All Forum Posts by: Nick Gauss

TBH an ugly but in decent shape live in rehab that would be a good flip or rental is probably your best bet if you aren’t able to come up with 20% down plus misc expenses. A primary residence loan is more flexible and often a great starting point in RE. With your HVAC skills you will be head and shoulders ahead of most new investors. Keep us posted. 

Hi Nick, I like your story. You're moving like a seasoned deal hunter already! Here's how I'd think about moving forward:

1. Run the numbers - ARV (get comps), repair costs (walk the place again with a GC if you can)

2. Due Diligence - are taxes current?, free from liens?, age of roof, HVAC, electrical, etc.

Depending on what will be your final decision whether BRRRR or flip, Hard money lenders can help you out on this one. Happy to assist!

Hey Nick,

Congrats on taking that first step! Is the property there in Madison, or did you track one down elsewhere?

As for your question on Hard Money Loans, yes they will generally cover a portion of the purchase price (say 80-90%) and most will do 100% financing of the rehab based on a reimbursement/inspection schedule

That is usually the toughest part as you get started, most will want to see you do the rehab first, and then do a 'draw' in order to get the funds back. This usually does not include ordering the supplies, so they like to see it completed before the full funds are reimbursed.

Most HMLs for first timers will tweak initial leverage based on FICO and the area you are investing in. If its a good area, a good deal, and your FICO is good, then that will put you in the best position for most groups.

I hope that makes sense, happy to connect and discuss further.

Good luck!

If your credit is 700+ and the project cost is sub 70%, you can probably find 85%.

But before I did anything, I'd have whoever is going to do the work do a thorough walkthrough with you and get an itemized budget together.

Then apply this formula:

P = Purchase Price

R = Rehab cost

ARV = After repair value

P + R/ARV < ?

I put a question mark because people put an array of numbers there. Some 75%, some 70%, if you can get under 70% that's best. If you get close to 60% then it's a great deal. Under 60% it's a home run and under 50% is a pure steal. At 75% it can be hit or miss, once you go over that you are on a slippery slope and if your construction runs longer and costs more (which happens A LOT), and then you miss your appraised ARV by 10% - 15% (Which happens A LOT), then you will lose money.

You'll get there, and if you can prove to ppl with cash that you're a safe place to park like 200k at 12% then that will be there too, but that comes with proven track record and scalability.  1 point per month on 200k is 2k so the debt service costs 24k/yr but if you can do two at a time per quarter that is 8 deals in a year, even if the net is 25k that is 200k - the 24k debt service so it's possible.

It's property sourcing, HML, rehabbing, exit.

Once all those game pieces are accounted for on your playing board then all you need is capital to buy for cash and then just let a HML cash you out at 80 - 90% and provide the rehab funds.

Hi Nick,

To get started in real estate investing, focus on securing financing through **hard money loans**, **local credit unions** (for better rates and home equity options), or **private lenders** who may offer capital for a share of profits. Start small with manageable properties, and make sure you understand your **purchase price, rehab costs, and after-repair value (ARV)** to ensure profitability. It's important to **get pre-approved for financing** before making offers. Even with market shifts, there are still opportunities if you buy below market value and focus on solid ROI. Talk to lenders, study the numbers, and network with other investors to set yourself up for success!

Nick, welcome to the journey.  Cathartic I think is the best way to describe it.

The freedom you seek lies within, but so does everything else that goes with it.  The road to freedom is paved in chains. 

I'm gonna give you the short, abridged version of what I think someone in your shoes should know.

There is a secret sauce to the BRRRR. It doesn't just work for everyone in every scenario. There's nightmare scenarios that arise if you are not in the right project with the right team. Everyone is chasing that sub 75% project cost to ARV ratio on deals but when you really add in all the closing costs and then the actual holding costs no novice ever really finds themself there, it's hard. You think those 67% projects are just floating around? There's a million, well connected sharks chasing those guppies down. Sourcing the opportunity is the hardest part of scaling. The guys that do the BRRRR very well, their project costs are 60%, sometimes less because they do not use the MLS and they buy for cash. They look for distress situations and look to get into a house for a quick close for cash at 70% it's value. So the house you buy for 100k, this investor bought for 70k. Someone using 3rd part GC may pay 80k for the rehab, someone connected in the market and has their own sub list may pay 60k. So now look, the novice is in this house for 180k, the seasoned capital heavy investor is in the same house for 130k.

If the Novice investor is correct and he/she is in a project with a 75% Project Cost then the ARV has to be 240k. The seasoned investor is in the same project at a 54% project cost,

Way bigger net for the seasoned investor, cause you rarely get your appraisal number on your exit.  This property may very well sell for 220k, not 240k, maybe less.  If your agent is taking 6% on the sale then you can take 14k right off the top, call it 15k after settlement charges.  You see how the investor margin starts shrinking quick.  Then you'll have 20k - 25k skin in the game you'll recoup and a payoff of a hard money loan and then what's left is yours.

Keeping your project costs as low as possible while trying to maximize profit. No different than if you ran a T-shirt business. How you do that in REI is just like I said. Become a strong cash borrower who is deeply connected in an emerging market. Then once you buy in cash, you can take to any HML and they will transition you into a delayed purchase bridge loan that will include rehab money. So the cash buyer can use financing, you just need the ability to close in cash first.

If you live in SD, which is a very high entry point, and you don't have SD money and you want to invest in Columbus OH let's say where you can get in something for under 125k, and you wanna google and look up GCs and you're gonna run this GC from SD then save your money. MLS prices combined with risk of 3rd party GC execution, combined with the exit comps you were sold on by the agent are legit, combined with just the volatility of the market - I've seen appraisals drop 30k - 40k between the bridge loan and the DSCR.

And yes, that's the abridged version...