Quote from @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!
Free cash flow and lessening physical and financial burdens is always a plus, it should probably be included in the business community goals
I think leveraging your existing business cash flow to diversify your income portfolio is awesome!, but also, your family deserves the fixed interest your business provides, it shouldn’t be cut off, it may be better to share.
What I’m referring to is selling a portion of your business interest to an active partner. You can do this in two ways; leverage a percentage of the cash flow and collect dividend then add active partner through dividends, or traditionally sell interest to an active partner. Both ways would accomplish both goals your family has set forth without losing the steady income ( The freed up cash flow and removing yourself from the day to day operations).
