The Wisconsin Investor
Each week, we bring you interviews with some of Wisconsin's top real estate investors who share their tips, tricks, and strategies that you can implement right away. This show is dedicated to helping Wisconsin real estate investors elevate their game. Along with interviews, I'll also dive into hot topics in solo episodes and feature experts from various real estate sectors across Wisconsin.
The Wisconsin Investor
With a 9-to-5 from 0 to 33 Doors in 2 years with Nick Huberty
Ever wondered how you can maintain a conventional 9-to-5 while building your assets to 33 real estate units in just two years? With Nick Huberty as our guest, learn how he did precisely that by harnessing the power of real estate podcasts and education. Nick shares his strategic blueprint, emphasizing the importance of building a robust support network with local investors, agents, and property managers. He also discusses the invaluable role mentorship and structured programs like the BRRRR for Beginners course played in his success, helping him seamlessly implement the BRRRR method.
Managing a rapidly expanding real estate portfolio comes with its fair share of hurdles, and Nick doesn't shy away from sharing his experiences. From unexpected expenses to dealing with vacancies, he provides a candid look at the realities of property management. Discover why Nick transitioned from short-term rentals to a 16-unit apartment building, and how investing in business-driven markets rather than vacation hotspots has ensured consistent demand. His insights into refinancing and market conditions will offer you practical takeaways for aligning your investment strategies with personal financial goals.
Our conversation also uncovers creative financing strategies crucial for real estate growth. Nick highlights the importance of forming strong relationships with lenders and the utility of tools like Home Equity Lines of Credit (HELOCs). Hear firsthand about the challenges he faced with last-minute changes in lending terms and how maintaining financial buffers saved the day. Whether you're just starting or looking to expand, Nick’s journey is a treasure trove of wisdom on the long-term benefits of strategic real estate investments amidst market uncertainties.
To join the BRRRR For Beginners course and get $1500 off the course, go to: https://www.coreyandcarrie.com/offers/F5sC3dnL?coupon_code=PODCAST
Hey everybody, welcome back to another episode. I have my good friend Mr Nick Huberty today. Nick, how are you doing, man?
Speaker 2:I am great, I'm excited to be on here and talk real estate with you.
Speaker 1:Yeah, I love talking real estate and love talking real estate with you, my man, so this could be a lot of fun today. Nick, I want to dive right into your story a little bit. So you got started in real estate in 2021. Is that right?
Speaker 2:Yep, yeah. So I was working a W-2 job. I went to college out of high school, got a job, started working, and then my brother told me about some real estate podcast. I heard about it, started listening to it, and then I just saw the wealth building potential that real estate offered, and so I just basically started a full year I guess it was probably 2020. And I just started to read books, listening to podcasts like this one, just trying to gather as much information as possible before I actually started taking action.
Speaker 1:Yeah, Well, when you took action, you went. You went hard, man. So you went from zero to 33 units in two years. How and why and I know there's some lessons you learned, maybe about growing that quickly that we can talk about as we dive into this but first let's talk about just the amount of action you took and where did that come from? After you learned and you read some books and then you just went out and bought one, or what was that process? To kind of get going and buy the first and then keep, just keep going, because I see a lot of people deal and then they wait. You know it takes a little while to get it stabilized and they kind of want to see the outcome of it before they go buy another one. You just kind of just kept acquiring units. Talk about that a little bit like what that process was like yeah.
Speaker 2:So I guess building the infrastructure at the beginning, right at the outset, is the most important thing, and that's honestly where you came into play. I kind of was just finding out who's investing in real estate locally. I heard about you and Carrie who are local wholesalers, and then I'm not sure how I came across your workshop, but it seemed like a very worthwhile investment to basically get started, and so your process is very methodical and it builds that infrastructure, like I mentioned, where you're reaching out to agents, you're deal sourcing, you're connecting with lenders, with property managers and those sorts of things, so that you have all that laid out at the foundation. So you don't feel like you acquire a property and then you're overwhelmed because you don't know what to do, you don't have a team in place. So that was really, I think, what helped get me started successfully right off the bat was building that infrastructure, and you helped me do that, so I appreciate that.
