Just finished our first BRRRR, a triplex in Norfolk, VA
BUY: 2400 sqft triplex: 1) 1bd/1ba 550sqft @ $550/mo 2) 1bd/1ba 625 sqft @ $600/mo 3) 2bd/1ba 1250sqft @ $800/mo Purchase Price: 136k Rehab Budget: 60k Expected ARV: 265k Expected final rents: $600, $700, $950 Analysis:
o New windows o Landscaping o Exterior paint o New HVAC (mini-splits) o New flooring o Plaster repairs o New paint o New cabinets o New toilets/sinks o New fixtures o Added electrical outlets o New Appliances
RENT: We did a little non-standard rental here. Since it was already rented out, we had to get creative with the rehab and renting. So, we started with the exterior, landscaping, and new HVAC and windows.
One tenant was evicted for non-payment, so we renovated that next. Then asked if anyone was interested in moving into the newly rehabbed unit while we renovated theirs. This worked for the other 2 units. All are re-rented now (2 to original tenants) at the prices reflected below:
1) 1bd/1ba 550sqft @ $550/mo
2) 1bd/1ba 625sqft @ $715/mo
3) 2bd/1ba 1250sqft @ $925/mo
REPEAT: As always, there are some errors I want to improve upon for the next. I hope this will help some others. Systems will go into place to prevent repeating errors, and repeating what was successful.
1) Purchase price too high. I bought this off the MLS, I think I could have negotiated it lower, and in the future will look to more off market deals. I don't regret buying it, as a learned a ton and it still cash flows nicely.
2) Under estimated rehab budget. It was originally built in 1920s. So HVAC costly much more than I budgeted. It was worth it to attract a higher quality tenant, remove the window AC units, and move the utilities expense to a tenant responsibility. Next time I'll understand what is involved in an older home and have a better estimate on rehab costs for HVAC. (side note: ductless mini-splits are highly efficient and cheaper to install than a full vented system in an older home. Just make sure it’s a moderate climate as they don't provide tons of heat in cold winters.)
3) Not understanding all the ways an appraiser can appraise small multifamily (read: overestimating ARV). I used only the $/sqft method to find an ARV for this property. ARV is arguable most important number in the analysis. Since I was off by 20k, I left 20k more in the deal than I wanted to. The appraiser used a combination of $/sqft, $/room, and $/apartment. They then averaged the three. My $/sqft was right on, but the other two were lower, bringing the average down.
Summary: With the glass is half full attitude I count this as a base hit. It cashflows at $121/door (goal: $200/door), at an 8.5% CoCROI (goal: Infinite, min goal: 10%), I learned a ton, and got my feet into the small multifamily door.