One year recap. What to do now?

Question

Hello BP!

I'm sitting here with a sprained ankle, Business Planning for Dummies, and nothing to do but think.

It's nearing one year since I joined BP, and so much has happened. I feel like I'm a different person. In fact, I KNOW I am. I actually answer phone calls now, and I don't dread it. :D

I started with 100k in January, and in my naive optimism I was planning to have it all back by December to recycle and reuse. Instead I've flipped one easy property, successfully held a small HML for another investor, messed up a second flip and turned it into my ugly baby rental with decent cash flow, bought a third in a war zone, rehabbed it with an XL side of drama, and rented it, working on my fourth flip with a partner, and waiting anxiously about my offer on the fifth, a personal home/quad. And I've learned a mind-boggling amount about houses, running a business, the process of buy/rehab/sell, the nature of contractors, humanity, and most importantly, what I'm capable of, what I like and don't like, and very specific positive and negative aspects in my personality in relation to REI. Far from a financial success story, but I feel moderately successful just by the fact that I'm not digging myself out of a hole.

Now I'm trying to figure out where to go from here. My goal is to be financially independent by 2016 but I've hit a mental block regarding a plan and I'm out of funds (outside of my reserves). My options as I see them:

1) Refinance #2 and #3 at the 6-month mark (Dec), get about 30-40k out of it, and find another flip / rental to work on. It would reduce my cash flow significantly.

2) I have a little under 6 digits in credit that I never use, and they're all begging me to take it out at 2-3% for 21 months with no fee. Dangerous, I know, but it's an option.

2) Stop investing, take care of my current properties, and keep working my day job until I save enough for another project (1-2 years?). Which, to me, is such a shame considering all I've learned, how much I enjoy doing this, and the money I've spent on business resources, marketing, and mentoring.

I've always been someone who missed the forest for the trees and this dummy business planning is not dummy enough for me. I thought I'd put my experience out there, and if anyone wants to weigh in, I'd love to hear it!

Thanks,

Sheree

Rick Baggenstoss · Answer

Sheree Hsu This is a great time of year to reflect and plan.  Since you're at a point of inflection, it's very important.

Naturally, I think it's easiest to reflect on the quantitative measures of the year vs. the qualitative.  Both are critical.

Quantitative

3 - 4 flips

1 HML

Holding 2 - 3 properties

4 more units under contract

-------------------

Qualitative

Lessons on what and where to buy

Lessons on what is a good rehab for you

When to provide/take HML

Houses under $30k and renting to those who live in them

Bad Contractor lessons

Building a more reliable team

Building out your network of advisors, contractors, lead givers, ...

One house hack under contract

That's a really good year.  Be proud.  Now leverage these accomplishments and lessons into a good year 2 and set up year 3.

I think the measurements for success in the early years are more like this:

1.  Survive to do it another year (in years 1 & 2).   Time in the job means a ton.

2.  If number 1, then build a more stable foundation by increasing quality and/or reducing the risk of the project

3.  Increase asset base from which you can derive income.

4.  Generate some non-asset based income.  For me and perhaps for you, some additional success and income could come from finding more deals directly and selling them to others ... bird dogging or wholesaling.

5.  Reduce risk and improve profit per deal.  Continuing to build your contractor list and rehab skills so you can take on harder, more profitable project that a newbie couldn't or shouldn't.

6.  Build your network.  Mentor a newbie to reinforce what you've learned and to build your network further.

7.  Learn as much as possible.  Do some easy deals, but keep trying different types of deals to learn what's right for you.

These are goals I'm always looking work on.  Heavy emphasis on #1 & #2!

Best,

Rick

Rick Baggenstoss · Answer

It's a trap to be overly focused on what needs to be done today or near-term vs. preparing for longer term.  You might call it preparing to scale, but in start-up years, it's more preparing a solid foundation for scale, drought, bad deal, what have you.

Here's how it manifests itself in my planning.  I have targets for this year in terms that relate to my overall goals.

A fancy MBA term for the previous list is a "balanced scorecard."  The idea is that you have to measure your business in terms other than financials, but also in terms of people, process, etc.  I think a more modern concept would be "capability" -- a combo of strategy, people, process, tech.

In year three, you may want to be able to do 2 medium sized multi-family, 3 SF flips, add 2 rentals.

• Add Property Management capability - load properties into Appfolio, Quickbooks, identify a property manager, legal review of lease for large MF, maintenance strategy, eval tools, MF mail list and messages, ...
• Add $2M - $4M Funding capability -- name 50 private lender sources and have 1st conversation,  create example pitch decks, quickbooks for investor tracking, legal doc for syndication, ...
• and so on ...

A big goal like adding 40 units (2 medium multi-family) would be impossible or very risky if you didn't prepare well in advance.  That's what I mean by setting up year 3 ... start preparing now for the bigger, harder goals which take time but are well worth doing right.

Rick

Paul Timmins · Answer

@Sheree H.

Congrats on stepping forward and you success and learnings.

Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you will meet wholesalers who provide deals and all the cash buyers (rehabbers) you will need.

You might consider Niche or Specialized Housing like student housing. Rents can be 2-4 times more. Remember you don't have to own a property to control it.

Download BP’s newest book here some good due diligence in Chapter 10. Real Estate Rewind Starting over

http://www.biggerpockets.com/files/user/brandonatbp/file/real-estate-rewind-a-biggerpockets-community-book

Good luck

Paul

Robert Leonard · Answer

Sheree Hsu

Congratulations on your fast start!  You've got lots of good advice already.  I'll just add a tool that you can use like a "personal financial score board" to track your progress:

http://www.richdad.com/Resources/Tools.aspx

You want to download the free personal financial calculator (it's just a spreadsheet).  It's not exactly what I use, but it accomplishes the same thing.

Elizabeth Colegrove · Answer

Sheree Hsu

My husband is active duty Navy, and currently on his sea tour. So trust me when I get not around. If all decision are equal the thing iI look at is the what is the least amount of stress and work. We are also trying to invest in long term "assets". So they don't need alot of hands on to constantly flip and deal with.

Dawn Anastasi · Answer

No, just appreciate what you have in addition to looking forward.  :)

Dawn Anastasi · Answer

Congrats on what you have accomplished so far!  Always remember to think about what you HAVE in addition to where you want to GO.  :)

Elizabeth Colegrove · Answer

You are at an impasse :) I have the same problem of forest versus trees. The thing that has helped has been my husband. While he is my parter he is not down in the weeds as much. So he gets our goals but is able to look at everything from a more neutral stance with fresh eyes.

The one thing that my husband always has me do when we get to this point is ask myself one question. Does this get to my final goal. Our goal, is to have passive retirement income to sustain ourselves at 44 and 42 when my husband retires from the Navy (everything willing).

If all goes well we are going to have the same problem as where do we go farther in 2 years. Once we max out our conventional loans we are going to have to reassess. What I can say is that our goals and business plans has evolved overtime. I never planned to self-manage and now it has become a stable to our business plan.

Sheree H. · Answer

@Rick Baggenstoss  That was incredibly helpful. I want to develop the kind of insight towards people, experiences, and even houses that you have. This is exactly what I needed, clarity on my past with direction for the future. Thank you!!

What do you mean by "set up year 3"?

Sheree H. · Answer

@Dawn Anastasi thank you. It's always good to be reminded. I do have a wealth of good in my life to be thankful for, that I hope I never take for granted!!

One year recap. What to do now?

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