Almost 4 months after we closed on the first acquisition under the R.E.A.D.I. Partners name, The Jefferson has officially been reclassified from “renovation project” to “available for rent.”
Cue the fireworks and break out the Hurricanes… She’s listed!
So how did we do as new kids on the REI block? To recap, this was our planned approach:
- The asking price was $80k, but we offered (and they accepted) $75k.
- We assumed there would be about $25k in rehab costs with a potential ARV of $120k.
- We were going to use the BRRR method – Buy, Renovate, Rent, and Refinance.
- With an assumed LTV of 80% for the refinance, we’d be about $5k out of pocket and collecting about $1200 per month in rent.
- Rehab was to start the first week of the new year. Our goal was to have our first tenant in place by March 1st.
- We were going to secure financing through a hard money lender for most of the purchase cost and 100% of the renovation expense. The same lender even offered great terms for the refinance after the 6 month seasoning period had passed.
And here are our results! (Swipe left to view them all.)
Looks fabulous, amiright???!!! Although we are totally patting ourselves on the back for achieving HGTV results (Property Brothers, we are looking at you!), this effort was no walk in the park. Most of our execution plan and assumptions for this property had to be adjusted pretty much as soon as the project started. But it was such a great learning experience and absolutely necessary to learn the ins and outs of the real estate investing that you can’t quite learn looking at Redfin postings and analyzing numbers all day.
Here are 4 takeaways we added to our tool belt as we navigated the good, bad, and awesome of our first BRRR property:
Build an awesome team. Be an awesome team member.
We can’t stress this enough… you must have an outstanding support system to survive something like this. We were lucky to find a wonderful property management company that connected us with an entire fleet of contractors and resources to make this project happen. The work performed was great, communication was stellar, and they coached us through some really silly errors. They took a chance on us as new investors and we made sure to be responsive, thorough, proactive, pleasant, and grateful at all times.
Expect the unexpected.
(Swipe left to view the full gallery.)
Our first “oh crap” moment came when our inspection report results revealed that the unit needed a new HVAC system… a whopping $6k adder to our overall reno budget. We tried to re-trade for a reduced purchase price since the unit was advertised as a purely cosmetic renovation, but the seller rejected our request. So much for our $25k rehab budget!
The infamous Winter Freeze of 2021 was another WTF event. Not only did it halt progress on the townhome for 2 weeks (3 actually, if you account for the time it took to regain our momentum to pre-storm levels), but a number of carport structures in the townhome community collapsed under the weight of the snow. Ours was one of them. The HOA has denied responsibility to foot the cost of the rebuild. We recently found out that our insurance won’t cover the damage either.
Fail fast.
We discovered the week of our planned closing that the lender that had pre-qualified us for our purchase and bridge loan hadn’t even ordered an appraisal. This would have delayed closing at least 5 weeks since we were approaching the winter holiday season. The seller was not willing to push the sale out into the next year. So we had to scramble to pay cash for the property and acquire the loan later. This meant double the closing costs. But we were able to get the deal done with another lender the following month.
Be a river bed. Not a dam.
Both river beds and dams restrict the flow of water. One provides an outline of where to go and allows water to naturally ebb and flow, speed up and slow down, or rise and fall depending on the elements surrounding it. The other is just a barrier. Full stop.
Having a plan is necessary. But it is inevitable that things will change. Be flexible and prepared to go with the flow. If we had taken the all or nothing dam approach to this project, we would have stopped ages ago.
Between the HVAC, winter storm damage, late addition of crown molding to cover up the rough edges created from the removal of the popcorn ceiling, late addition of a new hot water tank, and a very enthusiastic courtyard facelift, our purchase price plus rehab expenses has landed us exactly at the $120k ARV for the property. That means, unless the market hikes significantly, we won’t be able to pull all of our money out from the refinance.
But we have a completed renovation project to add to our resume, built our operating systems to efficiently manage our company, established relationships and reliability with contractors that know they can trust us as we scale to larger projects, and a ready-to-be leased (UPDATE – as of May 14th – she is LEASED) rental property that will yield great cash flow.
We hope this update was valuable and can’t wait to share more case studies with our audience. Be sure to sign up for our newsletter so you don’t miss out!
