I am REALLY confused about what to do. My wife and I have grown our flipping business over the past couple of years to doing 10 flips currently.
I was just getting ready to quit my job that pays $150,000/year to focus on real estate full time, but the rising interest rates has me very concerned, with no end in sight. We just had a .75% rate rise yesterday and will likely see another one by the end of the year (maybe two?). We have enough money to last at least a year. The hope was to quit my job and focus on finishing our 10 flips because it has become too much for my wife to handle. We are in the Northern Virginia and Maryland markets in case that is helpful
I am concerned that if we see a big dip in prices, I will regret it because the 10% profit we typically get ($50K on a $500K flip) will basically mean we are doing flips for free.
I would love for some very seasoned investors to give their opinion on whether I should stay in my job, or focus on our flipping business that is doing well
Thanks,
Josh
I am REALLY confused about what to do. My wife and I have grown our flipping business over the past couple of years to doing 10 flips currently.
I was just getting ready to quit my job that pays $150,000/year to focus on real estate full time, but the rising interest rates has me very concerned, with no end in sight. We just had a .75% rate rise yesterday and will likely see another one by the end of the year (maybe two?). We have enough money to last at least a year. The hope was to quit my job and focus on finishing our 10 flips because it has become too much for my wife to handle. We are in the Northern Virginia and Maryland markets in case that is helpful
I am concerned that if we see a big dip in prices, I will regret it because the 10% profit we typically get ($50K on a $500K flip) will basically mean we are doing flips for free.
I would love for some very seasoned investors to give their opinion on whether I should stay in my job, or focus on our flipping business that is doing well
Thanks,
Josh
With a W2 of $150,000 you should be cash flowing, not flipping. Meet with a tax professional, ASAP.
I am REALLY confused about what to do. My wife and I have grown our flipping business over the past couple of years to doing 10 flips currently.
I was just getting ready to quit my job that pays $150,000/year to focus on real estate full time, but the rising interest rates has me very concerned, with no end in sight. We just had a .75% rate rise yesterday and will likely see another one by the end of the year (maybe two?). We have enough money to last at least a year. The hope was to quit my job and focus on finishing our 10 flips because it has become too much for my wife to handle. We are in the Northern Virginia and Maryland markets in case that is helpful
I am concerned that if we see a big dip in prices, I will regret it because the 10% profit we typically get ($50K on a $500K flip) will basically mean we are doing flips for free.
I would love for some very seasoned investors to give their opinion on whether I should stay in my job, or focus on our flipping business that is doing well
Thanks,
Josh
Don't quit your job.
Quit your job in 2025 only, that's what the Fed says.
I would strongly recommend you keep your day job. If you think the market of the last two years is normal or sustainable you are in for a big surprise. Try to get out of your 10 flips asap before rates go even higher and values fall more. In any event I recommend you closely observe the market and where we're headed before quitting your 150k job. Just my .02
I totally understand the market over last two years isn't sustainable going forward. What I'm concerned about is prices falling. I could even deal with them staying flat. What I'm concerned about is a fall in housing prices of 5-10%
@Josh H. DON'T! Direct enough?
Look, you actually answered it in your question.
First, you have made, as in past tense, or more accurately past market tense. Kudos for what you have been doing, but in your wording it's clear that something in your gut is yelling "no, STOP" and i agree with your gut.
What we have going on right now is a massive shift in markets. You know this means things will be different and with that, good chance what did work, won't work the same.
You need to have a solid action plan for this market, the one coming into being at this moment. Not to say you couldn't or wouldn't make it but, why risk where risk is not necessary right.
You built all this while doing the day job, so clearly you don't need to eliminate that to continue right. So I would say, and I think your gut agrees, to not toss that away until you have effectively deployed into this market coming, in the next strategies that work.
You mastered an action, now you have to master the shift, and what comes next. Past market success is no assurance of future.
I think that everyone here is posting sound wisdom but here may be a different angle to consider: I typically hear of a similar situation with youtubers. They find a modicum of success and then say they are quitting their jobs. They think that they have spent 2 hours a day part-time on videos, if they had 8 hours, it would be a lot better videos and their channel would take off. With 4x the time, they could make 4x the content and 4x the $$$. That doesn't happen. It's marginally better than what they were creating. Then they get frustrated that it didn't scale linearly with what their time input was.
