Holy S***. We Doubled Our Money on Our First Real Estate Deal!

Picture credit: Business Credit Workshop Blog

My wife and I have a long term goal of accumulating income real estate properties. We are a single-income household and, ultimately, we want to replace that W2 income with profits from rental properties. 

We started saving for real estate investment in 2018, and spent the second half of 2019 looking for properties that fit our ideal strategy, which is the BRRRR strategy coined by the real estate gurus at Bigger Pockets. The BRRRR strategy stands for buy, rehab, rent, refinance, repeat. If done correctly, this strategy allows you to recycle the same funds over and over again. It involves finding a property that has been neglected, acquiring it at a good price, fixing it up, doing a cash out refinance to remove your initial investment, and then renting the property at a monthly profit. It sounds too good to be true, doesn’t it? I thought so too, but I gave it a try and loved the results.

First, let me tell you that doing this strategy under the existing market conditions in Massachusetts is far from easy. The market is hot, and even beat down properties are getting bought at prices over asking. We saw dozens of properties, and made at least as many offers. We got close a couple of times, but got beat time and time again by buyers with, literally, bigger pockets than ours. Another challenge is that I am too busy at my job, and I lack any sort of handy skills, to make repairs myself. If a property was going to work for us, the numbers had to work with us being 100% hands off and contracting out for all tasks. This made things hard, but nothing is impossible. We remained patiently looking for our first deal.

We got our big break about a week before Christmas 2019, when we saw a foreclosed property in our target market of Worcester, MA. We had about $40,000 saved at that time, and eventually got our offer accepted and closed on the property on February 28th, 2020 (yes, just before the pandemic here in the US).

Here’s how the deal played out:

Property:Foreclosed single family home with 4 bedrooms, 2 bathrooms, and 1,750 square feet.

Asking Price: $165,000

Purchase Price: $149,000

Rehab Cost: $51,000

Other acquisition costs: $10,000

Total Cost: $210,000

Total Cash out of Pocket: $42,000

The rehab process only took six weeks, and we posted the property for rent in April. We ended up renting the property quickly for $2,200. So, we had completed the buy, rehab, and rent portion of the strategy. Next was the refinance portion of the deal, which we believed at the time would require six months of seasoning on the original loan (long story, but not always the case).

We eventually found a great local bank (Middlesex Savings Bank) that is able to refinance a single family investment property at 80% loan to value. The appraisal for the property came in at a whopping $315,000, which was way more than even our best projections. Due to the 3.75% interest rate on the loan, we decided to maximize the cash out, which was $252,000 at 80% LTV.

So, to recap:

We were into the property for $210,000 with $42,000 as a down payment. We cashed out $252,000. The math then is $252,000 - $210,000 + $42,000 = $84,000 that we walked away with from this deal. Not only did we take ALL of our money out, we actually doubled our money!

In addition to doubling our money, once can’t forget that we still have $63,000 in equity left on this property ($315,000 appraisal minus the $252,000 cashed out).

There’s still monthly cashflow and principal recapture also! We rent the property for $2,200 and the mortgage after the cash out refinance is $1,550, of which is roughly $380 monthly in principal recapture. Based on these numbers, we can expect about $12,000 in networth increase from this property from renting it, or at least $7,000 after we adjust for capex, vacancies, and maintenance accruals. That is not a bad deal for a property in which we no longer have any cash invested in, and that already “profited” $42,000 for us.

So, this is the story of our first investment. We now have all of that cash “parked” in oil stocks since October, 2020, but that is a story for another post!

Do you want to learn more about the BRRRR strategy? There’s a whole Bigger Pockets book on it!