Theoretical Exercise: What can go wrong?...

[Broderick Graham]

Context:

As a new, bright-eyed, soon-to-be real estate investor in multi-family properties I want to be aggressive in building up a portfolio to where the rental income would allow me to step away from my full-time W2 job within the next few years. I also realize that I don't know what I don't know and that could hurt me. As a result, I want to lay out a scenario I hope to create (let's assume I can create the scenario below) and I am asking feedback on all of the things that could go wrong that I should anticipate/prepare for:

Scenario:

• 5 fourplex properties = 20 units (average $900/month rent) - Looking for cash flow not necessarily appreciation for these properties
• $1.5MM in investment property debt (Average purchase price $300K; Market Value $400K)
• $500,000 equity across properties (Average $100K)
• Loans: Conventional fixed rate or seller financing fixed rate
• Rental Income: $18,000
• Mortgage for all properties monthly: $10,000
• Cash Reserves on hand: $200,000 (separate from the equity in the properties)

Reason for Scenario: My purpose in stepping away from a full-time job would be to start ramping up flips to pay down the mortgages over time. The expectation would be that I can at least do 4 flips a year (average $30K) to cover our living expenses and let the rental income build up the cash reserves month-over-month for vacancy, repairs, capital expenditures, etc.; however it would be a safety net from month to month, if needed.

Request: I want to know any and all of the possible financial or other real estate investing issues that I might come up against that I need to be prepared for that could put me in a precarious financial situation.

So please, unload any and all possible events that would make this scenario something that would put my financial situation at risk.

Thanks for your time!

[Kelly DeWinter]

. An arsonist burns down your units before you insure them

. Asteroid strikes Canada depressing it's Maple Reserve stocks causing a global panic in maple syrup prices

. Trumps 20% corporate tax break causes Global Recession/Depression in 2020

. Trump is elected to a 2nd term

. Jared Kushner is appointed Fed Chairman

I'm just spitballing and saying investors NEED to start planning for a recession and a downturn in the market.

The issue facing Real Estate right now is property prices are high and most people when they buy at the top of the market, count  on appreciation for capital repairs. Your scenario doesn't answer improvements/capital repairs.

Seller financing is usually short term 3-5 years with a balloon note. be prepared for 1 or 2 properties to eat up your cash reserves in a recession

Rental occupancy and rates may decline in a recession