“Don’t be afraid to quit!”
I’ve been seeing a lot of posts lately about people getting into a project or deal, finding out it’s not what they thought it was going to be, and then going into deeper waters by over-leveraging to try and stay afloat. Persistence is important when striving for success, but also knowing when to cut your losses is just as important!
This reminds me of a quote I heard a many years ago: “In America, we don’t have a hiring problem; we have a firing problem!” Too many managers in business don’t know when to cut their losses by firing a bad employee because they think they couldn’t have hired the wrong person for the job. They instead pursue trying to make the employee fit the job’s needs for far too long, costing the business more time and money than had they let them go and tried to refill the position from the onset of distress. The manager says to themselves “I couldn’t have made a poor choice from the beginning!” and continues to try and plug holes in the seeping dam until it finally comes pouring down.
Just last week I terminated a purchase agreement I had under contract because I came to the conclusion that there were better investments out there to fit my current goals. At 3:30am I wrote down “You are about to put $50k cash into an investment that will not make you any cash as a business from day 1.” I decided at that moment to forfeit the $1,500 I had already spent on this contract, which saved me $48,500 instantly, not to mention the problems I potentially avoided. The scenario:
I found a SFR 3 bed/2 bath house about 2 hrs away from me in a solid market for $159k that had been on the market for about 6 months. I could tell these were motivated sellers. It was located in a C-B market area that was also 5-10mins from a major university and medical center, a military base, as well as right behind a Walmart and major mall. I made two offers: 1) $159k purchase price w/ $15k credit at closing for repairs, or 2) $150k purchase price. They accepted the later. Going into it I knew I would have to put a new roof on the house as it was "way past its livable life" per the selling agent. The rest of the unit didn't seem to need much else in terms of renovations to get it ready for renting. The kitchen looked very updated compared to most other comps available and the two full bathrooms were a nice find for housing multiple renters like students or military personnel versus a single family.
After paying around $900 for a complete home inspection nothing too drastic came up as drastic concerns. A few wires needed hiding, electrical covers needed replacing, and the occasional crack or seal wasn’t too big of a deal. However, the things that made me question my future involvement with this unit were possible big expenditures like all the water lines being made of iron (nearing the end of their usable life before cracking on this 1960’s house), a giant tree root running through the center of the crawl space (could disrupt foundation further), or numerous large pine trees either already dead with limbs hanging or leaning over the roof that needs replacing already. These could potentially cost 10’s of thousands of dollars down the road on top of the $10k roof I already knew I had to shell out for. That—on top of my insurance quotes being higher than I had estimated—quickly disintegrated what little cashflow I had expected.
Even though this house would have been a great rental property, it just wasn’t right for me right now. The same day I decided to terminate the purchase agreement (still under due diligence period) I got a text from another agent friend of mine saying a condo in my current hometown was coming on the market next week, and after running the numbers would have a 19% Cash-On-Cash return! The potential for appreciation isn’t as great when it comes to condos as compared to houses, but the cash flow would help my current portfolio grow faster towards buying my next. Maybe had I been further along in my journey and had multiple cash flowing units under my belt would I have gone through with acquiring the original property. That way I could hedge against any surprise repairs.
So what did I learn?
- Be patient.
- Do your due diligence. Always. Don’t skip a step.
- Stick to what works in your strategy.
- Don’t be afraid to walk away from a deal!
- Pick up the phone! Networking gets the job done (and done better!).
