What Can I do in 2023 to Keep Investing

[Vlad B.]

Hi BP Community, I need some feedback. Currently, I have B & C properties, 8 doors and 2 renters are struggling to pay rent and a vacancy. I've used up all reserves in 2022 for the vacancy, maintenance, and late rent. My HELOC is maxed out and we can't save any cash as we spent it on the mortgages in 2022. My wife and I work full-time jobs and I took on other work to subsidize the mortgage losses. I'm an out of state investor in KCMO market.

What can I do in 2023 to continue investing?

[Larry Turowski]

@Vlad B.Keep investing? If you keep investing like that you’ll go bankrupt. You are over leveraged. You need evict non-payers, fill the vacancy, and sell one or more of the properties to shore up your finances. And then reevaluate. You should not have two non-payers and a lingering vacancy out of 8 units in b/c areas. 

[Kevin Sobilo]

@Vlad B., I agree with @Larry Turowski. You need to get a hold on managing what investments you have. I could understand 1 problem unit out of 8, but right now you have 3.

With 8 units your hard expenses should only be around 55-65% of what you bring in. Another 15% should be budgeted for maintenance, cap ex and vacancy and the rest is your profit. If you are a sinking ship like it sounds you aren't near that. Figure out what would need to change to get to this situation and then work backwards from that to see how you can make it happen? Refinance properties to stretch out payments? Boot tenants and do upgrades to boost rents? Simply raising rents? Adding features that justify raising rents like adding washers/dryers? Adding locked storage spaces at an extra cost? Adding fees for things like pets? Lots of ways to change your approach. 

[Vlad B.]

Quote from @Larry Turowski:

@Vlad B.Keep investing? If you keep investing like that you’ll go bankrupt. You are over leveraged. You need evict non-payers, fill the vacancy, and sell one or more of the properties to shore up your finances. And then reevaluate. You should not have two non-payers and a lingering vacancy out of 8 units in b/c areas. 

Larry, 2022 was full of many failures. This is my second year of owning properties. Last year was a cash cow 29% COC Returns. The problem property in C area is sub 4% loan from 2020. It grew 90% and I put it on the market while in transition from a bad PM, hence issues. When I put it on the market someone complained with MLS that I didn't have showing times and my realtor took the listing down. The PM transition took from October to November and my new PM told me what's going on with my units that my previous PM wasn't communicating.

Vacancy & the other delinquent unit is in a 4plex that was purchased in August. It's been delayed due to poor PM.

[Jay Hinrichs]

sounds like temporary issues that should correct themselves..  but it is a cautionary tale for investors not to get over their ski tips and

have more reserves than you might think you need. 

[Jonathan R McLaughlin]

@Vlad B. ok not to kick you when you are down, but a few problems...and a suggested solution:

"someone complained on MLS about no showing times?" who cares? This makes no sense and something is off.

interest rates from august are 2.5% less. This time period is the pivot. Most if not all of that run up in value is gone or was never really there.

That HELOC could be a bomb if you are already cash struggling....most reset and that could mess up DTI

There is no such thing as a "B/C" property, its one or the other each with their specific challenges and best practices. I worry that your casual way of combining them indicates a real blind spot in your approach, especially from out of state.

Sell the property with less upside in the spring market, using the time from now to March to get things up to speed and tenant issues fixed. use the cash to get the HELOC paid off/down. You likely wont have much of a tax issue given the losses.

If you think this is all temporary and you can weather this period ignore the above. But know you will spend a little more money and stressful time till it gets better.

Retrench to fight again, this is not the worst that could happen but its time to get ahead of it.

Good luck.

[Scott Esmail]

Get what you have stabilized and making money and get some money in the bank as back up work when people fail to pay. Then re focus your efforts on getting more doors. If you don't get what you got working well then how will you be able to afford more ? Also you may need to pivot a bit somehow in what your buying so that the new property works better so take your time figuring out what works and does not before buying. I own a-lot of properties and even though sometime i don't like it I have to stop buying stablize for a few months what, sell a few problem properties if needed and then start again. This prevents you losing everything you worked for so far. Its tough right now to buy prices are still high and interest rates still high so good time to look at ur current properties and do what is needed to be successful. Don't chase doors focus on what you have being stable. C properties are hard to manage and make money once you get better properties you can rely more on the tenant to pay and on time. I have sold all my C properties and very happy with that. This is just my 2 cents and could be wrong I often am about most thing.

