This is the digital nomad quest podcast with Sharon Tseung. teaching people how to build passive income, become financially free and design their best lives.

Hey guys, it’s Sharon from digital nomad quest. And this is Sean with everything, Rei and today we’re gonna go over how much we make on our moldy house brrrr project that we finally completed.

So if you guys have been following along our moldy House Project, I think I made like three videos already on this project. So if you guys have not seen that already, go ahead and check out our previous videos. And it goes over all of the process. While we were doing it. We showed a picture of our cash out refinance check that we got, as you can see, it’s over $237,000 that we got back and in the caption I mentioned, if you guys wanted to know more of the numbers, I’m going to make a video. So a lot of people were curious. So I decided to make this video today, this was the biggest check I’ve ever received. Because the second biggest check for you, right?

Second biggest because I flipped houses in the past. So it’s really cool to see everything kind of pan out. We have been doing this project for what seven months or so. And this is my first burr project. So it was really cool to see that it actually worked out. Now if you guys don’t know what burr stands for it is buy rehab, rent refinance, repeat. So we’re going to cover the steps, we’re going to talk about how we got this deal kind of wanting to do this overview and then go into how much we actually made from it.

First off, when we got this deal, I actually found this on a Facebook group. So I had been monitoring different Facebook groups looking for deals, looking for connections. And essentially, we found this moldy House Project, we put an offer actually at $125,000, we thought it was a very good price for the area. But it was definitely really moldy. Inside the pictures looked okay, like we thought maybe it would be cosmetic, but it ended up being a whole big thing. It’s like an entire house mold remediation, but we’ll go into those details later.

Even though we initially had it under contract for $125,000, we didn’t know was because it was a short sale, there’s actually some regulations around wholesaling or even double closing, which is what we were initially trying to do. So we were buying this deal from a wholesaler, he was going through this whole process of getting approved by the bank to then get the deal. But if you’re a buyer property through a short sale, apparently you’re not allowed to sell it within six months or 12 months or something like that. So therefore a wholesale or even a double closed situation would not work. And because we already had a closing date set for I think it was mid June or early July, we already booked a trip to Texas that we could oversee some of the work that is being done.

You could film some content short on youtube channels, unfortunately, because of this whole mix up about not knowing about short sales and wasting time, we then talk to the wholesaler and said, Look, we spent all this money to travel here. And because of what you did, you’re basically wasting your time. So can we please have a reduction in the price eventually said you know what? $5,000 is not a big deal. Like Sure. Let’s do more business together. Here’s a reduction in price. And so we end up buying it for $120,000.

So now we completed the buy part and then now let’s talk about the renovations part. So because this was a moldy house, there are two steps actually we’re going to remediate it and then we’re going to renovate it. This is the first time we encountered a moldy house like this. So it was definitely very new to us. So As Sean mentioned, we actually flew over there. We were planning to oversee renovations at that time. But because of the delays, we actually decided to interview mold remediation companies as well as contractors, Shawn took so many calls, I’m way more introverted, he’s a lot more extroverted. So I kind of found the contact and then he kind of spoke with them, we got referred to someone by our Airbnb host who basically gave us a quote around 22 to $23,000.

We ended up going with that the quotes were varying a lot like going from 25 to like $50,000, we were getting worried we were worried that we’re going to go over budget, but luckily, you know, the connections we made while we were out there really helped. So I’m glad we actually flew out there. We wanted to do things the right way. Because you know, with a moldy house, you never know. You don’t want the tenants to get sick or anything like that because of not doing the process, right. That’s why we got like a mold protocol. We got clearance and everything like that. So everything’s safe. We spent a lot to make sure that it was gonna be okay. Now it was 22 to $23,000. And then we had to renovate it.

We also interviewed contractors, and the contractor we found was actually through the Facebook group again. He was actually trying to bid against us and we actually won the property and we met up with him for lunch and he was a great guy. He actually flips homes on top of being a contractor himself. So we actually ended up hiring him because in the future we could partner on projects, he decided to give us a really good rate. Essentially remediation plus renovations ended up costing around $80,000. After hiring them, we had to kind of go back and forth with the contractor to kind of figure out paint colors. We’re going to use flooring and everything like that. We will save some money by restoring cabinet we also kind of looked at comps in the area to see like what design choices people made found out that carpet is very common in Texas. So we decided to do that and that saved a lot of money as well chose a darker color because we thought I could last longer essentially.

Now let’s talk about financing real quick. So originally, we were going to use a private money loan to purchase the property. But due to the shifting schedule of when we got to close, a part of my letter was actually going to Asia during that time. So it was really convenient for them to wire us the money. So instead, what we did was we ended up purchasing the property with their own cash, and then they just end up gave me the check with your private money funds. So whenever we were ready, we could deposit it, get the funds out and start using them. So we ended up using those funds for the mold remediation and for the rehab work. So we give them a fixed interest rate of 8% for that time. And because the project took seven months or so then by the time you pay them back, we basically gave them seven months worth of interest, plus the original principal back.

