Sell our current business to start full-time flipping?

[Haley Elisabeth]

My husband and I are considering selling our current business and reinvesting full time into house flipping (eventually then building our own real estate portfolio, as well). We would like to have more input from more experienced investors on the validity of this idea / any gaps we might be missing.

We currently own a remodeling company. We already have the construction experience/sub crews needed to flip homes anywhere within a 120 mile radius of Nashville, TN (including Chattanooga). My husband is Guatemalan and very well connected, plus he speaks Spanish which makes managing projects even easier for our crews. We are not real estate licensed, so that would be the biggest area of opportunity to learn (we'd use a realtor at least in the beginning).

We are considering selling the company because 1) my husband hates managing W2 employees/operations (but he loves working with subs) and 2) it would give us extra cash up front to reinvest. The downside is that our monthly income would go away, but he also would no longer have to manage the business, either, and can spend all of this time on the flips/building his wholesale side of the company.

After the sale of the company, we have:

• 9-15 months of personal expenses in savings to live off of
• Start with $100k cash and do micro flips to avoid the risk of a hard money lender and losing our tail if something doesn't go right or sell quick enough
• 
  Once the house sells, reinvest all the cash back into the next flip and continue doing this until we are doing multiple flips at a time (he can manage 4 large projects at a time by himself, so we assume up to 4 active flips at a time eventually)

Pros of doing this:

• No longer having to manage W2 employees/operations (this used to be my role but now that we have kids I want to stay home, not do this)
• Getting a larger chunk of cash to start flipping quicker vs waiting 1+ years to save enough cash for the first flip
• Using cash reduces our risk of losing money with a hard money lender if the project takes longer to sell, rehab, etc. If the house takes longer to sell, we aren't losing money every month on interest payments and can hold for the right sell price.

Cons:

• We lose our regular stable monthly income and have to rebuild again (we have done this before - this would be our 2nd "bootstrap, build, sell" business)
• We lose our 5 year history when it comes to conventional mortgages and moving into a new home for our own family in the next 2-4 years

Thoughts / recommendations? Any input is appreciated! Thank you so much!

[Luka Milicevic]

@Haley Elisabeth

A few things to point out/think about from someone that is active in your target market.

Have you done a flip before? Is this your first time?

It is absolutely nothing like the reality TV shows.

I would highly recommend you do a few flips on the side before you decide to go all in and sell your business.

Your biggest asset, in my opinion, is that your husband is a contractor and can run the jobs himself. In fact, this is the only way to have any chance of making a profit in the Nashville market. It is EXTREMELY competitive and the margins are very thin, so the more expense you can mitigate the better. I have never been able to make a flip work using a GC. I have always run jobs myself on flips.

How are you going to source your deals? Have you met with all the local wholesalers in the area? Are you on their lists?

For the market you are looking into, your start up capital of $100k is not going to get you anywhere. You might be able to find some deals in small towns that no one has heard of to get your start, but at best you are limited to one deal at a time. You have to factor in your timeline even more when you are doing 1 job at a time and depending on this income to live off of.

Think of it this way…you take on a flip, you spend 2 months on renovations, 1 month on market, 1 month under contract. You are conservatively looking at 4 months before you get paid. In your target price of small, inexpensive homes and markets how much are you actually going to make on a flip where your total investment is 100k? You might make 5k? 10k? In 4 months….

Honestly, best case scenario is you are turning your money instantly and you will then end up making 30k/year.

Your biggest problem is your start up capital is way too low if you’re not willing to use hard money. 500k – 750k is a much more realistic amount of capital you would need to self-fund your own deals. You can run multiple small deals at once, or run 1-2 larger deals at the same time. At this price point you are looking at profit margins of between 40-100k/deal which is actually worth your time given the amount of risk you are taking on.

I would highly recommend getting some hard money lenders on your list and see what they are offering. Keep your 100k for renovations, interest coverage, and maybe if you absolutely have to…downpayments.

You need to look into doing new construction as well. That is something that is working well in the greater Nashville area and your husbands GC experience is a massive risk mitigator. The loans are much cheaper than hard money and the margins are way better than flips.

All of this is just my opinion, but I’m not your Uncle Bob that has never bought a house before. I’m actually flipping, building and buying rentals in your target market so I have enough knowledge and scars to give some information that you should at the very least consider.

Feel free to reach out to me via PM if you would like to discuss the market more.