Speaker 1:Well, thanks for the shameless plug here. I'll send a check in real soon for that. But what? Nick's referring to something we haven't talked about on the podcast yet. We have a course called Burr for Beginners. So if anybody's interested in the Burr for Beginners course, connect with me. I'll put something in the show notes here for those of you guys on the podcast circuit on YouTube. I'll see where I. I'm not savvy on that part yet, but I'll try to throw a link in there for the Burr for for beginners course. We'll put a little discount code in there as well for our listeners to get access to that course. But but good, so so you basically, whether it's our course or something else, what you're saying is you know, get, get either a coach or a mentor or a program, something that can help speed that process up for you. Is that what you're saying?
Speaker 2:Yeah, a hundred percent. Like find out who is successfully doing what you want to do and then connect with those people and, you know, provide value for them, but also, you know, learn and gain insight from them as well. And when I first started learning about real estate, the burr method is what really appealed to me. I don't know if you talked about that on the podcast yet, but you know, when I, that's exactly what I wanted to do to help scale more effectively and quickly. And then your workshop was specifically geared toward burring, so it was perfect for me.
Speaker 1:Yeah, and what Nick's referring to with burr is it's an acronym coined by, I believe, bigger Pockets, who coined that acronym. So it's buy, renovate or rehab whatever you want to call it rent and then refinance. And why it's so powerful is you can basically recycle your own money or your private money, people or whatever. You don't need millions of dollars that get sucked into down payments and rehab costs and they're stuck in the property. You can put it in, refinance it, pull it back out, go do it again and again and again. And that's what Nick's referring to, how, the method he used to grow so quickly to 33 units there. Now, nick, some of those are short-term rentals, right. What had you go? Because you started with long-term, right, and then you went into short-term. What was it about the short-term game that you either? That you? What were some of the lessons I guess you would say you've learned by diving into some of the short-term stuff? That's different from the long-term stuff.
Speaker 2:Well, I guess there's two parts to that question. One is why, and then two is what did I learn from it? And I guess before that I just wanted to mention when I first started investing, corey, your point about being able to refinance and then reinvest that equity into another deal and then continue that. Last R and R is repeat. It's a repeatable process. My first acquisition, so you can, it's a repeatable process. Um, my first acquisition, I basically took the equity in my wife and i's primary residence refinance when rates were low and use that equity for the first payment. Once I, you know, rehab, rented, refinance on that one, I took that equity and then use that for the subsequent property and so on and so forth and we could talk about creative financing and all that stuff, but, um, as far, as the short-term versus long-term and this kind of talks about what your goals are.
Speaker 2:For real estate. I saw it as a way to build wealth, which is a long-term strategy, but also to increase cashflow and to potentially replace a W-2 job, which is kind of more of a short-term, mid-term, mid-range goal, and so I started investing in real estate, thinking this is more of a long-term strategy.
Speaker 2:I want to build wealth, so I want some long-term rentals that I can pay down debt and increase that equity spread in multiple properties across my portfolio and increase wealth. But then I felt like I wanted to accelerate that a little bit and replace my income quicker, and so I saw the appeal of short-term rentals, where the cash flow is way higher. It's a lot more of an active investing. Long-term renting you're still actively involved, you're actively managing a property manager or you're managing yourself, but short-term rentals with a high turnover, you're just more involved on a day-to-day basis but the cashflow potential is obviously way higher. And so I saw that as a way, rather than shooting for that $100 per month per door in cashflow that a lot of people look at, which bigger pockets establish that threshold. The potential with short-term rentals is so drastically higher than that that I saw I could just acquire four, five. The potential with short-term rentals is so drastically higher than that that I saw, like you know, I could just acquire four or five, six, seven short-term rentals and replace my income quickly.
Speaker 1:And so is that. Did that come to fruition? Cause you got up to, you had how many, how many short-term rentals did you have at one point?
Speaker 2:I think eight. Okay, yeah, I was managing eight. And so again I have a W-2 job, a full-time job. I have four kids currently I think I had three at the time that I was growing quickly and trying to manage that and manage my manager on my long-term rentals. And manage eight short-term rentals was a lot and I also and we can talk about this is kind of like those learning things when you do scale quickly and especially these properties that have massive rehab overhauls that you're doing because my strategy was to buy value-add properties that needed a lot of work you run into a lot of unforeseen capital improvements that you have to do that that have to be done in a short period of time, and so you know, everyone has.