[Vlad B.]

Quote from @Jonathan R McLaughlin:

@Vlad B. ok not to kick you when you are down, but a few problems...and a suggested solution:

"someone complained on MLS about no showing times?" who cares? This makes no sense and something is off.

interest rates from august are 2.5% less. This time period is the pivot. Most if not all of that run up in value is gone or was never really there.

That HELOC could be a bomb if you are already cash struggling....most reset and that could mess up DTI

There is no such thing as a "B/C" property, its one or the other each with their specific challenges and best practices. I worry that your casual way of combining them indicates a real blind spot in your approach, especially from out of state.

Sell the property with less upside in the spring market, using the time from now to March to get things up to speed and tenant issues fixed. use the cash to get the HELOC paid off/down. You likely wont have much of a tax issue given the losses.

If you think this is all temporary and you can weather this period ignore the above. But know you will spend a little more money and stressful time till it gets better.

Retrench to fight again, this is not the worst that could happen but its time to get ahead of it.

Good luck.

The complaint was going to cost my realtor $1K from MLS and they are not willing to put it up again due to this issue. She's never heard of this problem before...so this was a stick in my spokes. My realtor doesn't have $1K so they're not re-posting. Now the price has gone down 35K or so and I'm willing to wait it out.

Correction: 1 C property and 2 B properties. 

HELOC is a problem because it's a balloon that has gone up with interest rate. I thought I would sell the property and use the money to remove the HELOC and use the rest to invest, but that didn't happen due to the complaint.

I'm seeing mixed reviews from the BP community between sell and hold. The tenants are having issues paying and are signing up to get help from the state. I'm giving them a week, proof they submitted the paperwork, or they are out. I don't have enough information on my tenants to move forward YET.

But there is a feeling of missing out on the opportunity to buy in 2023!

[Jay Hinrichs]

Quote from @Vlad B.:

Quote from @Jonathan R McLaughlin:

@Vlad B. ok not to kick you when you are down, but a few problems...and a suggested solution:

"someone complained on MLS about no showing times?" who cares? This makes no sense and something is off.

interest rates from august are 2.5% less. This time period is the pivot. Most if not all of that run up in value is gone or was never really there.

That HELOC could be a bomb if you are already cash struggling....most reset and that could mess up DTI

There is no such thing as a "B/C" property, its one or the other each with their specific challenges and best practices. I worry that your casual way of combining them indicates a real blind spot in your approach, especially from out of state.

Sell the property with less upside in the spring market, using the time from now to March to get things up to speed and tenant issues fixed. use the cash to get the HELOC paid off/down. You likely wont have much of a tax issue given the losses.

If you think this is all temporary and you can weather this period ignore the above. But know you will spend a little more money and stressful time till it gets better.

Retrench to fight again, this is not the worst that could happen but its time to get ahead of it.

Good luck.

The complaint was going to cost my realtor $1K from MLS and they are not willing to put it up again due to this issue. She's never heard of this problem before...so this was a stick in my spokes. My realtor doesn't have $1K so they're not re-posting. Now the price has gone down 35K or so and I'm willing to wait it out.

Correction: 1 C property and 2 B properties. 

HELOC is a problem because it's a balloon that has gone up with interest rate. I thought I would sell the property and use the money to remove the HELOC and use the rest to invest, but that didn't happen due to the complaint.

I'm seeing mixed reviews from the BP community between sell and hold. The tenants are having issues paying and are signing up to get help from the state. I'm giving them a week, proof they submitted the paperwork, or they are out. I don't have enough information on my tenants to move forward YET.

But there is a feeling of missing out on the opportunity to buy in 2023!

geesh get a new realtor I have to think this realtor has done worse things to be fined by MLS.. MLS does not fine agents unless they are habitual offenders they will warn them first..

[Jonathan R McLaughlin]

@Vlad B.thanks for the details. That is a shocker about the lack of listing times I"m curious what other agents on the board think. I''ve seen plenty of the public MLS not having times...sorry you had to run across it this time. I think I"d get rid of the realtor and go with someone else, yes?

Regardless of your ultimate decision no point in listing this second, you are just asking for a big haircut. Wait for spring, get tenant stuff stabilized. 