If you feel that you are passing up deals left and right because you don't have time, you being a full-time flipper may make sense. If you've had to hunt for your deals and you feel there might only be 12 deals in your niche total and you have 10, you may be frustrated because your expectations aren't what you wanted them to be.
Final thing to consider is that if your money from flipping is enough. If it supports your lifestyle and reduces stress overall, I don't see why not.
I agree. Not just real estate investors, but even "regular" businesses fail because they try to grow too big, either too fast or at all. I've seen some local restaurants (way before covid) that were really successful try to change locations or expand and "ruined their success." They closed up shop in about a year. Not everything scales well...
@Josh H. great work on building up your business over the last few years! You are def in a good position. Rates are not very important, here's why.
1. 10-12% for hard money is NORMAL, back in 2012-2015 all of our loans were 12-14% rate with 3-4% origination, no one blinked an eye.
2. Rates were TOO low last year when hard money was going out around 7-8%, that was the mistake of the wall street money coming into the industry and underpricing things due to their inexperience with hard money. Most of the private lenders that have been through numerous cycles never lowered their rates below 9% because they knew the rates would soon bounce back to 10% ish.
3. MOST IMPORTANTLY, rates increasing on the national retail level is a sign of the overall economy (or consumers emotions to the inflation anyways). This should produce a buyers market eventually. As foreclosures tick up and prices level out, there will be better deals to be bought, deals with bigger margins on them, even at lower values to the end consumer.
4. You should start holding onto some of your flips, refinance them into perm loans, build up your portfolio, whether the downturn of the house values, offload some of them in a few years when values bounce back.
Good luck!!
I did a few fix and flips in early 2020, and you are right there has been a change in the market. The turning point for me to make the jump out of my career was hitting a certain bench mark of cash flow. I turned the capital I got from the flips into private loans, and I now use that as income to replace my W2 income. I am not semi-retired. I work as a consultant on projects I genuinely enjoy and continue to learn more about private lending. MAybe a better analysis would be not so much how long could you live with the cash you have now, but what level of cash flow would make you feel better about cutting the apron strings?
Use personal time off/vacation to finish up your flips asap. I would strongly recommend keeping your day job. I would concentrate on making more high quality flips and maybe using your own money (if you have enough). There are a lot of uncertainty in the economy right now and I would hold off leaving 150K a year job.
What about bringing on a money partner on the flips so you don't take much if any risk financially. It sounds like you have been wildly successful on your flips I'm sure there are people with money that would take the risk on your flips financially to get the type of returns you're getting.
@Josh Houser If you think you can still be successful in a market climate that will likely get worse than it is now, then by all means, bet on yourself and quit. Call it a crash or correction, but the data doesn't look promising. The federal reserve has literally came out and said that they wish to cool the housing market so I'd take their word for it. I mean have the interest rates ever risen this high in this short amount of time ever before historically? I'd bet not and they're not even done raising them. It's something to think about. Also, housing market crashed usually happen over a span of years so things will likely get worse before they get better. Good luck.
Do you have to flip all of them, is that the only exit strategy here? Can you hold on to some as rentals, either STR or LTR? Hold those and see what happens?
@Josh H. If you don't hate your job, and you've been successfully flipping all this time with the job, keep the job. The better you get at flipping, the less of your attention it should need so you should be able to do both. Think of it like diversifying your portfolio.
@Account Closed
Maybe they don't want to.... :)
@Josh H. I just assumed you were flipping because you liked it and gave you a stream of income to live on. Is that you goal? Your strategy/goal is key portion of this decision process which I didn't mention earlier...
Ladies and gentlemen, we've found the troll.
@Josh H. so if you look at experienced developers they need accredited capital. this is will be the largest return, build and hold for 5 years. Do not worry about 2 years of no cash flow, these will pay out so much better. But it all depends on what you want to do and what you like to.. Hell my previous company, I loved it but the ceiling was low and not very scalable. I did it for 11 years, just throwing options.