Speaker 2:You know they talk about having a cash reserve to cover expenses. Well, the more properties you have, the more your cash reserve needs to be, because you can have a boiler out at this property. A roof unexpected at this property, you know backed up sewer drain at this property and all of a sudden you're like $20,000 in. You know short-term expenses that you have to pay for right away, that you know that you didn't plan for, because you know you're an optimist and you didn't think of those things.
Speaker 1:Yeah, yeah, for sure, for sure. That's such a great point. You know, I think when I got into apartment investing, that was something I I think everybody wants apartments Like that's the sexy thing, like get, get 16 doors under one roof and then you only have one roof to fix. And you know that's the old adage of it and there's a lot of value there. You know, I'm not discounting the apartments at all, but initially my, my rose colored glasses were like, oh okay, yeah, I only need, you know, if I take care of the roof and all these other things, I don't, I don't need a bunch of reserves. And then what I learned is well, now you've got 16 units, so the tenant moves out, you get two tenants that move out and you have to rehab those units. You know there's 20 grand down the tubes and if you don't have the cash flow to support it or the reserves to support it or a W-2 income or another business that's, you know your cash machine you could be put under pretty quickly as you scale.
Speaker 2:For sure, yeah, exactly. You could be put under pretty quickly as you scale. For sure, yeah, exactly. And and you, you say, oh well, it's just one or two roofs, because it's two buildings. Well, each roof is like sixty thousand dollars and I'm talking about a six-figure capital improvement that you have to do, yeah, for sure.
Speaker 1:Let's talk about some of the lessons you learned in that, because you you got to a period where you grew really quickly and then you had to start selling some stuff off. So talk about that a little bit. What happened there?
Speaker 2:Yeah, so I, like Corey said. So my initial strategy I was I was starting smaller, I was buying single families, duplexes, and I thought you know I just keep repeating this over and over and over you know I started out long-term rentals and I had a property manager that was effective at repositioning rehabbing and renting and then some of the single families.
Speaker 2:I was buying and rehabbing myself and managing short-term rentals, which was fine, and then I purchased a 16 unit, which I think was the beginning of the anxiety period for me. Was this like rapid growth period? Because, like we'd mentioned, I was buying value at properties and so this property needed a complete overhaul. And now, like you had mentioned, we're talking 16 units at, you know, $10,000 a unit, plus boilers, roofs, all that stuff. And you know, when I purchased it I was expecting, you know, the roof's gonna last me three to five years, but it looks like it's good for x amount of time. And go figure, the roof's already actively leaking, there's moisture damage in the ceilings, and so now I'm, you know, 120k and, just like within the first couple weeks, excess vacancy, because you know all these things that come into play, that that basically shook up everything else, and you know.
Speaker 2:So I guess my learning point and to your point is, our apartment seems so desirable, like that's like the the end, all be all, but it really depends on what your goals are, because my, my goal was to basically create enough cashflow to replace my W-2 income, and the apartment wasn't really accomplishing that.
Speaker 2:For me it was really just a money pit, it seemed like at the time and it put you know, it made me feel pressure to perform on all the other properties and I actually was able to sell some of my other underperforming single families and help fund the capital improvements in the apartment. But the apartment wasn't getting me to my goal of replacing my income and to your point about. You know there's other benefits, like the. You know the debt pay down, the market appreciation, that wealth building is there but it's not accomplishing. You know, if your goal is to replace your income, that might not necessarily be the best strategy and you might just be better off doing a bunch of base hits with single families, duplexes, whatever smaller scale, where you know the risk is low but the payoff is even better.
