Should i slow down - too anxious..

Question

Morning,

I am posting this to get some advice and also to hopefully give other newbies something to think about.

I jumped into REI intensely in February this year. As of today i own 5 cash-flowing units (1 condo and a 4 unit) worth about 700K, I am an investor in a flip that is 60% done and just closed 2 weeks ago on a 180K flip with 140k rehab (450k ARV) that is entirely mine. So i own approx 900k in real estate. As things go i think i have done ok in real estate this year.

However i keep feeling like i haven't done enough and keep looking to push and get more deals under contract. I put in a bid on a fannie mae homepath property for a flip. It has good numbers (215K purchase + 130K rehab with 475K ARV). The bid just go accepted, however the HELOC that i was going to use to fund it fell through at the last minute (last minute credit pull showed a new account that wasn't there before and messed with DTI).

I can probably fund the deal using credit cards and mess with my credit score (i have pretty high credit limits) but I am thinking that this might be a sign that i should slow it down and stabilize everything before the next deal. I keep going back and forth between pulling out of the deal and waiting till next year or pulling out cash from CC's and trying to get creative.

I just wanted to get peoples take on this. I know some of it has to do with personality and risk tolerance too.

Nnabuenyi Anigbogu · Answer

@Brandon Hall @Neal CollinsI really like your private investor and raising funds suggestion and fortunately i had lunch with a friend yesterday that is interested in investing some money in me. I have started down the route of trying to get friends and family to invest in my business. My only issue is that the fannie mae deal is on a short timeline since they require 10% earnest money within 2 days of offer acceptance (21K). I dont want to rush any of my potential investors and potentially lose them. I want to take a month or two and slowly convince them to lend to me. Unfortunately fannie wont wait. :)

I might pass on this deal and then focus on raising private money for future deals. I know i will need it next year if i want to continue growing.

@Steve Vaughan Thanks for the kudos. It has been a busy and hectic but fun year. You input is always appreciated and i am leaning towards stabilizing. Havent decided yet though.

Brandon Hall · Answer

@Nnabuenyi Anigbogu some people will say slow down, but I'm like you in that I just want to go full-steam ahead. I like to take on as much as I can then build out systems that help solve recurring problems.

To me, it sounds like you've seen (or will see once the flips close) great success this year. You've obviously demonstrated through your actions that you are 100% dedicated to building a real estate business on several levels, which is a heck of a lot better than most of the people on BP who "think" about getting into real estate.

I'd contact everyone you know and ask them to put you in touch with everyone they know with the end goal of locking in some sort of private financing, whether it be hard money or from a private lender. I feel like you can take a financing cost hit here, as in accept higher interest rates and points, to get through the closing and flip.

The way I see it, you are involved in three separate businesses which inherently creates problems. You have a rental business, a lending business, and a flipping business. After you get through your flips, or even at year end, I'd look back on all your projects and evaluate which ones you enjoyed the most, which gave you the highest emotional reward, and which was the most profitable in terms of time spent on the projects. I'd then suggest narrowing your focus next year into mastering ONE business.

This is something I am currently struggling with now as well with my CPA practice. I currently provide monthly accounting, tax prep, tax planning, financial planning, research, entity consulting, oh and I want to start cost segregation projects. But can I specialize in one or two areas and become an absolute master? You betchya! I just don't know which way to go yet :)

Regardless, don't slow down. Just realign your focus.

Steve Vaughan · Answer

Wow @Nnabuenyi Anigbogu!  You started out sprinting and haven't looked back.  Congrats on having done so much so far in so little time!

One of the biggest risks to any business is growing too quickly.  I agree with your assessment that this HELOC mishap may be a sign you are stretching yourself a little thin.  I vote for your to stabilize and chew a while on what you've already bit off.  Trust your instincts.

You obviously have good systems for generating new purchase leads and keeping your pipeline full.  Nothing is on fire here.  As you mature a bit in your business you will better know exactly how many projects you and your team can handle at any one time.  Congratulations! I enjoy seeing you around the site and wish you continued success!

Account Closed · Answer

@Nnabuenyi Anigbogu Im with Brandon. I would keep the momentum going. Very nice start but I would take a hit in points and interest to continue to fund deals. Good luck!!

Nnabuenyi Anigbogu · Answer

Update:

I decided to continue and try to do the deal. I was able to convince one of my friends who has been attending meetups with me to partner up and split the financial costs 50/50 (and profits 50/50). That drastically lessens my burden and makes it not as much of a risk even though i make much less. However Fannie Mae is trying to renegotiate the purchase price of the deal so we will see what happens.

I did however learn a lot from this conundrum. It taught me to approach private investors and talk to them about what i do. I have someone else who is ready to bring 30-40k to partner with me on another deal. I am almost getting to the point where i have more money than deals and have yet to finish my first actual flip. :)

I am getting the vibe that taking action is the catalyst. Even without a flip under my belt, others seem to want to partner with me because of how much i have bought in the buy and hold space with my own money (not much compared to the pros on here). The fact that i have my own money in the deals and am not asking them to finance 100% and that i have an experienced construction partner seems to help also.

I just need to learn how to close private investors. I have another friend that was 80% there to loaning me private funds but he backed out at the last minute. He is too scared and wants to leave his money in the stock market. I need to learn how to overcome those objections.

All in all its been a great learning experience.

Nnabuenyi Anigbogu · Answer

@Boyd McClean That is one unfortunate aspect of living in Chicago. However i am lucky in that my cashflow after all expenses is significant enough to cover any increase in taxes and still stay positive. Taxes would have to quadruple before i start getting worried.

Boyd McClean · Answer

As suggested you need to be using OPM (other peoples money). I see you are from Chicago. If that City does not get it's finances in order you will see significant increase in property taxes. Now what will that do to your cash flow?

Look at folks that have SDIRA's or IRA's for private capital.

Jonna Weber · Answer

I personally would slow down and preserve your credit.  You've done some amazing things already this year, and a solid start and foundation is critical.  Disclaimer: I am pretty conservative financially.   Much success to you!

Neal Collins · Answer

Great job on your first year. Everyone has different speeds and entry points into the world of real estate. It seems like you've built nice traction.

A mentor of ours once said that in real estate there are two gears, forward and backward, and they both go very fast. Be careful about pulling out cash from credit cards. One thing goes wrong and you will quickly land yourself a hard money lender that has the ability to trash your credit.

Time to go out and raise some investment funds.

Should i slow down - too anxious..

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