Today’s post is from Daniel Shin of The Darwinian Doctor, one of my partners in the PhREI network along with Ian Cook from Carpe Diem MD. We’ll learn all about real estate and the returns, of all varieties, it generates!
This is such a great post because Daniel is totally transparent and authentic about his experience with real estate investing. He gives real numbers, headaches, and, let’s just say…indigestion.
It demonstrates the great parts about real estate investing but also the strength of mindset it takes to be successful. I think that is super worth the rewards but you will need to decide for yourself.
Anyway, check out how Daniel generated real estate returns of 50%!
Pssst, if you want a quick starter’s guide to real estate investing, check this out!
Pssst, if you don’t know what BRRRR stands for, read this article first.
Take it away Daniel!
A couple of weeks ago, I had back to back closings for the cash out refinances on two duplexes. After putting the kids to bed, I met the mobile notary at the door and we sat down at the dining room table. Thursday night and then again on Friday night, I signed stacks of documents and finalized the “refinance” part of the BRRRR process.
Specifically, I completed the BRRRR process on Indy Duplex #2 and #4.
Here are the properties:
Last week, my property manager in Indianapolis gave me the good news that both properties will be fully rented as of March 1st! This officially finished the “rent” part of the BRRRR process for duplex #2 and #4. Time for some real estate returns now!
So now it’s time for a nitty-gritty analysis to finalize my numbers and give the official cash on cash projection for the two properties.
Indy duplex #2: purchase and refinance
I purchased this building through a wholesaler, so there were some extra fees that I paid to get the property under contract. But I got a good price for the property, and it appraised for much more than I expected after my light renovation.
Catching a neighborhood upswing?
Despite some degraded plumbing and an unfortunate issue with a neighbor, things finally seem to be going right for this duplex (knock on wood).
Both sides of the duplex rented for slightly higher than I expected, which increases our cash flow projections. Also, the bank appraisal took place right after three really nicely renovated duplexes sold nearby to duplex #2. This generated a surprisingly high appraisal value.
Are we catching the beginning of an upswing in this neighborhood? Maybe, but only time will tell. As you can see below, the stars aligned for a really impressive cash on cash return.
Indy Duplex #4: purchase and refinance
I also purchased this duplex through a wholesaler. However, this property needed a really extensive renovation, including new plumbing, HVAC, flooring, kitchens, and bathrooms. I also had to pay cash for the property (which is why purchase price = down payment in the chart below).
By the time the renovation was over, I’d sunk almost a quarter of a million dollars into the deal!
Too much renovation?
This deal was interesting. Because of the cost of the renovation, the property appraised for only $25,000 more than I had sunk into the deal.
The lender also caught an error where they’d originally planned to cash out 75% of the equity, instead of the 70% the duplex deserved. That’s an extra $13,750 that I had to leave in the deal. That equals a total of over $60,000 of cash left in the deal.
But in the end, I’m still walking away with a nicely renovated duplex at about a 17% cash on cash return.
Last week, the funds cleared and roughly $250,000 flowed into my bank account from the lender. I directed the cash back into our HELOC, reducing our balance and priming the pump for our next project.
Considering the spread between our cash invested and the appraised value of the homes post-renovation, we created almost $100,000 of equity with these two BRRRRs. We should also get over $18,000 total cash flow from the properties annually after expenses. All while our tenants pay down our mortgages.
I still have Duplex #3 weighing on my mind. Also, the major renovation on the 10 unit apartment building is about to kick off. I’ve got stories to tell you about both properties, but I’ll save that for another day. Suffice to say, my once-in-a-while antacid is now a daily necessity.
Finally we’re done with the BRRRR process on duplex #2 and #4! Now, the Dr-ess and I are pondering what to do with our capital once again. We technically need to keep on going to fulfil the repeat portion of the BRRRR process. In the short term, I’ve decided to pause on new property acquisition until the apartment complex renovation is humming along.
What do you think? Are the real estate returns worth the GERD for you? Have you done a BRRRR? Let us know in the comments below!
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