no capital for 2nd deal. how does one stay productive?

Question

Hey BP,

We have unfortunately fallen in the typical newbie investor pitfall and deployed a good chunk of capital to our first deal are now struggling to find ways to do the second (most likely a BRRRR project so this problem doesn't come up again).

We've considered some of the following as next steps and would love to hear any advice on what the best route (if any) is...

Get Into Flipping/Wholesaling

(+) We can somewhat quickly re-earn some capital and at the same time, learn how to find off market deals, run ARV's and estimate rehab costs.

(-) The market is somewhat unstable and we're stuck here in the Bay Area so it's a bit more competitive and dicey to dive into those ventures.

Hard Money Loans

(+) CASH! Woohoo! Hello financing, hello deals.

(-) Oh wait, we don't have enough in our reserves to step in in case something falls through..

Private Lenders

(+) CASH! Woohoo! Hello financing, hello deals.

(-) We are newbies... I personally would not trust me to manage a project. I've only just begun...why would I trust you?

Personal Loans

(+) I think we're seeing a pattern here...

(-) Didn't qualify for SoFi, Lightstream given the mortgage we just got on our first deal.

Write A Book

(+) Oh, that's a new one. Book idea would be to interview people who became self-made millionaires through real estate. It would be great way to learn, build a network and if I'm lucky, earn a little of extra income from any sales made

(-) This would take some time... and it doesn't fit directly with my goals in getting a BRRRR project done by this year

Do Free Work

(+) More learning opportunities, build some credibility with potential mentor

(-) It's free work

Suck it up and start saving. Take the time in between to network and get educated. Consider leaving corporate, pursue another job opportunity with greater cash earning potential

(+) Going back to an agency, commission style setting would give us an opportunity to double my income. Worst case, I would be taking a small paycut that would still afford us a decent standard of living and allow us to save a bit each month.

(-) I could fail and not earn anything on top of my base salary and it would take a bit longer (3-4 years) vs staying at corporate (2-3 years).

Thanks for reading my life story here. Would love to hear any thoughts on how I can keep this momentum up!

Cheers

Andrew Syrios · Answer

Perhaps looking for a partner would be the way to go. They put up the money, you do the work, you split the equity. And by the way, be careful with language like "I personally would not trust me to manage a project." Such words can be a self-fulfilling prophecy. You're obviously educating yourself, which puts you ahead of most.

Jack Medford · Answer

I'll second what @Andrew Syrios said and suggest partnering up if you can find someone you trust. I ran into the same problem as you, but then found someone with capital who felt nervous about jumping into real estate. He saw me doing deals and wanted in, so I sold one of my properties to the LLC we formed, while also buying another with his funds. Selling the property I owned to the LLC we formed gave me some of my money back, while also giving me 50% of the cash flow of that first property.

Now we are purchasing our third property for a total of 7 units. Instead of owning 100% of 2 units, I'll have 50% of 7, so effectively 3.5.

As much as I like the partnership I've entered, I commend you for your creativity. You've found a lot of ways to keep moving in real estate. It is really just up to you as to what path you'd lie to pursue.

Jason Grimm · Answer

@Jack Medford I'm interested in the idea of selling a property to your LLC. Never heard of or even considered that a possibility. Could you walk me through it, either here or in PM? I'm effectively in the same position as @Albert L. Thank you.
- Jason

Jason Grimm · Answer

Thanks for the response @Jack. I'll have to digest this for a little bit, but I'd love to hear more details of you've got the time.

Jack Medford · Answer

@Jason Grimm the idea only works if you've got a partner you are forming the LLC with. I had bought a property cash and rehabbed it. He was looking to get into buy and holds, so we formed an LLC with the purpose of purchasing some. Since I had already sunk all my capital into this one property we considered that my capital contribution would consist of the property.

Essentially, we decided that he would put cash into the company at the amount that totaled half the value of the property. The property appraised for $65k, so this amounted to $32.5k. However, instead of him just putting up cash, we decided to put a traditional loan in place to preserve more of his capital. This got me almost all of my capital back (not quite a true BRRRR but close) while still leaving me 50% ownership.

Hopefully this all made sense. If not feel free to PM me for more details.

no capital for 2nd deal. how does one stay productive?

no capital for 2nd deal. how does one stay productive?

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