Speaker 1:So that's such a great point, nick. I think that's like the unsexy truth of of sometimes a real estate is like you know you made a great point it depends on your goals. You know, one one thing I looked at with our apartments was the first two or three years were terrible, like I mean, I was like why does anybody do this? You know, there's some people who have, you know, they've got whole teams and they've built it out. They've got thousands of units and so when they buy an apartment, it's just they come in with their crews, it's they remodel every unit within a couple of weeks and boom, or even before they even close. Sometimes they're doing it now with us we didn't have quite that luxury right. We're relying on a property management company who is only as big as they can be and they're not going to staff up for one acquisition right For all these crews. And so it took us a few years to get some of them to be where we wanted them to be.
Speaker 1:But then when we did refinance, when rates were low, we were pulling out a couple hundred thousand dollars of tax quote, unquote, tax-free I guess it's tax-free at the time Money which then I looked at I said, oh, there's my cashflow. I didn't get it every month, obviously, but when I refinanced a few years later I was like, well, if I just spread that out over however many months I've owned this, that's pretty significant cashflow. I just had to wait for the cashflow. It's not like what I think I envisioned. When I bought it I thought it was going to be just money in the bank every month, mailbox money, yeah. And then I realized it's not true. I'm putting more money into it.
Speaker 1:But now the fruits of it four or five years later. Phenomenal investment. But you know it's not going to like you said, retire you, yeah, buy it, you know. I think you're making a great point that the STRs for you or or or or a better path to get you out of the job quicker. The apartment longer term. You could probably refinance that in five years and pull out a bunch of money and sit back and, you know, quit your job and give yourself an excellent way.
Speaker 2:But that's two different strategies there, two different and also it's also less predictable, um you know with the apartment thing and that equity pullout that you had with the refinance. You know you're it's kind of directly well, two parts, partially dependent on how you operate and your noi, but also the market rates at the time, the cap rate and the interest rates at the time. So you, you know, and the interest rates at the time.
Speaker 2:So it was a great time for you to refinance, because you could pull out all this equity and still not have this insane debt service with a 7% interest rate.
Speaker 1:But it's more unknown. It is yeah, it is. It is Talk about the STRs quick. So, being in Wisconsin, right, what markets are you invested in for the long terms and the short terms?
Speaker 2:So my whole strategy was less about like a destination vacation location and more about a reliable, consistent, long-term market where there's business, travelers, there's local events, and so I was investing in the Appleton Fox Valley area in Green Bay, in Oshkosh, and then some of those surrounding areas as well, because it's shocking like if people coming for a Packer game they're willing to stay basically anywhere within an hour radius of the stadium, depending on where they're coming from. Like I had a short-term rental in Clintonville, still have it in Manawa and people were staying there for Packer games and I'm like, okay, cool, I mean sure do you know?
Speaker 2:for sure no and you know there's local events that you know, in rural places or, as you know, people are moving and they're. They're wanting to buy but they need to rent for a period of time, like stuff comes up and and so you know there's there's market analyses that you can use like your dna. I haven't used it in a while, but that's what I was using when I was doing my underwriting was using is it still called AirDNA, AirDNA yeah.
Speaker 2:Yeah, where you can run the numbers, the address, the bed bath and kind of get an idea for what the rent income is, because that's how you do your underwriting.
Speaker 2:Also, you know if the property is going to perform well or not, but some of those rural markets are a little bit tougher because there's less comps and in my case, I bought a house in Manoa and there was zero comps. And if you buy a property, if you buy equity on the front end, there's a bit of a buffer there, and so I was testing the market to see how it would do. And it performed well, it made money, it was successful, and then I ended up liquidating it to fund the apartment or whatever. But like it was a worthwhile endeavor and I learned a lot from it.
Speaker 1:Yeah, that's awesome. I think one of the points that you made that I think is so important I don't want to miss this point is you said it without saying it, is you bought it on the front? You made you had your money already made on the front end right and you knew that if this STR thing didn't work, you could sell it and make some money or at least break even, it sounds like. Is that what I heard? A?
Speaker 2:hundred percent. That's the exit strategy, and so you always have to be thinking about an exit strategy. I was. You know I had these properties as a short-term rental. You underwrite it as a short-term rental. I was also underwriting it as a long-term rental If I had to pivot and switch it because it wasn't working. I still want the numbers to work as a long-term rental because otherwise, depending on market shifts, if all of a sudden it's appraised as a short-term rental, it doesn't gross what you're expecting.
