Overleveraged Advice Please Help

[Nathan Frost]

Hi, I was hesitant about writing this but want anyone out there that can help.  Please give me any tips or advice.  I rather sleep peacefully at night.  I could use the criticism and just want to not worry every month about vacancies, repairs, tenant not paying rent, etc. 

I have a portfolio of about 12 rental properties.  They all are rented but one.  However, what stresses me out and makes it hard to sleep at night is the 8 properties that are under 1 blanket loan.  Its a 7k payment that includes mortgage, taxes, and insurance.  Though, what I have noticed, is with 1 vacancy and especially 2 I am in the red and usually have to use my nest egg to get by for 2-3 months.  I did the blanket loan because I had too many repairs that piled up over the course of 2 years and so I refinance to pay all that debt off but now feel like my numbers are very tight.  I have 12 properties but only cash flow $2000-2200 and that's saying they are all rented with minimal repairs.  Which most of them have been fixed up by now to not have problems, but you know stuff will come up. My problem was every time I did a cash out refi or had 30-40k I would go buy another property to expand but never kept a nest egg.  Right now I only have a nest egg of about 25k.  When I think it should about around 60k.

Technically they cash flow $3000 if you take the $800 in property management off my monthly sheet.  But that would be difficult for me to manage as I have a day job.  I mean I could but I feel like that would be more headache than it is worth.  Ideally I feel like I should be cash flowing 3000-4500 which is about 350 a property or so.  I get upset at myself lately cause I have a really good credit score and am a numbers guy.  Just I have friends that have 2-3 STRs or LTRS and they cash flow around $2000-5000 on just 3 STRs.  I don't mind selling some but it stinks because with the refinance there is a sell off price with the new lender and that won't make me cash out much more likely break even.  Please give me any advice so that I can make sure I am moving in the right direction before it could possibly be a massive problem in 6 months if there were to be 2 vacancies or non payment of tenants.   Send me your email and I can send the portfolio.

1.Should I keep grinding it out and build some equity?  Pray no vacancies or repairs. 

2. Sell 4-5 properties (likely break even) and feel good about 5 strong properties that have minimal repairs?

3. Sell just 3 and buy a STR that could help the portfolio balance out with its cash flow?

4. Other option?

[Nathan Frost]

Quote from @Alfred Litton:

Hi Nathan,

I have 4 properties all in WF proper. I can tell you that now is NOT a great time to sell. I have one up for sale (2029 Gloria Ln), and it's cold as ice out there right now. Every realtor in town is talking about how things fell off a cliff in March.

If it were me, I'd probably sell the one in Holliday and the one in Iowa Park. You're going to find it very tough to sell single bath homes right now. I think the one you've got on Parklane and the Burkburnett properties are probably fine, but over time, you might want to cycle out of the others for the most part. Gonna be tough to tell right now, though, and I can sell you that from experience!

Agree.  Thing is might be force to sell if they cant stay steady.

Why Holliday and IP?  IP one I tried to but realtor/property manager says it won't meet the release price since tenant occupied.

These PMs low ball everything.

[Alfred Litton]

They're both just too far out of the city to get high demand from renters. Vacancies just persist too long. People would prefer to be in WF itself. Selling is tough there. Almost bought a property in IP in 2018 but glad I was outbid. I never invested in BB due to higher taxes.

Who's your PM? Mine used to be good but is really slipping now.

[Eric Friz]

First: humans are very bad at judging risk and people on this site are not immune from that.  In fact I think real estate investors tend to have the worst risk management advice of all investors - take note the number of people suggesting that you keep holding and putting money into this project that's causing you stress.  In what world is that even a rational suggestion - it's the equivalent of saying just close your eyes and everything is going to be okay!  Except for the cases where it doesn't end up that way... like if you were to keep putting money in to cover small things, you run out of cash on hand, and then get a couple bad tenants in who destroy something.  How are you going to pay for the repair if you run out of cash and the money coming in is less than the money going out?  Then you're going to be forced into selling properties, you'll have no cash (God forbid you owe more than what the property is worth) and you'll be hosed.  

If you're stressed about your properties then clearly you need to do something and there's only 2 options. You can stay in the game because you think things are going to work out or accept that you purchased a property at too high of a price and it's not flowing as you expect and get out from under it.  Take the L, save the stress, regroup and reset.  Don't throw all your money into something that's not guaranteed to work out

[Eric Friz]

Quote from @JD Martin:

 *Do not* buy more properties in an attempt to minimize cash flow issues. You will only be digging a bigger hole. In general, your acquisition of properties should never outrun your ability to put aside or access comfortable reserves to maintain those properties. If you follow any of the troubles syndications are having right now, that is a primary problem they're running into - their reserves and cash on hand are insufficient to both repair/maintain the existing properties and maintain required reserves for their debt financing. 

Selling good performers is also usually a losing strategy. Don't try to prop up poor performers by divesting good performers. If anything, you should be doing the opposite. 

Your first step is to really nail down why your portfolio homes are performing poorly. If their only problem is too much leverage (unlikely unless your lender let you borrow greater than 80% LTV), then you can probably fix that with what's on hand. If that's not the only problem, then your strategy should be to stabilize or sell the propert(ies) that are causing problems. This may require discussing breaking up the portfolio loan with your lender such that you can sell those parts dragging you down. This shouldn't be as complicated as it sounds as every home is going to have a separate lien filed against it for a specified amount of money.

