Do You Have a Burning Desire to Buy One Hundred Houses per Year? If You Do, Be Sure You Are Prepared!

Recently I was talking to several of my students who each said they wanted to buy 100 houses next year. These students had listened to one of the gurus who had bought and sold over one hundred houses in one year and is now teaching people how to duplicate what he had done. I listened closely to these bright eyed, inexperienced students tell me they wanted to do the same as the guru, which frightened me to death. Later over dinner, I mentioned what I had just heard to my wife. She encouraged me to tell my tale of woe about the years of agony we experienced because I got too big for my britches and against my wife’s better judgment I had tried to do the same thing myself.

What the students were thinking about doing frightened me because several years before I thought I knew enough about buying and selling houses that I could easily buy 100 houses in a year. I thought it was a noble goal and I clearly believed I could create my fortune in months, not years. At the time the market was right to be able to buy houses at the rate of 100 houses per year. That is why I want to tell my story so every overzealous beginning investor will think before they set about to try to do the same.

My problem wasn’t finding and buying houses. I could make deals. I bought ten houses in one week. I was surely on my way to easily achieving my goal that year. Everything was going just fine until my contractor, who had 3 crews working for my group of investors rehabbing the houses we bought, unexpectedly disappeared and left town with a considerable amount of my money. At that point, I couldn’t find a contractor to finish my work because every contractor I contacted had more work than they could handle and simply didn’t have time to take on my projects.

It didn’t take long for me to realize I had a real problem.  I had never thought about not being able to get the properties we bought quickly rehabbed and rented or sold before I made the decision to buy so many houses. I also never thought about the fact that to be able to do that many houses in a year, my overhead costs were going to be far greater than I had planned. Each of the ten deals I did in that one week period were good deals and bought at prices that would have given us a good profit. I had bought each of the ten properties with Hard Money loans from local private money lenders who knew and trusted me. We had done business before without ever a late payment. Because I couldn’t get the repairs completed, I quickly ran out of the money I had borrowed in a very short period of time.

To keep my name good with the lenders, I had to take out personal loans to make the individual monthly payments for each property that sat empty and not bringing in any money. Money I needed quickly to make the monthly payments. Soon I was out of money. I was scared to death I wouldn’t be able to continue to fund these empty houses and that my name and reputation with the lenders would be ruined.

One thing I was happy I did, I continued to talk to the lenders. I didn’t hide from them. I called them numerous times. We talked and worked out how I could restructure the loans so I could make my payments and keep everyone happy. We restructured some of the loans. We added the payments I eventually couldn’t pay on the end of some loans. We reduced the payments on other loans. A couple of lenders allowed me a period of time where I didn’t have to make payments, to give me time to find more money and to finish projects I previously couldn’t complete. This is a real problem I continually see investors make. They hide from their lenders when they don’t have a solution how they can make payments when no money is coming in. My advice, DON’T HIDE!

The secret to prevent what happened to me, don’t take on more than you are currently prepared to handle. Don’t get “Big Deal Itis”. Before taking on a project of that size you must understand that your profit from each deal diminishes because you will need more staff and your overhead will increase greatly. If you plan to take on this monumental undertaking, be sure you are prepared with enough crews to complete your rehab work, lenders to fund your deals, staff to complete the bookkeeping and paperwork you will need and staff that understands how real estate investing works and is familiar with the skills needed to get the jobs done.

PLEASE, think about what you are undertaking before jumping in blindly and nearly go bankrupt like I did. That is a problem I wouldn’t wish on anyone. Work Smart, Not Hard and you will always make more money!

Happy Thanksgiving!

Larry