Speaker 2:Your lender is going to want to know that you have a backup plan. That's important to them because their money is. They're investing their money with you. So my plan was, if it doesn't work, as a short-term rental rather than make it a long-term rental, because that's difficult in a real market. My plan because, like you said, I bought it at such a good, good price. I was just going to liquidate it and then you know, like a, basically like a fix and flip yeah, yeah, I saw a lot of people get in trouble in the when when strs during covid were like everybody was buying strs right and then around lambo field the price of them were just people were paying crazy numbers for anything near land like in that right vicinity.
Speaker 1:The problem is now that they put some new restrictions in and Ashwaubenon for STRs. People then tried to liquidate and then it was like it was like a run on banks right. Everybody was trying to get out of it around those areas and they overpaid on the front end and so now they, if they wanted to sell, they had to take a pretty big haircut and lose some money on that sale because they weren't obviously as desirable.
Speaker 1:Whereas if they would have bought a value add type situation and had that exit strategy of, well, even if this STR thing doesn't work or rental restrictions change or something happens, I can still get out of it and at least break even, they would have been fine Right.
Speaker 2:But a hundred percent and those rental restrictions are completely out of your control. Like I had a house in Green Bay, probably 0.7 miles from Lambeau Thankfully it was on, it was West of the stadium and not you know two blocks East where they had those restrictions. Because, honestly, you're, the value of your property takes a major bath, yeah. Immediately, just with the signing of that paper you're like completely changes your operational plan.
Speaker 1:For sure, for sure, 100%. Let's do this, nick. Tell me about what's the best deal you've ever done. Take us through the deal. How did you get it? What are the numbers on it?
Speaker 2:Give us the whole skinny on this thing I'll talk about maybe my first deal, because that was, I think is like that was my like goal the whole time and I successfully executed on my first deal.
Speaker 2:So I um it was, it's an upper lower duplex and I my plan was to. Basically the whole thing was a complete like need, a complete gut job. It was being rented. The lower unit was being rented by an elderly lady that doesn't take care of the place and her ex-husband was living in the upstairs free and it was just a complete hole. And so, with your workshop, I had already had my long-term financing in place, my plan in place, my property manager relationship established, and I was confident that they could help me successfully renovate and rent this property, and so I purchased the property for $40,000. This is in.
Speaker 2:April of 2021.
Speaker 1:How did you get $40,000. Where did you find the deal?
Speaker 2:So this was an off-market deal. My real estate agent actually heard about the property from a lender.
Speaker 1:Nice.
Speaker 2:And so this agent was an investor themselves. The only reason they didn't take it is because it just was too much work for them. It looked like it was too scary, too much renovation required. Okay.
Speaker 2:And so that's the point you know, in your workshop you establish some lending or some agent relationships because they can help deal source for you on multiple different funnels of potential deals coming to you, whether that's agents, wholesalers, you know, off market or whatever. There's a bunch of different strategies to get deal flow coming to you so you can underwrite and get better at that underwriting process. Um, so purchased it for forty thousand dollars and I had a property manager in place to do the rehab because at that underwriting process. So purchased it for $40,000 and I had a property manager in place to do the rehab because at that time I don't have this you know, this list of all these contractors.
Speaker 2:I can do this stuff. So that's scary for somebody that's buying a place that needs all this work but you don't have the connections to do the work. That's a scary place. So the property manager they're beneficial for multiple reasons. One place, so the property manager there's their benefits beneficial for multiple reasons. One they're the time savings. You know, if you're working a full-time job and you need all this work done on a property, they can handle all that, facilitate all that and oftentimes that cost whatever it costs them to pay the contractors. So it cost about um. Well, immediately they, they um left because her, her plan was to sell and then move out right away.
Speaker 2:Um, and it costed me I wish I had the numbers exactly about 48 000 to renovate the whole thing. Oh, wow. So now I'm now I'm into it, for I wish I didn't calculate. Okay, so about 88 000 invested and this is is. I did it all cash because, like I said, I did a cash out refi on my house, bought the house with that cash and then finance the rehab with that cash and then got it rented at really good, good rental rates. It looks good. And then I connected with my long-term financing plan which at the time was a conventional 30-year fixed rate at 80% loan-to-value and I think it appraised for $130-something. So what's 80% of $130-something?