Now we covered renovations, let’s talk about the rent process. So then the property is all done, you can see some of the pictures here. And I actually have two properties in the area where I work with two different property management companies to manage my properties. Now since I already had those contacts, I decided to contact one of them to help manage this moldy House Project. So initially, when we went into this project, we thought, okay, maybe 2000 in rent, the property appreciated a lot over time, the rents increased a lot over time, we decided to aim for $2,400 per month after doing that it was on the market for you know, a couple of weeks, nothing happened, we decided to lower at $50, and then another $50 to 2295. And eventually we got a tenant after maybe one one. And then now that we got that part now let’s talk about the next R which is refinance.

So the reason why a BRRR project takes six months is because of something called a seasoning period, basically is a lenders kind of guideline as to how much they can loan you if you are buying a property today for 100,000. And tomorrow is worth $300,000, the bank is not going to lend you money based on that $300,000 Number, they’re going to think oh, well, you just bought it for 100,000, it’s worth 100,000, after six months, they can use the new appraised value. So by month five, I knew that it takes around 30 days to finish a refinance. So we started the process so that by month six, we could use the appraised value for our loan amount and get a larger loan.

The property was actually appraised at $330,000, which we were very happy about. Because when we were going into it, we thought maybe like $260,000, then later on, we’re like, oh, maybe like $300,000. And then later it was like oh, maybe 300 to $350,000, it was definitely appreciating over time while we’re doing this project. So $330,000 was a great number for us, we got a loan at 75%, LTV, we could have done 80%, but the interest was gonna be higher. So we decided to do 75 Instead, which means less money we’re going to pull out but we thought the terms were better. But when doing this BRRR project, we found that the closing costs are $10,000. So that’s something you need to note, when you do a BRRR project that you’re gonna have to pay, you know, a decent amount in closing costs, we’re looking at around 4%. So that’s pretty high. But with this property, there’s a lot of cash we could take out, so we decided that it was going to be worth it.

Since our property was valued at $330,000, and we need to get a loan as 75% of that our total loan amount is $247,500. Now, like you mentioned, we did pay closing costs for that and our closing costs came out to be $10,230.27 $5,912.60 went to the lender. And $4,317.67 went to other costs such as title escrow notary fees, etc. So all in all, we got a check back for around $238,000, of which we are very happy to receive.

Yeah, because as a quick recap, we bought that property for $120,000. And then we paid around $80,000 for remediation and renovation work. So that’s around $200,000. Plus, we had to pay back the private money lender with interest of 8%. But all in all, essentially, if just looking at the numbers of like the project and the mount we got back we have you know about 30,000 that we got extra essentially, and we have this huge amount of cash that we can put in into more projects. So really excited about that plan to maybe get a property in Dallas and maybe make it into an Airbnb. So that’s kind of why we’re here in Dallas right now. We’re living here right now we moved from the bay if you guys didn’t see that already, so we plan to do a lot more real estate while we’re out here.

Now let’s go actually into the amount of cash flow and stuff like that. Sean already covered the loan amount and the interest and everything like that. So the monthly principal and interest is $1,235.73. Estimated Escrow is $563.89, which includes property taxes and homeowners insurance and combining those two and equals $1,799.62. property management fees are tuned to $29.50 because it’s 10% of the rental income Hoa is about $20 a month so we actually pay HOA for this. So total of that is about $2,049.12 but as you know I always like to allot 10% for repairs and vacancies. So that’s about $2,278.62 when adding that 10% So as you can see we’re basically break even that’s very close to that $2,295 per month amount. But the reasoning behind this is that we decided that this property will probably appreciate over time the rental probably appreciate over time.

Yeah. So basically what this means is we actually own this rental property, that’s cash flows, basically breakeven, but we have none of our own money into it. So basically has infinite returns. So again, as the years go by, as the rents continue to go up, then we will start getting more and more cash flow. But again, we could have actually made this property cash flow more if we decide to get a lower loan amount. But that being said, we know how expensive and how time consuming casual reefers are. So when you do it for us, honestly, it’s best to just pull out as much as you can, because then they having more liquidity and more cash in our pockets is really good.

Yeah, and we’re gonna use that a lot for future projects. So we decided to get more out for this project, other passive income from other rental properties can compensate for that lack of rents we get from this one. So overall, I thought we did a really great job on this project, we got a lot of cash back out, we got equity. So I’m very happy with how everything turned out. Because honestly, it was a huge learning experience for me is my first bird project. What did you think about it?

Yeah, I think probably the biggest challenge is normally for these out of state rental properties, we relied on our property managers to take care of everything. But for this particular one, because it was so much work, we actually stepped in and we found our own GC, we found our own mold remediation companies. And so that was actually a lot of fun and huge learning experience. Yeah,
like moving forward, I can see us kind of meeting a lot more contractors, a lot more agents and all these different players. And that’s really important if you’re trying to build your real estate business. So that’s kind of what we’re gonna do. But overall, like I mentioned, I’m just shocked at how smoothly I guess everything went. Even though we did have a lot of these roadblocks. I did mention stuff like quotes being higher and things like that. But I think we’re very good at kind of navigating and overcoming challenges.

Not to say that, like we can always, you know, do this and get a slam dunk deal all the time. But I’m just happy that we’re good at being creative. When things get harder, very happy with this experience. Even if things didn’t turn out. Well, it would have been a great learning experience for me because you don’t learn everything by just reading you have to actually like experience it to really understand things a lot more. Let me know what you guys think about this project. Let me know if you guys would have taken less money out or what you guys would have done in our scenario.