Bluffview BRRRR

BRRRR on Bluffview

Buy, Rehab, Rent, Refinance, Repeat…this project embodied that very concept to the fullest!

If every RENO project could be like Bluffview, then building out a portfolio and crushing goals would be a piece of cake! We had a 6-week RENO goal with this project. It started with a smooth purchase of a tenant-occupied property and ended with a cozy and beautiful single family home in a great neighborhood!

Ending the Lease and Kick-Starting the Reno. The tenants communicated early they planned to move out shortly after closing. We felt this was perfect and it allowed us to do a renovation before the first 6 months of owning the property. The tenants turned over a house in desperate need of updates, new flooring, cabinets, appliances, and a fresh coat of paint….everywhere! After handing over a full security deposit to the tenant for the smooth move out, we kicked off the project with demolition.

The best part of this project was simply whitewashing the fireplace, new LVP, and applying a fresh coat of paint on all of the trim. Bluffview already had a solid canvas and just needed a little extra TLC. During the initial walk through it was hard to look past the 10-15 year old carpet, drab painting, and old light fixtures. Ultimately, with each update this house really came alive and turned into a fun and cozy single family home for anyone to enjoy.

We set a timeline of 6 weeks and fortunately had a military family waiting for completion to move right in. We felt the need to make sure everything was completed to the fullest, but always with the same high quality as any other project. Our perspective is to complete any RENO to the fullest so in a worst case scenario it is ready to be placed on the market and receive the highest and best offer possible. In a rental market near a large military base or in a bustling city this holds true as well. So before you think of short changing on quality, consider the pool of tenants you market towards, the amount of rent needed to cover your Debt-Service Coverage (DSC) ratio, and minimizing future maintenance.

Rental Market.

COVID taught us many things. Stable income for tenants is a must. Researching applications and references are just as important.

DSC Ratio.

For business entities (LLC), commercial lenders focus on DSC and Debt-to-Income Ratios. Aiming for 1.25 is important, meaning you will cash flow after paying your Payment, Taxes, insurance (PTI).

Maintenance Plan.

Enter any project by checking everything and make all improvements to last at least 10 years of routine use. Limit the number of future service calls by fixing everything during the renovation. Your tenants will likely take better care and management is simpler.

Reno Priorities

-Remove Appliances, Cabinets, Vanities, and an annoying ceiling fan in the kitchen

-Paint…everything, and whitewash the fireplace

-Granite Countertops, Custom Backsplash

-Fix the Deck!

-Brighten Up the House

Key Takeaways

-Old Ceiling Fans in Kitchens just don’t work!

-Recessed Lighting is easy, economic, and looks great

-Floor Prep is a must! Uneven floors will always create greater problems

-Electrical has to make sense, too many 3-ways/4-ways can be a nuisance

-Security Cameras/Systems provide so much comfort to both a tenant and landlord, don’t forget to add as a must!

Reno Budget Breakdown <$20K

-$500 – Demo Expenses

-$3400 – Exterior Paint

-$2000 – Lvl 0 Granite

-$2500 – Stainless Steel Appliances

-$500 – Interior Paint

-$2000 – Cabinets/Vanities

-$1700 – Update Plumbing/Fixtures

-$2200 – Flooring

-$750 – Security Systems/Cameras

-$750 – Lighting

-$1000 – Misc Repairs

Check Out the Before and Afters

Take a peek at this Reno Project!

Jefferson Single Family: Purchase and Reno During COVID

The COVID-19 pandemic brought many challenges for this project from the initial acquisition to dealing with existing tenants. The property required a timely renovation after nearly 20 years of neglect, but the major obstacle was the existing tenant of 4 years. Immediately after acquiring the property, we talked to future plans with the tenant in which they discussed future plans of moving with timeline set. Immediately, we were concerned with displacing the family during this time, but both parents maintained their jobs.

Even with a 45 day notice, the tenant decided to not pay their last month of rent and neglected to fix any issues with the house. As an initial experience for tenant turnover and dealing with a month of no payments, we still pushed through to renovation right on schedule. This project focused on balancing contractors to do 95% of the project. Our budget threshold was set at $25K to include a new roof, new floors, interior paint, and upgraded kitchens/bathrooms.