One thing, if you do wind up with tenants not able to pay, your priority will be to get them out before getting money from them....not saying you shouldn't try but if push comes to shove make sure they are gone. protracted fight can hurt you more than them right now.

Getting rid of the Heloc would be a big win, even if you take a small loss now. Live to fight and all that. With 2 Bs I'd look to unload the C but YMMV. Again, good luck

Again, good luck.

[V.G Jason]

Quote from @Vlad B.:

Hi BP Community, I need some feedback. Currently, I have B & C properties, 8 doors and 2 renters are struggling to pay rent and a vacancy. I've used up all reserves in 2022 for the vacancy, maintenance, and late rent. My HELOC is maxed out and we can't save any cash as we spent it on the mortgages in 2022. My wife and I work full-time jobs and I took on other work to subsidize the mortgage losses. I'm an out of state investor in KCMO market.

What can I do in 2023 to continue investing?

Unfortunately, you just got too deep in it. I'd sell 25-33% of your properties or more to get yourself situated with cash. If that's 2-3-4 properties whatever it is, get cash for the following:

1) Eliminate all debt outside of your mortgage
2) Reserve 6 months of expenses + $10k-$12k for capex for each property
3) Then if you have cash after that, hold it for now until your head is above water than re-invest. 

You're courageous for putting this out there.

[Eliott Elias]

Sell property via owner finance rather than renting out. There is a demand for housing for people who can't qualify for a loan 

[V.G Jason]

If they can't qualify for a loan, why would you qualify them for a loan?

I imagine it's case by case, but basic logic would tell you something is up.

[James Mc Ree]

I agree with everything above. You have a 911 on your hands and the last thing you should be thinking of is adding to your sinking ship is more ballast.

Looking ahead to 2023 if you must.... From here well into 2023 is likely to be a time of generally declining prices due to higher interest rates and increasing supply. It takes about 9 months for a Fed interest rate change to have its full effect. The first one was in March, so we are just starting to feel the impact of the multiple increases hitting the market now - and they're still coming! You may see properties up to 10% cheaper in Q3 2023 than comparables now.

Focus on fixing your cash flow now and WATCH your target markets until your current portfolio is stabilized and you have built that 6 month reserve @V.G Jason mentioned. It's very important and often not given the credit it's due until you are in a situation like you describe.

[V.G Jason]

Quote from @James Mc Ree:

I agree with everything above. You have a 911 on your hands and the last thing you should be thinking of is adding to your sinking ship is more ballast.

Looking ahead to 2023 if you must.... From here well into 2023 is likely to be a time of generally declining prices due to higher interest rates and increasing supply. It takes about 9 months for a Fed interest rate change to have its full effect. The first one was in March, so we are just starting to feel the impact of the multiple increases hitting the market now - and they're still coming! You may see properties up to 10% cheaper in Q3 2023 than comparables now.

Focus on fixing your cash flow now and WATCH your target markets until your current portfolio is stabilized and you have built that 6 month reserve @V.G Jason mentioned. It's very important and often not given the credit it's due until you are in a situation like you describe.

It's cause you can't measure risk really in real estate. You're backs already against a corner when it's too late. It's super illiquid and you're going to get caught on the fall. When one tenant can't pay rent due to unemployment, and you have 10 tenants you're likely going to catch a few more. And you slowly will lose liquidity, while everyone around you is too. This over-leveraged philosophy is preached hard on here. Each to their own on the risk tolerance, another post I was on mentioned something like this. Wait till the people over leveraged are dry, and I haven't heard or seen much of this, so this is the first. I imagine a lot more coming in 2023. At the same time, if they're able to hodl past 2023 we'll just see 2023 be a very, very low period turnover of homes.

This is like the advice to leverage against your equity portfolio to "catch" the fall on real estate. You'll get caught on the fall too in equities and be pressed for margin. But people recommend that here and seek the advice.

[Vlad B.]

Quote from @James Mc Ree:

I agree with everything above. You have a 911 on your hands and the last thing you should be thinking of is adding to your sinking ship is more ballast.

Looking ahead to 2023 if you must.... From here well into 2023 is likely to be a time of generally declining prices due to higher interest rates and increasing supply. It takes about 9 months for a Fed interest rate change to have its full effect. The first one was in March, so we are just starting to feel the impact of the multiple increases hitting the market now - and they're still coming! You may see properties up to 10% cheaper in Q3 2023 than comparables now.

