I’m fairly new to this whole business. I flipped 2 houses last year and bought one rental. I decided to go big this year and I’m feeling strung out and nervous. I’ve got 3 houses I’ve purchased since Jan 1, one back on the market, one goes on next week and one hopefully by the end of the month. In addition, I’ve purchased a rental - tenant barely makes PITI but upside on selling the house in a year is good. We close on two more to flip soon and also a low-end duplex to hold. We have a second mortgage on our residence and on the property that’s on the market as well as numerous charge cards to finance all this. I’m feeling completely freaked out, waking up at 3AM to fret about all of this, etc. Any suggestions on how to calm down? I feel like I’m doing things right, but I’m extremely nervous. Thanks.
I think that you’ve got good reason to be nervous. You are very highly leveraged and have a lot of deals going at once. The bottom line is that you’ve taken on a lot of risk. With high risk comes the chance of high returns (or high losses).
My suggestion would be to slow down a little bit and grow your business in a more controlled manner. This is not a sprint, it is a marathon. Pacing is important and will reduce your risk and increase your chance of long-term success.
You have made a mistake with your existing rental. Buying a rental that barely covers PITI is a HUGE mistake. It sounds like you are betting on a good real estate market in a year, which is a poor assumption in my opinion. Read the other post by someone who speculated and take that lesson to heart. REI should be a sure thing, not a gamble.
I would suggest foregoing the rental property business until you have time to learn the business. The rental property business is VERY unforgiving and you clearly don’t understand the basics yet. You are trying to start two businesses simultaneously (rehabbing and rentals), when you probably should be concentrating on doing one well.
Good Luck,
Mike
Thanks, my breakeven rental is to a family member. I should be okay with it as if he stops making payments I can cover them personally until I can flip.
My intent was to buy everything in the winter and sell in the spring/summer, hence the purchases. At this time I have no plans to buy anything else for several months. I live in the midwest, where foreclosures abound. They sell REO houses so cheap, it’s hard not to buy.
It’s also pretty hard to make much on flips here, so just doing them one at a time doesn’t get you much of a payday.
Thanks for your input.
Listen to propertymanager, he consistantly gives great advice! He’s right again.
SLOW DOWN
I’ve been in this business for over 20 years. I learned a few important lessons…
#1… GO WITH YOUR GUT FEELING, ALWAYS!!!
Every single time I have gone AGAINST that gut felling it has cost me money. Not being able to sleep, freaking out, it’s your gut talking to you. LISTEN!!!
There’s an easy way to fix this. Sell the properties that are costing you money. If you take a little hit look at it as tuition. EVERYONE pays man, EVERYONE, it may be physically, mentally, financially, no matter what you do, it costs. That’s not a bad thing, just learn from it.
This is just MY opinion, and I’m good at being wrong, but this market has a way to fall yet. Wall St. is just starting to see the first signs of this housing mess speading through the economy. Let’s face it, you can not have THE BIGGEST run up in real estate prices EVER without paying with pain. Slow down, remember this is THE most dangerous phase of the real estate cycle, the fall, no one knows where the bottom is, or how long it will take to get there.
IF YOU CAN’T STEAL IT, DON’T BUY IT!
Search propertymanagers past posts, he has some great insight into what you should be paying for rentals. And one thing he’ll tell you, if he can’t buy it at his price he doesn’t buy.
petemfa is right you need to create and stick to your criteria. Do not pay more for a house , not even a dollar more, than is profitable. Remember as Rich-CT has been quoting lately you make your money when you buy the house not sell it.
Benjie
I went through a phase [a long time ago] where I was afraid of debt. My first $50,000 business loan scared the @#%#@$ out of me. My first $135,000 loan caused me to have sleepless nights. NOTE: Both were non REI loans. Those loans made me tons & tons more money…aka profit.
You have GOOD DEBT and BAD DEBT. You can have almost an infinite amount of GOOD DEBT - aka debt that makes you money - as long as you are certain you can cover the debt payment. As long as you can service your debts, and make a profit, you’re OK. Also, keep some cash in investments to cover the debt payments if you hit bad times. Just be smart about it.
Personally I would NEVER use credit cards to fund any part of my business. All I use credit cards for are to get free stuff [I love those points!] - and I pay the statements off monthly & only use the ones that have NO annual fees.
Just stay confident, and do what is profitable for your business plan. Remember to make business decisions with your mind, not your emotions. Staying confident is VERY important. As long as you know you can realistically be successful with your current strategies - don’t let fear stop you. If you know you made a mistake & have too much debt, appropriately get rid of assets [aka dispose of the ones that make the least money, for the highest fee] to pay down your debt. You’ll be fine.
Thanks for your input. I felt put off by the other 2 posters. I think what I’m doing makes sense for my market. Yes, it’s out there in terms of risk, but when I step back from the ledge and anaylze what I’m doing, it doesn’t seem that risky. The worst that can happen is I don’t make as much money as I hoped. At least if I have more than one house, I’m increasing the likelihood of making it up on another house. Also, regarding credit cards - 3.99% for the life of the loan. Why get a mortgage?!
Sounds like a nice CC. Sometimes the CC companies piss me off, like the one time the company was bought and changed names. I tried to do a balance transfer and they bounced it back because they owned both cards. They hit me with fees and stuff. I guess it it is my responsibility to know what the cc companies own. Seems like they are just praying you will be late so they can raise the rates. Anyway if you can play their game you will be ok. Only you know your situation. There was an older fellow last night telling me real estate was all crooked and he said “not to burst your bubble but get rich quick wont work etc” I told him the only reason I was interested anyway was because I had made 150,000 in equity on my lake home in 3 years.