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.
This is showing everything Rei.
And today we’re gonna talk about how we bought a moldy house at $125,000. So this is going to be a vlog style video where we’re going to talk about our journey, purchasing this property. And we’re actually going to go fly over there, we’re going to be a lot more part of this process. So we’re going to try to document more of this journey while we’re on it. So this is going to be a little bit different. It’s going to be like a little series. Yeah, I’m
really excited about this process too. Because this is the first time we’re going to be super hands on with a project instead of just outsourcing all the work to a general contractor or to a project manager. So let’s back
up from the beginning. We did a trip to Vegas together. And I think from that trip, we were kind of inspired to possibly get around property in Vegas. So we started shopping, he even contacted and agent he knows
Yeah, so I hit up a buddy of mine. Again, we were in Las Vegas, we had such a good time there. We thought why not buy a rental property in Las Vegas policy buy for under market value we have a little bit and then Airbnb, get some cash flow from it, refinance and get our money back out. Yeah,
so we were pretty interested. I was on Zillow, like every single day sending new properties to the agent like, Oh, what about this loan about this one, but then I came across this deal on a Facebook group, it was on my feed, and it was basically about a possible flip. So I contacted the wholesaler, who essentially said this is a $130,000 property, it was four bedroom, 2.5 bath, almost 3000 square feet, which is huge. And we thought, oh, this could be an opportunity because it’s actually in one of the markets that I was interested in. So we decided to make an offer with them.
Yeah. And the beauty of it is you’re actually in this Metro. So it was a over from an area that your your properties in so we kind of new layout you actually drove by there about two years ago, and you saw how beautiful was in that market. So this isn’t like a C class neighborhood. This is actually like a maybe a class neighborhood. Super nice. But this one property had a lot of problems with it. You have the problems.
Yeah. I mean, basically, there’s a ton of mold in this property, we look at the pictures, and it’s like more than the ceilings. There’s like a bunch of mold everywhere. It’s actually the problem got worse later on. So the pictures aren’t even as bad as it currently is. Yeah, like I said, it was super nice when I visited that area. And I looked it up on maps. And it was like, Okay, there’s a bunch of huge properties next to it. There’s all green grass, like I knew that people cared about their properties. It was like a nice neighborhood. So we’re like maybe this is an opportunity to kind of like my first property purchase in Antioch, where the prices have appreciated over $400,000. Like maybe we could keep this property hold on to it. And it would appreciate a lot in the future. Plus, even currently, if we fix it up, I was pretty sure we could get an after repair value of at least $260,000. Now it’s probably around $300,000. Right?
Yeah, cuz the market has appreciated in this like mother. So that would be escrow. So when we got this property, we saw the purchase price, and we saw the potential that it could have, we thought this was a slam dunk deal. And we should be on it.
So I texted the wholesaler and he was giving me messages like oh, you know, we’ll definitely consider your offer suddenly high on the list all this stuff. So with this, we actually offered $115,000. And then they came back saying, Oh, someone actually is offering $120,000. And then we offered $125,000 saying, Okay, we won’t have contingencies, because they basically said, definitely no contingencies, and you have to just go for it. So we offered 125k. But they were saying stuff like you are high on the list, definitely considering you. And we’ve already done stuff like this where we had offer on these fixers, and they’ll say stuff, and then we just had this feeling like, we probably didn’t get it right. So we were like, okay, whatever. But the next day, he was like, alright, we’ll get what did he say?
He’ll say, we’ll send you the offer. And over the weekend, we’ll send that whole ratified agreement to the title company to make it kind of official.
So we’re like, okay, like, 99% chance, we’re probably gonna get it. So we have this in the back of our mind, because it’s so many situations like this where we didn’t get it. We’re just like, Who knows if we’ll get it, actually. But we ended up getting us or pretty excited. We’re in escrow now.
So the earnest money deposit was for $3,500. And that was my deposit was a risk from day one, because we signed a non contingent offer. If we were to back out, we would forfeit that $3,500 No matter what. So I kind of went
over that we were planning to hold this property, but for a while, we were kind of discussing like, Oh, should we flip this property? Should we sell it or should we hold on to it? We decided it would make sense if we held on and then repaired it got tenants in and then did a cash out refi. So we’re also discussing financing options and how we could do it.
So since the purchase price ended up being $125,000 The loan amount wasn’t really large enough for us to use a conventional hard money lender, like with committers. And for the smaller hardware lending companies, they charge a lot in fees, interest and points. So it really made sense to try to do as with cash,
so we decided we could probably get a private money lender. And we decided, you know, with my family, we had a HELOC, I could tap into 130k. And if we tapped into that, we could essentially do the whole cash out refinance, pay them back with interest, and then be able to hold on to the property and have a cash flow and appreciate in the future. We just think this is probably one of those slam dunk properties, like my first investment where it’s just appreciated so much. So that’s why we really wanted to hold on to this one. We think this market is hot, it’s in Texas, it’s near a city that is appreciating value like crazy. So because that city is coming up, we think that the one we’re investing in is going to come up as
well. So by the way, if you guys didn’t know what a HELOC is, a HELOC stands for a home equity line of credit. And that’s basically where you have a lot of equity in your home, you could tap into the home’s equity without having to do cash out refinance basically gives you a revolving line of credit to use as cash whenever you want to do a lot also generally have a lower interest rate. So we’re talking about three or 4% here versus a hard money loan, would you be in the eight or 9% range?
