16 Mar Capital on the sidelines & the tug of war of waiting
On either of my two shoulders sit the little house on one side, and a laundromat or bigger purchase on the other. The two battle it out like the angel and devil competing for the conscience of a 1990s cartoon character, and so here they figuratively sit and force me to be in “good problem to have” territory while waiting to make our next move. I’ve listened to hundreds of hours of podcasts and while I’m not in the “paralysis by analysis” phase, we just haven’t made the leap to our next property in the last 15 months because nothing came up that we really loved. I commend those very full time employees that also have take the time to moonlight and figure out direct mail campaigns or other ways to find distressed properties that they can buy, rehab, refinance and get most or all of their cash back out effectively allowing them to recycle their cash and do it again and again. While I want to be that person on one hand, I must not want it bad enough because I haven’t figured it out yet. In some ways I think my higher income is a hinderance to my success because we can afford to buy right off MLS at or near full list price (or over if you read the Multiple Offers in a Pandemic Post) but when nothing comes up that we really want to pounce on, our cash sits.
We’ve been building a pretty good pile of cash since our last purchase in late March 2019, and we probably would have bought our 3rd house and maybe 4th by now but I heavily pursued a business purchase instead and that left me building up cash for that. Since that was put on pause we invested $24,000 in two years worth of IRA and ROTH IRAs and depleted some of our cash but still sit on a nice foundation and our rental income account grows every month as well. Thankfully our money sits in an Ally Online Savings Account and at least accrues higher interest which currently is 1.25% but we can do more with our money we just have to end this tug of war. I could probably take my cash and make a few all cash offers on different MLS listings ranging from $65,000-$80,000 by lowballing them and actually buy one deal off a few offers. Once I take possession and get it rented my lender will refinance us out of the deal immediately, it should appraise for what its worth and I’d get most of my cash back out if not all of it depending on the discount I received for paying all cash. That’s one way to recycle money that wasn’t in a position to do in early 2019 but we are now between cash savings, reserves and HELOC’s on our primary home and one of my rentals. This method should in theory produce pretty quick results, and again get most of my cash back out, producing a pretty high ROI or Cash on Cash Return. This may be the path we go, but not until I’ve finished the laundromat hunt on at lease the two deals I’m considering or pursuing. Seeing this tug of war?
I can’t do both buy cash, refi, and cash out while also trying to stack up cash to have what I need to pursue the purchase of a laundromat or other business purchase. Subconsciously I’ve set a goal that says “we’re doing SOMETHING this year”, which I think is ultimately leading me to hold my cash and keep trying to land the bigger fish of the laundromat opportunity or business purchase, while knowing in the back of my mind there will always be a deal in my other market that I can buy off MLS and at least say we did something this year. Heck, I’ll buy all cash if it only gets me a 5-10% discount which ultimately pays for the closing costs and I’ll get a lesson in the process while I’m at it. The more I think about this the more I think this resembles the marshmallow experiment which I’m sure you’ve either heard of or can google it for better accuracy but ultimately it comes down to an offer. Those running the experiment put a kid in a room by themselves and stick a marshmallow in front of them and tell them “you can eat this now, or if you wait x period of time I’ll come give you another”. I’m starting to understand those kids better than ever before. While buying a house all cash or even just traditionally and not recycling my cash will put us in a good spot and add somewhere between $225-350 a month in cashflow to our FI number, I know there’s another marshmallow waiting for me that comes with a cost of waiting if we don’t find it and take advantage.
The cost of waiting is multifaceted. I think psychologically might be the worst and most taxing part of the cost of waiting, I know my money can be working harder for me, but I know I can’t employ it in its highest and best use unless I hold it and wait. I’m a bit of a risk taker and like to gamble but I also will let logic stop me from what I’d like to do that would satisfy my desire to take action which would be to take my cash and stick it in a taxable brokerage account and invest it in a more stable index fund or something but realize that puts my principal at risk. I could ramp up my pre-tax 401k contributions to gain tax savings now, grow my long term savings account, invest it in something stable and safe and then borrow against it or when the opportunity I’m waiting for presents itself. The cost of waiting says my money gets to earn 1.25% in a savings account while we find the right deal to pull the trigger on, what I find interesting is the build up of cash to this point doesn’t bother me. I’m not itching to do the deal while the cash builds, I know it’ll get there and we’ll be able to pull the trigger when we get there. The problem is we are at the point where we could pull the trigger, we could probably buy two single family homes with traditional 20% down and then start rebuilding cash again to buy the next one in late 2020 or early 2021 but I think deep down inside I know I want to do something bigger.
While I know I’m arguing with myself, and I know the business purchase or laundromat can most likely bring me the largest return and make the biggest impact on our FI journey, it also seems so far away to accomplish or achieve that the single family houses that we know and understand are just so much easier and could be done deals closed and in our possession in like 40 days if I just went for it. Sometimes I find arguing with myself and writing it down to be the best solution to bring me to a decision and writing this post has achieved just that. I’m sticking with that internal goal of “we’re doing something this year” and will buy a house in 2020 if I haven’t found a laundromat to buy yet. I’ll buy ONE house so that I did something, and still have chunk of capital sitting on the side to keep pursing laundromat opportunities. If we exhaust our patience during the search or get into due diligence on a potential laundry and somehow determine the business just isn’t for us, then that’s fine, we love real estate and we’ll just buy two or three or four houses at that time and get this distraction out of our way.
The cost of waiting is a real thing, and at the time of this writing its probably cost me somewhere in the ballpark of $5-20k in net worth by purchasing a house at some level of discount, as well as monthly cash flow of at least $500 a month, maybe $700 a month depending on the bed/bath count of any purchases I saw, considered and passed on in pursuit of that second freaking marshmallow. In total, this probably has cost us $4,200 in cash in the bank, and the net worth mentioned above via discount and minimal mortgage pay down. For now, I can live with that, but as above, we’re doing something in 2020, my wife didn’t go back to work to build a pile of cash and watch it earn 1.25% interest. She went back to work so we could invest and accelerate our FI journey and increase our savings rate. We’ll find a way to deploy the capital, we always do!
No Comments