One bridge loan and one tenant later, we sat prepared for another renovation project. After getting estimates from various contractors both previously used and new ones, we settled on new contractors. In late summer 2020, we are still facing the top of the real estate cycle in the Fayetteville, NC area. This is highly likely due to Fort Bragg military base, but either way prices remain high and contractors aren’t short on work. With a 5 week reno timeline, we initiated reno.

We focus on renovations similar to fix and flippers. We do this to insure we maximize the appraisal during refinancing. This approach affords us to find the best tenants at the highest market rates. Walkthroughs are a breeze and tenants are typically motivated to have a practically brand-new house to call their own. This project we carried the same approach: Luxury Vinyl Planks throughout, carpets in the bedrooms, light gray wall paint, updated vanities and cabinets, and new fixtures throughout. The property easily will last the next 10 to 15 years with minimal maintenance.

Overall, the project went smooth. The flooring company worked seamlessly with the General Contractor of the project and met the project timeline. The modern update totally revamped the look and feel of the house and gave it the contemporary upgrade the house deserved.

The project exceeded our expectations and we knew from the beginning it would be a smooth project. With a hard deadline set to have it rented by 1 November, we placed Jefferson on the market and under lease in less than 5 days at the top of the market for rental rate. After a professional cleanup and professional pest control, the Jefferson Dr project looks to be a viable addition to our portfolio for the foreseeable future.

Getting Started On The First Deal

Whether it’s a podcast, a book, an eager business-minded friend, or your own ambitions, the message seems abundantly clear – “Make the first deal, and don’t give in to the tough times.”

For most aspiring entrepreneurs, making the first deal is more than half the battle. I have found myself hoping for some luck in the form of a great deal to get me off and running, but luck isn’t reliable, dependable and lies outside of anyone’s “sphere of influence.”

Right now, I find myself saving in order to build up reserves and find more ways to leverage money to meet the demands of a 25% down payment and up to 20K in rehab costs. All of this with the BRRRR (Buy, Rehab, Rent, Refi, Repeat) strategy in mind, a means to leverage banks to Refi and push all of those funds back my way for property number 2.

So how do I plan to leverage my own money? Two ways, the first is with a loan on a Thrift Savings Plan (Military speak for 401K) that holds a 2.5% interest rate with a 5 year pay off period. This account has received a steady 6% input over the span of 10 years. The second is with a good ole’ fashion HELOC (Home Equity Line of Credit) on my primary residence. I have nearly 5 years of equity on a VA loan in a neighborhood that provided already up to 50K in appreciation based on the comps locally.

Now for possible deals. It is spring, near a major military installation, so there are more homes on the market than the winter months. The number of foreclosures continue to populate the MLS and my broker continues to encourage me with the comps on properties of interest. For my first deal I am torn between the slow cash flow route of a Single Family Home (SFH) with moderate repairs or a Duplex or a possible Triplex in a less popular area.

For the first deal I am concentrating on the following:

Cash Flow (Goal: $300 a month per unit)
Appreciation through Rehab/Land Value
All-in ARV < 75-85% for Cash Out Refi (After Rehab Value)

In the coming days, I plan to visit 3-5 local banks and compare small-business banking options, escrow services, and mortgage products. Be mindful, that I have a full-time job (not Real Estate related), so everything is orchestrated in my off-time. These engagements will hopefully contribute to my current plan, or educate myself on areas that need improvement in the current business plan. And naturally, a follow-on meeting with my CPA to discuss tax implications, breaks, etc.

I remain in line with my main goals by focusing on establishing systems and relationships with SMEs (Subject Matter Experts): Broker, CPA, Banker. One of the key tasks on my list is to find a solid Real Estate Attorney in order to better understand local laws for contracts, leases, etc.

With each passing week, I reexamine each one of these incremental steps taken. The original plan has seen subtle tweaks, but we are ever so closer to pulling the trigger on our first deal.

Note: This are simple micro steps needed to fulfill my macro goals. Each little task is a micro goal, but these micro goals are well nested with my desired macros.