Speaker 1:You're going to make me bust out my calculator here.
Speaker 2:Well, yeah, bust out your calculator. So either way, whatever it ended up being, at closing, I ended up getting a check that paid for basically the entire renovation, the acquisition, the holding costs, plus, I think, another $12,000.
Speaker 1:Yeah, check this out. 104 is what that comes out to. So, after closing costs and stuff, yeah, if you took home 12 Gs, that's about right, man. So you got $12,000 tax-free plus your $88,000 back and you have a property. Now that's cash flowing that you have no money in. Still have it. Still have it. That's incredible. I call that getting free properties right, but you actually got paid. Not only did you get a free property, you got paid to buy that property.
Speaker 2:Yeah, yeah, yeah. If I could do that every time, I mean that's the ideal situation, right? That's amazing.
Speaker 1:Well, a couple of things I want to bring up on this deal. So this is such a good example. I think this is a great example of a great deal. A couple of things you mentioned there building relationships right, that's huge. So you had a relationship with a property management company who had the contractors and everybody who could do the renovations right. You established that they could take on a big project before you bought the big project right. And you had relationships with deal sources, right Agents, feeding you potential deals. So those are a couple of things. The relationships are so key in real estate, one of the things I tell a lot of people when they ask me like, hey, what's the easiest way to get started in real estate? It's like find deals and find money and build your team. Those are the three activities that'll lead you there. Doing your own property management, not a high yielding, you know.
Speaker 1:Return on your time right finding deals money and building your team and network is your. Those are the three highest and best uses of uh investors. Time, in my my opinion, people can find it wrong, but that's from what I've been seeing, so that's phenomenal. So then you were able to parlay that cash that you took from your original house, refinance, you got it all back and then you were able to just go turn that into the other 30, some units that you acquired. That's amazing, exactly.
Speaker 2:And obviously that money ended up getting like slowly, cause you know every deal is not a home run like that, and so there's a few deals where you know I ended up paying in having money invested and you know when I do the underwriting. I based it off for me at that time with a cash on cash return on my investment, and so I was shooting for, you know, I think at the time, 12 to 15% cash on cash ROI I think at the time 12 to 15% cash on cash ROI, and so I eventually used up all that $104,000, whatever that I had.
Speaker 2:And that's where the lending relationships came into play. Where you know, we, through your workshop, I established some relationships with lenders that were able to lend on subject to appraisals, and so that's basically the same exact thing where you've proven that you can execute on a repositioning of a property and they're willing to lend you the money on the front end, and obviously that's subject to market conditions and lender tolerance. But that's how that also assisted me in getting a little bit further faster.
Speaker 1:Yeah, that's such a key program we built the majority of our portfolio using subject to. So what Nick's referring to is the bank, some of them commercial lenders, in Wisconsin specifically. I know some states don't have this the resources like we do. As far as community banks, we're pretty fortunate here we have a lot of community banks, and what they'll do sometimes is they will look at the property if it needs work and they'll say, hey, nick, what are you going to do to this property? Give us your scope of work. Yada, yada, yada. You give that to them and the appraiser. The appraiser comes through and says, okay, if you do all of that, this should be worth this number, which is obviously much higher, hopefully, than what you're buying it for. And then they'll say, okay, we will lend you X percentage of that future value, basically.
Speaker 1:So what's crazy is what Nick is talking about. Let's just use this first example. Let's say he used this loan program and appraised future value at 130 or whatever we decided your appraisal came in at after the fact, they would have lended him 104,000 on the front end so that he didn't have to use his own cash. He could have used the bank's money for all of this and kept his $88,000 in his bank account or use that on another property or so on and so forth. So it's a really powerful tool. Not every bank does it. Like you said, I've seen the banks that were doing it really tighten that up a lot to just really key relationships that they've had for a long time. So in this current market they've really shrunk that quite a bit. But it's all about relationships right and building those and asking the questions can they do it? You're never going to get a yes if you don't ask if they'll do it for you. Yeah.