Yeah, we also figured like, because we have a lower interest, we could do this kind of slower than trying to rush it trying to get all the renovations done in a smaller frame of time, so that we can get out of that hard money loan as quickly as possible.
Yeah, and in this case, to for the birth strategy, what we’re doing the final cash out part usually takes six months anyway, the lenders won’t give you cash out based on the new appraised value until after you own the property for over six months. Now another
part of our goals is that we want to get closer with the renovation process like Sean mentioned, right, we want to really understand how to kind of fix things, how to get our hands dirty, and do stuff alongside with contractors, or be able to just like manage the process better, instead of just handing off the entire process to like a PM. So normally with our rentals, we will hand off a lot of the process to a pm to kind of arrange it because we figure they are the ones who understand the market the most, they’re going to be able to get it rent ready quicker, more cost efficient. So we thought normally, we’ll do it this way. But with this property, we decided like Let’s fly out there, let’s actually be really part of the process, manage the renovations and just make a whole like document series of the whole process for you guys. So that’s why it was really exciting for us as
well. Yeah, we think it’s gonna be a lot of fun. And one of our long term plans is to start flipping again here in the Bay Area. And we figured, you know, with a property here in the Bay Area, it costs a lot of money, and there’s a lot more risk. So if we can take our time and really learn and practice on when these other properties and other markets, then we think would be beneficial for us in the long run.
Yeah, definitely. I think like once we learn those skills, we can do the same process in this market or wherever else, right? If you can find good deals and you understand how to fix up a home, you’re going to definitely like be able to get some good profits if you flip it or if you do you know the way we’re gonna do it this way where we’re gonna get tenants and we’re gonna do a cash out refi get the money back no matter what this is gonna be good for our real estate journey. And we’re super excited about it.
Okay, so now I’m gonna talk about the inspections. So typically, when we buy a property, we always order a third party inspection regardless, like we want to know exactly what is wrong with the property so that we can go in there knowing what we need to fix. And as per usual procedures, once we got the property under contract, I talked to the wholesaler to get the lockbox on the door to get an inspector inside as soon as possible so that we can start building a team of contractors to go in there and fix it. Once we closed escrow. We call it probably 10 Different inspecting companies, we found one that seemed really good for us who can fit in a schedule and pretty quick timeframe. And he’s actually pretty affordable too. Now, when they went there, they realize how bad it was. And they were saying this is not like a safe environment. For someone who just has a regular like COVID mask to go in. You need some actual full equipment to go into this moldy home. Otherwise, it’s hazardous to your health Long story short, they weren’t able to do their typical property inspection and he said, Look, for this kind of job. You need someone who knows mold, not just a general Property Inspector,
I just remember that morning like I was in bed. And then Shawn came in, he’s like, Babe, I have some bad news. So he was telling me about this whole thing. And I was like, freaking out inside. I was like, dude, is this gonna be really costly? Or we’re gonna have a lot of difficulty with this. So I was like, on my laptop Googling, like, oh my god, like, you know, more mediation stuff. I was YouTubing like, all this stuff, right with the process and trying to like, understand more. So I was freaking out. I was worried that the cost were going to be super high. I talked to the wholesaler actually and let them know the inspector couldn’t go. We also had to have him turn on the utilities for the inspection initially. So I was like, Hey, can you turn off the water and I was worried that the mold to get worse if we’re going to turn on the water. I told him about the situation and he actually was nice enough to send over some quotes that he had gotten in the past of the mold remediation process and it looks Like it was gonna be 25 to 35k. So I was like, Oh man, this is pretty high. And then I went on YouTube found this YouTuber who looks at mold stuff like he was a Mold Remediator or whatever they’re called, I emailed him and I was like, Hey, do you guys have any services? Like, because I was like, he seems like a trustworthy guy. Basically, on YouTube, I was looking up stuff like, how do you know if the mold inspector remediator is overcharging you or whatever. And then I found this guy’s videos. And I thought he was trustworthy, because he’s trying to warn people, like if they’re overcharging, and he emailed back, he was like, hey, send me like the quotes you got. And I’ll look over it. And he actually like looked over it for free, and was like, really nice, I felt a lot more at ease, because I could potentially like, talk to him about some future quotes I might get, he was saying, like, Hey, I’m happy to do this for you. I just feel like the industry can be shady, sometimes I’m happy to help someone out. So if you guys are in a situation like this, make sure to hit up Brad from look, mold. He was the one who talked to me about all this staffing is super nice. So I’m going to link his YouTube channel below. So after
