What's the Worst That Can Happen?

Brian and his wife want to do a live-in flip real estate purchase. They would rent the basement out to help make the mortgage payments. Dave advises against this deal.

QUESTION: Brian in Nashville and his wife want to do a live-in flip real estate purchase. They would rent the basement out to help make the mortgage payments. Dave advises against doing this deal because everything has to go right to make it work.

ANSWER: What you have to do when you are doing an analysis in business is you have to figure out your worst-case scenarios and determine if you can survive those. The worst thing is that this house can’t sell and you can’t get a renter. That puts your family in jeopardy. So this is not a deal.

You have to be able to survive the worst-case scenarios. I’m not predicting earthquakes or some rare things. To not sell a house and not get a renter is not a rare scenario. In the normal course of business, these are things that happen to people all the time. I think you’ve got house fever, so if I were you, I’d take a cold shower and look for a different deal.

If you and your wife are willing to accept a skin-of-your-teeth scenario, and you are willing to deliver pizzas at night to pay the house payment and you can make do, then that’s your worst-case scenario. If you can survive that, then it may be a play. But I don’t like putting myself intentionally into a skin-of-my-teeth position. I don’t want to be that much on the edge if I can avoid it.

When I wore a younger man’s clothes, I was willing to do stuff and ignore the risk meter. I’m not willing to do that now. But putting yourself into a situation where you will be bankrupt or foreclosed on makes it not worth it.

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