked away from the deal, but thankfully the seller agreed to a last-minute concession that made our numbers work.
#5. Know Your Comps
When we bought this property, there wasn't another sold comparison available.
The best sold comp we had was a duplex that sold a few months earlier for $360,000.
The good thing about that duplex was that it was exactly half the size of our property.
It was half the square feet, half the number of bedrooms, and half the number of bathrooms.
So we doubled the value and reduced it by 30% to stay conservative.
$360,000 x 2 x 70% = $500K. That’s where we initially pegged our After Repair Value.
Thankfully, as we were completing our renovations, another 4-family home sold in town for $594,000!
As soon as we saw that comp, we knew our property's value was going to far exceed our initial expectations.
And it did! Our appraisal ended up coming back at $589,000.
We refinanced the property at 75% Loan To Value and got a new loan for $441,750.
After paying off our private money lenders and closing costs, we were able to pull out roughly $20,000 in additional capital for ourselves.
Now we own a cash-flowing asset with none of our own money out of pocket.
It doesn’t get much better than that.