When to know you are financially ready for another property
I'm a small real estate investor that has 15 units. Our past BRRRRs have been financed by a HELOC on our primary home. It has been working out well but it only allows us to do 1 BRRRR at a time. So I recently met a Hard Money lender and have 2 BRRRR projects going right now. One financed by our HELOC and the other by a hard money loan. Everything is going fine. A little over budget in both money and time, but nothing crazy.
What I'm trying to figure out is what metric should I be measuring or what financial position should I be looking at to determine if I can take on another project. The hard money lender is more than willing to fund another deal with me and I have found a property that meets all of my criteria. I'm just concerned of financially over extending myself. Do any of you have anything specific in regards to your finances that you look at to say "Yes, I'm ready for another acquisition" or "I need to wait"? And a reminder, I'm still pretty small. Looking forward to your responses.
Hey @Tina Wicks first off I would not call 15 units small that is fantastic so congrats first and for most that is a hell of an accomplishment. I do not personally track anything in my personal finances (although perhaps we all should be given your question) that would tell me if I'm ready for my next deal. At this point my personal limit to my investing ( and this could be a limiting belief so...) is the downpayment. Right now my personal focus is on stacking cash to feel comfortable with a downpayment to go shopping. No this may not be the best or even quickest way to my next deal or project but its my personal comfort-level with the situation. This I think, is perhaps what you are looking at as well...a personal comfort level with the amount of projects you have going on, and are looking for a way to quantify that comfort?
So these are the questions I think I'd ask myself to understand my own comfort level with taking on another project.
1) if the new project was to say go over budget by IDK something crazy like 30% because of renovations and materials lets say...what does that do to your numbers?
2) if your timing got delays by say 4 months on the renovation what does that do to your holding costs?
3) is there another use for the property you can pivot to if all hell breaks loose?
If things are still looking good and or you are at least able to walk yourself through scenarios like that and things still look and feel good to you, then I think you're ready to pull the trigger. But thats just me on a personality front, I love running 15+different worst case scenarios and as long as I can logic my way through the solutions and the numbers are still decent then I would feel comfortable moving forward.
I hope that addresses your question? and again congrats on an amazing portfolio so far. I'd be super fascinated to hear more of your story.
Cheers,
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Real Estate Agent OHIO (#2021002058)
- 614-362-2231
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@Tina Wicks, as Michael noted, this is a very personal situation, and generally if you are confident with your two ongoing properties, with adequate capital set aside for more overages, and the new opportunity works with, where you aren't having to cut your other two too thin to get it done, then you are likely fine. As noted, there are a lot of variables, with the biggest one being your comfort level. Additionally, as you are likely very familiar with, it sounds like the bigger limitation is your time. My wife prefers to only have one rehab going on at a time. She also stays home with our kids full time, so trying to manage two rehabs and the kids is far too much (sometimes a single rehab is too much).
@Tina Wicks I love how you have 15 units, working on two right now and are acting like a newbie with this question, haha! Most people would consider you big time. And I know how it feels. I always feel like a newbie.
As the others have said, this is a personal decision, since you already know the numbers make sense. You sound like you are a mix of cautious and bold. Given that two at a time seems to be hardly stressing you, you are probably ready to stretch for three. Be ready for some stress and don't do it if you think it will be too bad for you mentally or financially.