There are also companies that have massive investment funds such as
https://www.trezcapital.com/
https://nhkcapitalpartners.com...
https://www.rockstarcapitalfun...
Or you can use your Roth IRA for funding these ventures. IRA for debt not equity, if there is a loss you can not deduct the losses on your IRA when used for equity.
Flipping real estate is a full time job, keep your job and keep your real estate. Build wealth, the income for you is there
@Account Closed
Maybe they don't want to.... :)
@Josh H. I just assumed you were flipping because you liked it and gave you a stream of income to live on. Is that you goal? Your strategy/goal is key portion of this decision process which I didn't mention earlier...
Ladies and gentlemen, we've found the troll.
@Josh Houser: Your Comment "I am REALLY confused about what to do."
I'm not the one who is confused, but I wold agree that you are. ;-)
Consider adding a few rentals in your portfolio. This will generate some cash flow, while you continue your flipping business. I think in this market diversification is the key.
@Josh H. If you don't hate your job, and you've been successfully flipping all this time with the job, keep the job. The better you get at flipping, the less of your attention it should need so you should be able to do both. Think of it like diversifying your portfolio.
That is true to an extent, I don't hate my job but kind of hate having to do both. My job is very demanding and doing real estate on nights and weekends is very taxing. Plus, I feel like it is holding me back from making more by keeping my job since I could dedicate 40+ more hours per week to real estate. I understand what a couple repliers have said, that growth isn't always linear with more effort, but I know my time would certainly increase and in turn output. Prices could stay flat like Freddie Mac was predicting (which I think was before the Fed said they would be very hawkish with rate increases), which would be fine - but if they go down 5% our flipping business would be in trouble. I think I will be following the advice of the majority people on here and keep my job.
Consider adding a few rentals in your portfolio. This will generate some cash flow, while you continue your flipping business. I think in this market diversification is the key.
Hi Deandre,
I would like to be able to do that, but it is hard for us to justify the super low ROI from BRRRR'ing, or purchasing a fully renovated or average condition rental. The net returns seem to be almost even, especially when you factor in maintenance, which is why we have not went this route yet.
Thanks,
Josh
Do you have to flip all of them, is that the only exit strategy here? Can you hold on to some as rentals, either STR or LTR? Hold those and see what happens?
Yes, we could probably rent them, but I look at that as just keeping money in a bank, which does not help us to scale. I could cashflow them and get a couple hundred a month or 40K now, and capitalize on the investment.
I would strongly recommend you keep your day job. If you think the market of the last two years is normal or sustainable you are in for a big surprise. Try to get out of your 10 flips asap before rates go even higher and values fall more. In any event I recommend you closely observe the market and where we're headed before quitting your 150k job. Just my .02
I totally understand the market over last two years isn't sustainable going forward. What I'm concerned about is prices falling. I could even deal with them staying flat. What I'm concerned about is a fall in housing prices of 5-10%
Greg,
A few weeks ago, Freddie Mac said that prices would likely remain flat or go up a percent or two in 2023. Other articles from large entities that I read said this trend was likely as well. That is where I was getting my data from. This was before the Fed said they would be very hawkish, so that might change what they say next.
I know you are very doom and gloom lately when it comes to real estate based on your other posts that I have seen, so I guess we will just see what happens. No one has a crystal ball. In fact, for the last couple of years (and even before the pandemic) many real estate experts were saying that prices would start to lower, including experts on bigger pockets but prices have only increased. I'm not naive to the fact that interest rates will effect the market - but I wonder if large hedge funds scooping up as much property as they can, will have a stabilizing effect and keep the market somewhat steady.
I will likely keep my job to see how things play out, since it pays well and I don't hate it. Thank you for your input.
@Josh Houser If you think you can still be successful in a market climate that will likely get worse than it is now, then by all means, bet on yourself and quit. Call it a crash or correction, but the data doesn't look promising. The federal reserve has literally came out and said that they wish to cool the housing market so I'd take their word for it. I mean have the interest rates ever risen this high in this short amount of time ever before historically? I'd bet not and they're not even done raising them. It's something to think about. Also, housing market crashed usually happen over a span of years so things will likely get worse before they get better. Good luck.
