So it's time to celebrate my very hard earned 2nd win. Unlike the first time around, I decided for the 2nd rental I want to look for something that I can purchase with $0 money down. I went ahead and searched for this unicorn called - BRRRR.

Here is how it all started.

I sat down and calculated how much my first rental cost me out of pocket, and how much it cash-flowed for me every month and then I looked at how much it'd cost me down the road if I were to buy 10 more rentals the same way. The answer to that is: it's way too expensive for my blood!

So how did I go about it?

1) I started looking at deals from wholesaler's. I worked with bigger firms like New Western and Networth Realty. I also worked with individual wholesalers as well. The reason I work with different types of sources is because I know the smaller wholesalers are more flexible with how I am willing to pay for the property. (As always, please pm me if you want me to share the contacts with you). Lastly, I set up a premium account with MyHouseDeals so I can look up new deals without having to rely on the wholesalers informing me.

2) I started driving to see those 'deals' in person and I am building a good baseline of what kind of deals are hot, what kind of repairs are common and which ones are hard to estimate for. I also try to network with other investors I happen to see there at the same time. I also noted different marketing strategies so for example, if a property is listed as 'needs a straight forward update,' that means you need a solid contractor who is willing to go through every corner of the house to fix the paint, replace rotten baseboards, scrub tubs, resurface cabinets and etc. It's a very annoying kind of work and it's not good for all contractors (trust me on that).

3) I started to look for lenders. I know I need to refi this property after the repair is done and my goal is to increase the value so I won't be paying any downpayment or closing cost. I looked around and the best ones I found was Security National Mortgage (Thanks to Jerry Ta's referral). What they offer for BRRRR investors is a investor friendly HML-refi program. However, if you are new to the game like me and you want to get a deal from a bigger wholesaler, they may require you to use their HML services.

Now, once you have the deal sources set up, gotten pre-qualified with a few lenders and you have seen some deals in person, so what's next?

Here is where the grueling journey starts on finding the BRRRR unicorn. I calculated deals after deals and what I find the most important thing to keep in mind is not only you care about the ARV, you also want to make sure it's a great rental area.

I know my HML lender will lend me 70% of ARV upfront and I will be able to get 75% of ARV from the refi to pay off the loan so I just need to make sure the repair cost I estimate for is no more than 10% of the ARV. I also want to make sure the amount of repair I need to complete to get the ARV that I want is just for the rental level repairs, and not for flips (typically the flip level repairs are more costly).

From that, I have come up with my criteria list:

1) purchase price of 80-85k

2) repair estimate of 15k and has to be done in 2 weeks

3) ARV of 120k

4) Rents at 1200 monthly or more

5) Cash ROI of 10% or more

Here is what I found:

-SFH

-3/2/2

-1500 sq ft

-solid c+/b- neighborhood

- need a complete interior cosmetic update: flooring, paint, refinish cabinets, refinish tubs, closet, countertops, and fixtures.

-good curb appeal. vaulted ceiling in the living room, brick veneer exterior on the front half, kitchen is open to the living area and we knew other investors that have bought rentals in this area as well so that's a plus

So we purchased the house at $89,000 and the HML appraised it at $125,000 (with estimated repair submitted at $15,000). From that, the HML lent us $87,500. At the first closing, we paid about $8000 in closing cost and other costs, plus another $15,000 in reserve. Now, here is an interesting insight to HML, if you are new to them or if the deal isn't good enough to them, they will want you to have some skin in the game by funding your repair cost upfront and have them hold the reserve for you. The proper way to use the reserve is to set up milestone inspections and pay the draw fee to get the fund released back to you, after you meet all the milestone requirement. As an investor, if you know your repair is going to take less than a month, I'd suggest to pay the entire repair yourself first and get that fund back to you via a check after the refi is complete.

So once, we got it under contract and things are moving very fast at this point because every day, I am paying about $33 bucks to the HML on an interest only loan. I quickly got 4 quote from different contractors (the rule of thumb is no more than 3) and based on the pro's and con, I picked the one that I can afford and manage. I went with Tommy from Lizzar Restoration and got the repair completed in 3 weeks.

Here are the main things I'd suggest to watch out for:

1) During the time you make the purchase to completing your repair, don't forget to compile a list of repair items that you actually did and save the before/after pictures. Any certifications or warranties that you have on the house, keep that handy too. These are great material to use when you compile the packet you should deliver to your appraiser on the day of appraisal for refi. This is a GAME-CHANGER for us.

2) Once the carpets are removed, it's easier to see how uneven the floor is. If you are concerned with foundation problems, I'd suggest getting an engineering report at this point. This way, you can perhaps save some money from using a foundation repair company right away and you can submit that as part of your support packet during refi appraisal as well. Keep in mind that a refi appraiser has the right to inspect both cosmetic and structure quality of the house.

3) You can change your actual list of repairs as you see fit. Make sure you run a solid rental comp in the area that you bought the property in and if the DOM is high, you want to go a little nicer on the updates. The crowd pleasers are always the kitchen updates, master bathroom and flooring. The high DOM was our problem so we decided to take out the bathroom re-tile and went with all matching granite on kitchen countertop and both bathroom vanities.

4) You can start working on the refi once your first closing is complete so you want to contact your lender right away and submit all the necessary paperwork to kick off the process. Keep in mind if you have used the HML in your first closing, you will be able to re-use the flood certificates, and survey.

5) Lastly, make sure you are managing your contractor well. Give clear directions and ask for invoices/receipts. The biggest problem that we ran into was the HVAC system. We didn't expect to replace it so that cost us $4,400. However, we did make sure we pointed that out to our appraiser and updated our total repair cost in the appraiser's packet.

So how did we do?

We were able to finish the remodeling in 3 weeks and with the HVAC cost, we completed it at $15,400. Our appraisal came back as $130,000 (5k > original) so that was really good news. However, the refi took longer to finish than expected so we weren't done until 2 months into the project (I have estimated 2 months holding cost in my original calculation).

We listed the rental at $1300 and that was a pain to get rented. After being on the market for 30 days, it's finally rented at the full asking price.

Good news?! yes, we didn't pay the closing cost at the 2nd closing, we did get our repair reserve back from the HML and we were able to use the equity in lieu of a down payment so that's a huge win for us!

The lesson learned here:

1) check the HVAC system before buying the property if you can

2) don't price the rental too high if the DOM in the area is already high. Vacancy is very expensive!

3) vet your contractors and be thorough on inspections

4) line things up and be ready for delay's

That's a wrap!

I'd love to get some feedback from anyone else out there. Please message me for questions/feedback.