we discovered that we need to get this mold situation handled before we can get a general property inspector in there, we started calling different mold remediation companies, people that can go inside, you know, see what the issue is, and give us a quote on what it would take to clear up all the mold in the home, let me call it another 10 or 12 Different companies. And a majority of them actually told us that they cannot do anything for us until we get something called a mold protocol. So now this involves another person. And this is a mold inspector. So this mold inspector is a third party company that will go into the house, do the inspection, write down a protocol that tells the mold remediation companies what they had to do to fix the problem. And people were telling us that the protocol itself costs around $1,000, maybe 550 for that first phase where they go in and write the protocol, and another 450 to come back after the mold remediation is done to then inspect to make sure the job is done correctly. So after calling a lot of these different mold remediation companies, one person was kind enough to just give us an initial quote, he’s like, Look, I can’t do anything until I had that protocol. Especially we need that for Texas law, but I’m able to just go inside there and give you a ballpark estimate. And he asked me, he said, Hey, do you want me to kind of quote you based on time and materials? Or do you want me to quote you based on a line by line bid from my experience, time materials isn’t a great quote, because they can just like change numbers in the future, I wanted to know line by line what they thought they were going to do. So I let him go inside, take a look. And then there were results surprise me the bid came back at $35,000, which was a lot higher than we expected. Initially, he said he’s gonna be 15 to $20,000, based on his initial impression, but when it came back at 35,000, even he was shocked. He also told me that that $35,000 number might be overinflated, just like you were mentioning before. And the reason why some mold remediation companies do that is because for the most part, most people are using their insurance to cover these mold remediation things, not individual investors like us who said, Look, I know I told you 1520 35, it’s a little bit higher than I quoted you, I can do it for you for $25,000. So that’s really where we’re at right now with this particular company. Eventually, we thought, You know what, let’s try to get more bids. I want other mold remediation companies take a look at this. So let’s go ahead and order the protocol ourselves. So that’s where we’re at right now. We call a different mold inspection companies. And we found one that we felt was really good. And we decided to have her just do the mold protocol herself. So as at this moment, we’re waiting for that mold protocol to get back, they should come in a couple of days.
So the protocol was $1,100. And we are in escrow till end of July. So I don’t know when we’re gonna release this video, but hopefully I do it before the close date. So it’s kind of like still relevant. So once we get that protocol, we will probably get more quotes from more remediation companies. Hopefully, we’ll can get that number down. But I guess at the max, hopefully, it’s gonna be 25k for the mold remediation. Basically, they also said it’s worse than the pictures, like I mentioned earlier in the video. So yeah, we’ll see how this goes. I want to kind of run over the numbers again, I know we talked about a lot of stuff. So let’s just do a little recap of everything. So first purchase price was $125,000. We got that down from $130,000.
The earnest money was for $3,500 but that’s included in the purchase price.
Another thing I forgot to mention earlier is we did research also on not just the comps like I mentioned, but also on estimated rent. So we did talk to a property management company and they said probably around $2,000 per month is what we would be able to get for rent, we looked on rent ometer and we looked on Craigslist, and it seemed to hold true that we’d probably get around 2000 a month in rents, which seems pretty good. So if you guys are looking for comparables as well as rent estimation, you’d probably want to check Zillow, you’d want to check Craigslist, you want to check rent ometer on Zillow, you would want to filter for sold you would want to check in that same area, you’d want to make sure you’re comparing with the same bedroom bath count similar square footage and that’s kind of how you’re going to see what the after repair value could be for the property. Another thing I forgot to mention is that the wholesaler said the estimated rehab cost would be around $75,000. I was asking him like, is it gonna be 50k I’d better be 100k. As he said, it’s probably in the middle. And we started noticing that now when I’m looking at comps, it’s actually closer to 300k. Possibly. So we probably have enough room for renovation costs. And we’ll be okay.
Yeah. So if you break down the numbers we’re purchasing for 120 5k. we budgeted between 75 and 100k. For total rehab, including the mold remediation from the worst case, we’re in for $225,000. So we’ve taken after repair value of $300,000, then we will be at 75% loan to value we refinance out into a long term loan.
Last things also is 1100 for the protocol and 25k for the mold remediation costs Max, hopefully, so we’re gonna try to get that number down as well. And then later, we’re going to get more estimates for other types of renovations that we need to do. So that’s currently where we’re at. This is kind of a new type of project for us too. And it’s been pretty fun because also he mentioned that we work well together because he is okay with talking to people on the phone. I’m not so much I’m okay with doing the research and I will nag him to like get things done.
Yeah, that’s out there typing on the keyboard, finding all the different people in the call and I’m like, Alright, another one. Hey, another one. Hey, okay, blah, blah, blah, pretty much
and I am okay with that. So it’s a good partnership. And we’re excited for everything. We have flights booked to this property around mid August. So hopefully we’ll get some cool footage then. And we’ll have some more updates for you guys. So I hope you guys enjoyed this episode. Please make sure to rate review and subscribe. It really helps our podcast grow. And thanks again. I’ll see you guys in the next one.Transcribed by https://otter.ai