Thank you, Eddie. I appreciate your advice and wishing me good luck.
I think that everyone here is posting sound wisdom but here may be a different angle to consider: I typically hear of a similar situation with youtubers. They find a modicum of success and then say they are quitting their jobs. They think that they have spent 2 hours a day part-time on videos, if they had 8 hours, it would be a lot better videos and their channel would take off. With 4x the time, they could make 4x the content and 4x the $$$. That doesn't happen. It's marginally better than what they were creating. Then they get frustrated that it didn't scale linearly with what their time input was.
If you feel that you are passing up deals left and right because you don't have time, you being a full-time flipper may make sense. If you've had to hunt for your deals and you feel there might only be 12 deals in your niche total and you have 10, you may be frustrated because your expectations aren't what you wanted them to be.
Final thing to consider is that if your money from flipping is enough. If it supports your lifestyle and reduces stress overall, I don't see why not.
This is a really great point...more time =/= more money AND isn't one of the points of REI to get off the time=money treadmill?
Check your thinking around why you believe if you had more time you would have more $$$.
Next...what if instead of scaling your time...you scaled other people's? What are the aspects of your REI work that you wish you didn't have to do? What if you took less money out...and paid others to do the work you aren't so awesome at...and see how you felt about the biz and how it scales.
I did a few fix and flips in early 2020, and you are right there has been a change in the market. The turning point for me to make the jump out of my career was hitting a certain bench mark of cash flow. I turned the capital I got from the flips into private loans, and I now use that as income to replace my W2 income. I am not semi-retired. I work as a consultant on projects I genuinely enjoy and continue to learn more about private lending. MAybe a better analysis would be not so much how long could you live with the cash you have now, but what level of cash flow would make you feel better about cutting the apron strings?
That's a really good point, if I had more cashflow it would be much easier to make the transition. But my net cash flow from my job is about 9K per month from my job. I would need at least 5K a month in cashflow to feel comfortable - how can I get that from the 400K in equity that we have in our house, from a HELOC that I have? I've been adding all of the money we have to paying down our mortgage, so I have 400K to allocate.
Perhaps this is the question I should have asked from the beginning. How can we turn this 400K into as much cashflow as possible?
@Josh H. tough decision, I have been there. I read a lot of professional research, here are some key points.
Freddie, Fannie, MBA, NAR and HPES expect home prices to moderately increase 2023 at about 3-4%. Zelman is to only one predicting -3%. Personally I think you have to consider your local market, some markets (TX, FL) have seen +40% last year and are much more likely to actually correct than where you are (or my market in Wisconsin).
Prices might increase nominally more. The wildcard is inflation, because if we continue to de-value the dollar, home prices have to nominally go up with inflation just to retain value. RE has historically always been a good hedge against inflation. If home prices go up 4% and inflation is around 8% that really means the housing market has corrected -4%. In this case home prices have technically come down, you are still up, because of the time you have held the property. I would not be surprised if we see homes values go up 5% to 10% nominally next year (because of the dollar devaluation, which actually would mean home prices are flat).
In the end it all comes down to supply and demand. And unless we "find" somewhere in the US 5 million homes we did not know about are loose somehow 20 million people that dynamic will not change.
Rates have always come down during recessions, on average 1.8%. And often they continue to drop after the recession for a little while. I don't think we will see sub 4% again, but a lot of expert comments I read are suggesting that we should see a trend towards 5% next year. However, in historical context rates are still pretty normal now at 6.5% - we just have sticker shock coming from 3% (which was insanely low for a 30yr fixed!!)
Final thought. Buying in fall and selling in spring takes advantage of the seasonal pattern. We always see a very strong seasonal price pattern here in Wisconsin, that provides an additional buffer.
Nobody can predict the future and the decision you are making is really who do you want to be for the next decade. There is always a path, if the market softens on you, maybe sell some and rent some, maybe go back to W2 for a while. I think it's always prudent to have contingency plans.
Maybe talk to someone who has been through a few cycles:@Jay Hinrichs