How fast to grow business when first starting out?

Question

We are new investors and currrently are about to close on our first 2 properties for flips ( close will be a few months apart). Our buisness partner puts up the cash but only has so much to put out right now and we all kind of feel we need to "prove" we can do this well before getting a well oiled machine going. However I don't want to lose momentum as we "wait and see" how things go. we bought these properties low and things should work out fine but being new we are still a little nervous about really getting the ball rolling. Plus for raising more capital isn't it best for investors to see previous results? What about a bank offering a line of credit, do they need to see a track record of good deals before they lend?

What was your progression up to where you are now? Are we being too cautious or do most start out slow and after a few under belt then pick up speed.Thanks!

J Scott · Answer

There's two sides to this coin... I started with three properties in my first month -- it turned out to be a good decision, as the first one didn't go very well, and if I hadn't had bought #2 and #3 at the same time, I probably never would have. So, it worked out for me. Last year, I moved into a new market. After the first deal, we purchased about a dozen properties at once. Based on the first deal, we made some assumptions that led us to buy the next dozen. Many of those assumptions were wrong and the dozen properties are much less profitable than we expected. If we were just starting out, I could imagine these properties causing us a lot of headaches, and we'd very likely be in over our heads if we didn't have a good bit of experience. There's no good answer to your question, other than to say, make sure your assumptions are on target, all your deals are good ones and you don't bite off more than you can chew before you know exactly what you're getting into. But, if you're diligent and careful, there's no reason why you need to just do one at a time.

Bill Gulley · Answer

Agree with others. RE is not the hamburger business. Units in process are expensive, drop one and you can suffer big time. Do one at a time and do a good job, then do the next one. There always be a next one so don't get in a hurry thinking you're missing out on another deal, even if you did, move on. RE is a long haul business, you don't have to sell 2,000 units next month. Lenders want to see slow and steady growth, prudence in operations, well thought out business plans, good management and profitability. It takes time to do it right, so take the time. As you grow you will know when you can take on more, hope you can get to ten or twenty projects a month in the future, but the big time doesn't happen overnight so don't even think there is some system or method out there that will zip you past the experience required. :)

Jerry W. · Answer

I am only working on my first rehab for sale myself, but it seems to me that you will definitely need some success stories for banks or other investors to want to loan you money. Your current lender will want to see some cash returns for his pocket before he continually bankrolls more purchases. Facing the unknown is usually hardest, which makes the first deal so hard. If you have the ability to do more deals I suppose only you can truly decide if you can do them effectively. Just do not let new deals interfere with doing a quality job on your first deals. The old a bird in the hand being worth 2 in the bush.

Jessica H. · Answer

Thank you for the great responses! @J Scott I totally agree with what you are saying about being sure about the deal and knowing what you are getting into before taking on too much. I must say, your website was the first we found when starting on this venture and you really taught us a lot and through it we found biggerpockets. I thank you for your attention to detail ( really helps us newbies), we hope someday to be as successful as you. @Brant Richardson I think we will focus on these 2 deals while keeping an eye on the market for a really good deal or perhaps something to wholesale. I do want to be cautious at first as this is a big learning curve in doing these first 2 flips!

Brant Richardson · Answer

2 at time already sounds ambitious for somebody just getting started. I'd still pay attention to the market but only jump on something if it is an amazing deal that you can't pass up.

Jessica H. · Answer

thanks for the good advice : )

Brandon Krieg · Answer

@Jessica Holwick Congratulations! That's a great start! I'll echo @Jean Bolger on this one. In my own experience, I started slower, with just one rehab to handle. It went well, and positive momentum built from there. Rather than focusing on volume, I look at the quality of each individual deal. If every deal is good and profitable, you will have lots of people looking to jump on the bandwagon to earn a good return on their investment. If you can confidently handle several deals, by all means, go ahead with it. However, if you feel 1-2 homes fit right your wheelhouse, just make sure those go well, and good things will likely follow.

Jean Bolger · Answer

I'd focus on getting those first deals done and done well. Too much on your plate can make for a big mess! You absolutely need to prove something before you can attract new investors or a credit line. Don't worry about "momentum" as a necessary element; that's just something you have made up in your head.