Focus on fixing your cash flow now and WATCH your target markets until your current portfolio is stabilized and you have built that 6 month reserve @V.G Jason mentioned. It's very important and often not given the credit it's due until you are in a situation like you describe.

My goal for 2023 is to build reserves and stabilize rents so collection rates are higher. I have started on this path with the new PM.  
I really like the point that the market is 9 months behind so there is time to stabilize, save up cash, and then make the potential investment later next year. This I didn't know so thank you @James Mc Ree!
I made a horrific rookie mistake of taking out the cash I made in year 1 from my rentals and not having any reserves. 
I'm not selling my property or doing owner financing. There is a lot of upside in the area with KCMO investing billions in transport, World Cup in 2026, and Royals moving into the area. 

[V.G Jason]

Quote from @Vlad B.:

Quote from @James Mc Ree:

I agree with everything above. You have a 911 on your hands and the last thing you should be thinking of is adding to your sinking ship is more ballast.

Looking ahead to 2023 if you must.... From here well into 2023 is likely to be a time of generally declining prices due to higher interest rates and increasing supply. It takes about 9 months for a Fed interest rate change to have its full effect. The first one was in March, so we are just starting to feel the impact of the multiple increases hitting the market now - and they're still coming! You may see properties up to 10% cheaper in Q3 2023 than comparables now.

Focus on fixing your cash flow now and WATCH your target markets until your current portfolio is stabilized and you have built that 6 month reserve @V.G Jason mentioned. It's very important and often not given the credit it's due until you are in a situation like you describe.

My goal for 2023 is to build reserves and stabilize rents so collection rates are higher. I have started on this path with the new PM.  
I really like the point that the market is 9 months behind so there is time to stabilize, save up cash, and then make the potential investment later next year. This I didn't know so thank you @James Mc Ree!
I made a horrific rookie mistake of taking out the cash I made in year 1 from my rentals and not having any reserves. 
I'm not selling my property or doing owner financing. There is a lot of upside in the area with KCMO investing billions in transport, World Cup in 2026, and Royals moving into the area. 

Good call.

Cash will always bail you out. Being over leveraged is a common theme here, and really in the country. Cash is always a crunch, unless you never let it become one. Yes, you lose opportunity cost but you also lose it if you're over leveraged. I haven't seen anyone super leveraged last 2 recessionary cycles. Nobody personally. It's the best advice I got from my lawyer when creating my companies.

[Kerry Noble Jr]

Definitely evict and sell a property to get your cash reserves stabilized

[Caleb Brown]

Happy to chat. What areas of KC are your properties in? I would keep plugging along. You could sell and reinvest or wait to 1031. KCMO has been growing like crazy and it will continue. 

[Marie Grabo]

Quote from @Vlad B.:

Hi BP Community, I need some feedback. Currently, I have B & C properties, 8 doors and 2 renters are struggling to pay rent and a vacancy. I've used up all reserves in 2022 for the vacancy, maintenance, and late rent. My HELOC is maxed out and we can't save any cash as we spent it on the mortgages in 2022. My wife and I work full-time jobs and I took on other work to subsidize the mortgage losses. I'm an out of state investor in KCMO market.

What can I do in 2023 to continue investing?

Could you Airbnb the vacancy?

[William Powell]

Quote from @Kevin Sobilo:

@Vlad B., I agree with @Larry Turowski. You need to get a hold on managing what investments you have. I could understand 1 problem unit out of 8, but right now you have 3.

With 8 units your hard expenses should only be around 55-65% of what you bring in. Another 15% should be budgeted for maintenance, cap ex and vacancy and the rest is your profit. If you are a sinking ship like it sounds you aren't near that. Figure out what would need to change to get to this situation and then work backwards from that to see how you can make it happen? Refinance properties to stretch out payments? Boot tenants and do upgrades to boost rents? Simply raising rents? Adding features that justify raising rents like adding washers/dryers? Adding locked storage spaces at an extra cost? Adding fees for things like pets? Lots of ways to change your approach. 

 I've been tossing around the locked storage spots idea at my apartments for extra cash for about 6 months now. Good to hear someone has already thought of it and made it work. Thanks Kevin