Speaker 2:And to that point, at the time of refinancing on my primary residence rates were, I think I had a 3% interest rate, so I was refinancing into a good residence rates. Were, you know, I think I had a 3% interest rate, so I was refinancing into a good rate. Now, you know, people will be like well, I have equity in my house but I don't want to use that money because I don't want to refinance and have a 7% interest rate. Well, an alternative would be to just use a HELOC, in which case you're still using the equity in your house, but it functions more like a credit card as a line of credit, and Equity in your house would function more like a credit card as a line of credit and so you're not paying interest rate on it. If you're not using it, it's just sitting there waiting to deploy. Should you find a deal that makes sense and that you can't pass up and it makes sense if you underwrite it at if your.
Speaker 2:HELOC's at an 8% interest rate, if you underwrite it at an 8% interest rate for your holding period, then it doesn't matter if the interest rates are 2% or 10%, because the deal still works if you underwrite it with that percentage in play 100%.
Speaker 1:Yes, heloc is probably one of my favorite financing tools out there, especially in today's market. So many people have equity so much equity in their house and it's just sitting there. I call it dead money. It's just you put it in and you're not doing anything with it. It's just sitting in your property. You can't touch it until you sell the house or you refinance it.
Speaker 1:And why not at least have access to it, right, like you said, even if you never use it, at least you have it in case of an emergency or whatever. Just don't go buy a boat or something with it is what I typically tell people. Just use it for real estate, recycle that money, pay yourself back and just keep doing it over and over and over again. And if you don't own a home, you've got to know somebody who does. And if they're not using their equity, why not pay them a little piece of the deal and use their HELOC right and get them involved? What are some of the risks that you've had, because you certainly had some things pop up that were unforeseen as far as the financing side of things goes. Can you talk a little bit about some of the challenges you've had when it came to some of the financing strategies you've used.
Speaker 2:Yeah, so kind of what we had mentioned already is that the lending terms are contingent on one, your relationship with the lender, and then two, also market conditions, and so banks will adjust their terms based on the market and their risk tolerance. I had a property that I and this I had done I don't know six deals probably with this lender already by this point and brought them all the information. Like you said, you bring them a scope of work, all the rehab that's going to be done. This is what the NOI is going to be, this is how much it should appraise at whatever. And they were lending at 80% of that appraised value.
Speaker 2:Well, I guess, two weeks before closing, all of a sudden I hear back from the lender oh, the credit department has discussed now, with all the market shifting and rates, whatever, now we can only give like 65 or 65 or 70 percent of the loan to value, and I was like, depending on that additional loan amount, that equity, to help finish like funding the rehab. And so I was kind of left with, like you know, cash was already tight because I had all these other unprincipled expenses, but now I'm like felt like I was like left out to dry because of this, you know change that I was just made aware of just a little bit before closing and then have to like, come up with a bunch of cash quickly to cover that difference oh man, what did you learn from going through that, nick?
Speaker 1:What were like any lessons that you took away from that?
Speaker 2:Well, a couple of things.
Speaker 2:I, and you know I haven't been in real estate for that long, but I know people that have gone through like the 08, you know housing crisis, where you know everyone was caught over leveraged.
Speaker 2:I, my, my thought initially was, like you know, leverage, leverage, leverage, leverage. My, my thought, you know, moving forward is to be a little bit more conservative so that I have a little bit buffer, a little bit more buffer, like I would like to underwrite it maybe with you know, if I, if I think the lender's going to lend at 80%, you know, hopefully it can still work at 70% loan to value, because if it does, then you know you have that buffer in there. And that, like, if something changes at the last minute or unforeseen capital expenditures come up, like it's there because you didn't like leverage yourself to the nines and have no buffer. And, like I said, the faster you scale, the higher the risk that's involved, especially if you're repositioning a bunch of properties all at the same time. Yeah, because the higher the risk that's involved, especially if you're repositioning a bunch of properties all at the same time. Yeah, because unforeseen stuff comes up all the time Contractor costs or prices, whatever the rehab always cost more than you expect.
Speaker 1:Yeah.
