House #6 Smooth as butter

Another project is getting wrapped up and I’m excited to share some details about it!

My deal processes are getting easier each time, and that’s great but the business lessons I’m learning are becoming far more nuanced. The last 2 deals I’ve done have gone very fast: this one was about 11 and the previous was just under 9. Even though the process has gotten easy, it’s not to say there isn’t still a lot to learn each time. 

This deal went very smooth, I did it long distance as usual, and by the time of this posting I’m already bidding on the next property! 

Your goal is to keep smarter people around as much as possible

When I bought this house I really thought I paid too much. Not grossly overpaid, but 5-8k grand which is kind of a lot on a $55k house. I had recently closed on a refi loan so I had capital and I wanted to buy a house immediately. The deals in my area are getting tighter, competition is getting fierce, and rates are going up, so it’s time to move.

I’ve been working with a new realtor for this project and that’s it’s always scary to rely on new people. After not finding a deal for a few weeks, she convinced me to look back at this house after we passed on it. She made a great case for this property: good location (especially for the long term), the ARV will be higher than I had originally thought, and it was a simple rehab. Not the way I usually buy, but it sure didn’t’ sound bad! 

I thought the ARV would be 80k at most and her estimated 90k was naively optimistic. 90k wasn’t out of the realm of possibility, but you should never buy a house assuming best case scenario. Luckily I knew if the value did come in a bit low we would be fine.

I also really wanted to show this person that I trusted them, and I wanted to actually put skin in the game on it. I think this is incredibly important in building a team. They must know you trust their advice

The house was a light rehab, that may sound good, but I was apprehensive that an appraiser would come look at a house that I JUST paid a total of 65k for, and give me 85k for it 2 months later. I have no idea how appraisals really get decided, but it seemed a little iffy to me. OK whatever, we moved forward and closed. 

Appraisal eventually came in at 100k, more than either of us expected. The rent came in $100/month higher than we anticipated as well.  How easy is real estate?! 

This was an eye opening experience for me in terms of how to build great teams and work with people to accomplish common goals. I literally had a partner find me this deal, sell me on it against my intuition, and it turned out to be very profitable. All the credit for this deal belongs to my team, and I look forward to relying on them more in the future. 

The money:

Purchase – $54,463

Rehab – $11,329

Total all-in – $67,487

ARV – $100,000

Equity created – 32,512

Rent – $950/mo

Difficulty  – SUPER EASY

This is the HUD, I like to put them up because it makes the process much more transparent, and not enough people share them. Line 103 is the additional settlement charges to get the rehab and insurance money back.  (I can’t find the page 2, so it doesn’t show the charges itemized).

The total cost of the project is on line 120,  this is what the lender is going to look at. 

My process for BRRRR:

Bid

Offer Accept

Contractor estimate

Insurance quote

Add these to the HUD 

Close. I paid for the house, rehab, insurance all at once, upfront. 

Rehab

Tenant placement

Start refi loan process

Close 

How could it be MORE easy?

 

In all seriousness, this was a fun deal and hopefully, this and my other deal writeups encourage people to go out and use this information to make themselves some money. I don’t make it seem easy, once you have great people it is easy.

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Alex Felice

Alex Felice

My name is Alex, I live in Las Vegas and I’m a very high energy, loud, and eccentric guy. I like to talk about things that are high concept and important, no small talk! I like controversy, I speak with conviction, and I’m not a fan of rules. Oh, and I'm super into real estate investment.

24 Replies to “House #6 Smooth as butter”

  1. Sweet deal man. Congrats!

    Looks like you closed at a purchase price a little higher than we usually look at but it turned out to be an amazing deal. Looks like it was at fairly good shape and only needed a minimal amount of rehabbing. I need to get better at estimating more closely how much money is needed to rehab so that I don’t rule out deals like this in the future!

    1. Yes this was delayed finance. I think the whole thing was ~10 weeks. I did leave a little bit in the deal but I’m more focused on going fast than I am extracting every last dollar out. You’re right that I left money on the table, but waiting 4 months for that few thousand wasn’t worth it for me. Great question!

