Too much offense and not enough defense!

It's Monday morning and I am writing an email to my agent to let her know that I would like to rescind an offer I had on a property. The three-bedroom two-bathroom single-family was listed at $159,000 and I know based on market rents in that particular area, the property would make more sense at $143,000 from a CoC perspective. I was so excited when I ran my numbers and my criteria were met. I contacted my agent and put an offer on the property right away, the seller came back at $154,000. The margin became a bit thinner but barely met my bottom line so I accepted the counter with the intent of negotiating the price a bit more during the inspection phase.

Due to either COVID-19 or a problem tenant, we could not get access to see the property or schedule the inspection. I have dealt with this before and eventually, we always get access, if not then we usually just move the closing date until we are allowed our inspection period. During this waiting phase, it dawned on me, where the heck am I going to pull $35,420 to put down!? I know what you are probably thinking, didn't you think about that before putting in the offer? I did and I knew where I was going to pull it from but it would be like jumping out of a plane without a parachute.

In the past year, I have been saving the cash flow from my other units and also leveraging my W2 job to save enough to put down on my next deal. So this is where the rubber meets the road, I did not have quite enough of the cashflow and saved up W2 funds to put down however if I used all my reserves funds and a little bit of my personal savings, I would have enough! The excitement of the next deal wore off when I realized that if a maintenance call came in the next few months, I would not have the funds to cover it, maybe I could put it on a credit card but how long can you keep that up?

I made the wise decision to pull out of the deal because had I moved forward, the rug could have been pulled out from under me and no one wants that fall. Everyone's risk tolerance is different but I like to sleep well at night and not having any reserves is not the way to last in this business. It's very exciting to say, I just got the next deal and increased my cash flow by x amount but if your stress level is a bit high because you are overleveraged then you are doing something wrong.

As legendary football coach Paul “Bear” Bryant once famously said “Offense sells tickets. Defense wins championships.” Remember you are in this for the long hall, while it is sexy and exciting to overleveraged yourself and talk about how many doors you have and the amount of cash flow that is coming in, remember in the end defense keeps you in the game long enough to allow you the win the championship, which is financial freedom.

Happy Investing