Speaker 2:And so you know, and to someone that's looking to get started in investing, I don't think that you should just wait until you're in a position where you could buy a bunch of stuff all at once. Just because I was able to scale quickly doesn't mean that there's not a huge benefit in buying one single family, buying one duplex, whatever a smaller amount, seeing how the whole process works. And then you have if you don't buy another property for two or three years you have two or three years of experience of bookkeeping, accounting, rehab operations, how the whole lending process works Like. You can gain a lot of experience from one property over a longer period of time if you're not in a position to invest again or grow really, really quickly.
Speaker 1:Yeah, that's it, that's what they say. What the best time to plant a tree was about 100 years ago or something. The next best time is today right.
Speaker 1:Yeah, same with real estate. You know we all wish we would have bought tons of real estate when we were born and just let it pay off. But if you're just getting started or you haven't started yet and you're sitting on the sidelines, the best time to buy is now. There's never a bad time to buy real estate. You can always make it work. You just have to run the numbers differently if interest rates are higher. But there's still a great time to buy.
Speaker 2:And also if the numbers work now, imagine what a genius you'll look like in five years when the rates are down and you refinance. Like everyone 10 years ago, when they were buying now, they looked like geniuses At the time, though they didn't look like geniuses when I remember I did a whole presentation once for an in-person seminar I put on.
Speaker 1:I did a whole presentation once for an in-person seminar I put on and it was about how to still get deals or how to still crush it in a hot market. Because everybody told me I got started in 2016. And I remember everybody saying, oh, market's going to crash again, prices are too high. 2017, same thing 2018, it's been going on literally since I've been in real estate. I've heard it every single year the market's going to crash, the market's going to crash and it's like, well, it might. I don't know.
Speaker 1:I'm not going to predict the market. All I know is, if it does, I can still rent them and they're still going to get through it. And I know that every year the prices continue to go up 5% appreciation pretty much every year, compounding, which is pretty powerful when you look at that over a five to 10 year period. So pretty cool thing about real estate. That's what I love about buy and wait and let that tenant pay it down and let the market appreciate it. Even if you only have one a year, you do that every year for 10 years. Now you're a millionaire over and over again. So super cool. All right, nick, let's wrap this up. We always do a little fun question here at the end what is your favorite place to visit or hang out at in Wisconsin? This could be a local establishment, this could be a restaurant. This could be a lake, this could be something like that, or favorite Wisconsin tradition.
Speaker 2:Favorite place to visit in Wisconsin. So I guess this is a recent one for me, just because I had never been there before.
Speaker 1:In.
Speaker 2:Wapaka, there's the chain of lakes. It's like I guess everyone goes there. I had never been there in my entire life. I haven't.
Speaker 1:You haven't. It's amazing.
Speaker 2:The water is like it's basically a bunch of different lakes all chained together. You can get from one to the next, the next and the water is incredibly clear. It's just awesome for fishing, for boating. There's a lot of short-term rentals along that lake. The real estate there is really expensive, but it's just a beautiful area and it's not super far from Appleton or Green Bay.
Speaker 1:Oh, that's awesome. Yeah, we love to go up to, like, the eagle river and banacua and those those areas and banacua chain of lakes, all that stuff, which is great. We love going up there, but opaca is a little bit closer so yeah you should check it out, yeah awesome. Well, this has been a great episode. Man, if anybody wants to get a hold of you is, is there a good way for somebody to get in contact with you, and what is that?
Speaker 2:Yeah, I can send it to you or however you want to share it by phone email.
Speaker 1:Give it to the audience if they want to get a hold of you. What's the best way to get you?
Speaker 2:Yeah, you can either call me 920-470-3239, um or just shoot me an email. My email is uh nick at redwithfreedomorg.
Speaker 1:Awesome, very cool. Uh. Well, guys, thanks for checking out this episode. Hopefully you got some value out of this thing. If you did share this thing with with uh, anybody you can like it, rate it all of those fun things and um, and help us grow the audience here. So, nick, again, thanks a lot, man. This has been awesome. I appreciate you, brother and uh, and we'll be seeing you. Uh, we'll be seeing you soon.
Speaker 2:Awesome, sounds good. Thanks for having me. All right, man. See you later.