  2. Congrats! Looks like you got a great deal. You should be cash flowing 400-450 easily after all expenses, correct?

    What area was this in, if you don’t mind me asking?

  3. I loved your recent podcast on Bigger Pockets …I have a similar mindset as you regarding long distance investing.

    I own one SFR that cashflows nicely (via a turnkey).

    I am getting my courage up to do a BRRR. One thing that you glossed over/ or I don’t fully understand …. is the fact that you need $67,487 up front, to make this deal work. Is this a “hard money loan” or do you have that much cash liquidity in your bank account.

    If/ when I find my first deal to BRRR what is the best way to consult you ?

    Thanks for the inspiration.

    Andrew

    1. yes you must pay for all of it up front. You can have a lawyer disburse the funds through an escrow afterward.
      I use liquid cash, for delayed finance it can’t be borrowed funds, or it at least has to be seasoned funds.

      Information is always free, just reach out 😉

  4. Hey Alex,

    First of all Thank You for being so transparent. I have a few of questions.

    1. Can you post the second page of the HUD docs? I showed this my lender and apparently there is a second page missing.

    2. Who else can disburse the funds besides a lawyer? If it has to be a lawyer, what do you pay for that.

    3. Also, who actually ovsersees the payment to your contractor? How does anyone know if you’ve actually paid him?

    1. 1. I would totally post the 2nd half but I can’t find it. I was frustrated when I posted it. It doesn’t have any new information luckily, but it is annoying
      2. the lawyer sends out my escrow disbursements for free, should be part of their fee for closing
      3. When you close the house, you’ll have to give the money to the contractor up front. When the lawyer sends out the check, the contractor gets paid. If he doesn’t get paid EVERYONE will know

      hopefully this helps!

  5. Alex Fellce,

    I saw you on the BP podcast and got a lot of valuable information from the show. Thank you for that. Like everyone else, i have a few questions for you if you don’t mind…

    1) What is the purpose of adding the rehab cost in the deal? If your buying the house with cash, why not just pay the contractor(s) yourself?

    2) Would this work if i wanted to do a conventional loan if you didn’t have the capital to pay for everything at once? Put 20% down, find and pay a contractor to do the rehab, then refi the house?

    I hope these questions make sense. I’m very new to this and i’m trying to understand everything lol

    1. 1. I add the costs to the HUD1 so I’m able to refi it out easily as soon as it’s done
      2. it’s technically possible, but you need to find a distressed house that a bank will also lend on. These do not overlap easily, though it’s not impossible.

  6. Hi Alex,

    Do you think this deal could have been done with a conventional mortgage on the front end ? I realize that to add the money to the HUD I would have to pay all cash up front but if I went a different route and got a mortgage, rehabbed, rented and then refinanced for 70% of the ARV- is that possible? I’m wondering if it is possible to BURRR with a loan on the front end, Thanks!

    1. sure but how are you going to buy a house distressed AND use a mortgage? The loan company is going to make sure the house is in a certain decent condition. It’s possible, just difficult. Also, you’ll have 2 sets of transactional costs

  7. Hey Alex, great deal! Now you had said it is getting tougher to find deals in your area, I suppose that is Fayettville, NC. Are you considering other areas? Have you looked into Wilmington NC, Savannah GA, Jax FL or Louisville KY? I’m an gathering data on some places. Got a heck of a spreadsheet going with info but looking at getting some pro data from some research companies to get accurate currant data….be happy to share once I get it together.

    Ryan

  8. Congrats, Alex, looks like a great deal. a few questions if you don’t mind.

    Is this property in Hope Mills? Is there any flood risk there?

    Did you get $900 or $950 rent?

    1. It is in Hope Mills, the rent is 950.

      I don’t believe there is any additional flood risk for this property above what normal Fayetteville flood risk is. We are not required to carry flood insurance at this time, though that can always change.

  9. Alex, this is awesome. Does the title company hold that $11,329 for rehab in escrow or is it immediately paid back to you in closing? If it’s in escrow, what is required to have it released to you?

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