EDIT: After reading all your other posts, a couple of other thoughts:

1. Don't do the HELOC. You don't have a portfolio that warrants adding more debt especially on your primary.

2. A couple of your portfolio homes look like they're upside down. No idea what they rent for but those would be good candidates to divest if you can cover the release. 

3. If you don't expect any appreciation or rent growth over the next 5 years then you have homes in some rough areas and should consider selling all of those homes. 

 This advice is spot on.

Why own houses when T-bonds will do better unless you like more work and stress for lower returns...

[Nathan Frost]

Quote from @Alfred Litton:

They're both just too far out of the city to get high demand from renters. Vacancies just persist too long. People would prefer to be in WF itself. Selling is tough there. Almost bought a property in IP in 2018 but glad I was outbid. I never invested in BB due to higher taxes.

Who's your PM? Mine used to be good but is really slipping now.

 IP is usually really good.  Great school district.

[Alfred Litton]

Quote from @Nathan Frost:

Quote from @Alfred Litton:

They're both just too far out of the city to get high demand from renters. Vacancies just persist too long. People would prefer to be in WF itself. Selling is tough there. Almost bought a property in IP in 2018 but glad I was outbid. I never invested in BB due to higher taxes.

Who's your PM? Mine used to be good but is really slipping now.

 IP is usually really good.  Great school district.

Can you tell me who you use for property management?
Yes, we like the town and schools. It's just that many want to be closer to shopping.

[Eric James]

Quote from @Henry Clark:

2.  Your in Texas, use that to your advantage..    
 
3.  If in Wichita Falls start a trailer park.  Rent the lots and not the homes.  No zoning in Texas counties.     

4.  Texas property tax sales. Buy the unlisted properties.  Pick nasty or strategic and flip.   Land only and not houses.  This is to get more cash around you.

 That's not the way TX tax sales work.

Also, while there is no zoning in TX counties there are regulations on developing trailer parks. 

[Michael Sloan]

@Nathan Frost

Keep grinding it out. You’re putting cash in your pocket every month and paying down your loan. Look at how much of your payment is going to principal every month

Hard pass on option 2. If your only going to break even you might as well keep them and continue to build equity

Option 4. Shop your insurance and protest your property tax valuation.

You could also pay down one of the loans and the ask your lender to reamortize the loan

[Henry Clark]

Quote from @Eric James:

Quote from @Henry Clark:

2.  Your in Texas, use that to your advantage..    
 
3.  If in Wichita Falls start a trailer park.  Rent the lots and not the homes.  No zoning in Texas counties.     

4.  Texas property tax sales. Buy the unlisted properties.  Pick nasty or strategic and flip.   Land only and not houses.  This is to get more cash around you.

 That's not the way TX tax sales work.

Also, while there is no zoning in TX counties there are regulations on developing trailer parks. 

 You go to the taxing authority.  Look up their tax properties that are unlisted or not put on. the auction. You write an offer letter.  They accept or not.  Don’t go through the auction process.  That is the way Texas tax sales for nonlisted non auction properties work.

Trailer parks are a good option for him if he chooses to go that path.  He is an investor he can check the steps.  And the majority of Texas counties dont have zoning.  

[Eric James]

If your "cash flow" estimate doesn't include vacancy, repairs, and cap ex then it isn't cash flow. Ignore the fantasy advice you're getting from some who don't know what they're talking about. Also ignore the cash flow claims of your friends with STRs. 

In East TX right now a lot of properties won't have positive cash flow if financed, which means they don't make good rentals. It sounds like that includes most of your properties. I was talking to my local loan officer the other day who said they are making zero loans on small rental properties right now because the numbers don't work on any of them. 

After all is considered it sounds like you have negative cash flow. If that's really the case you need to sell whatever is necessary to get to somewhat positive cash flow before you burn through your nest egg and start losing properties to foreclosure.

[Willie Robinson]

can you not do a STR on the vacant property that you have

[Nathan Frost]

Quote from @Michael Sloan:

@Nathan Frost

Keep grinding it out. You’re putting cash in your pocket every month and paying down your loan. Look at how much of your payment is going to principal every month

Hard pass on option 2. If your only going to break even you might as well keep them and continue to build equity

Option 4. Shop your insurance and protest your property tax valuation.

You could also pay down one of the loans and the ask your lender to reamortize the loan

 I agree with this just there are months where 1-2 can be vacant and that puts me at -1000 for that month.  Guess a good nest egg and that makes up for it up over time.

What you think if I get an All In One Heloc on my primary and use that as needed for vacancies etc.  It will create that big nest egg and over time it replenishes with cash flow.  Could really give me that cushion moving forward.

[Nathan Frost]

Quote from @Eric James:

If your "cash flow" estimate doesn't include vacancy, repairs, and cap ex then it isn't cash flow. Ignore the fantasy advice you're getting from some who don't know what they're talking about. Also ignore the cash flow claims of your friends with STRs. 

In East TX right now a lot of properties won't have positive cash flow if financed, which means they don't make good rentals. It sounds like that includes most of your properties. I was talking to my local loan officer the other day who said they are making zero loans on small rental properties right now because the numbers don't work on any of them. 

After all is considered it sounds like you have negative cash flow. If that's really the case you need to sell whatever is necessary to get to somewhat positive cash flow before you burn through your nest egg and start losing properties to foreclosure.

Agree.  But whats your thoughts of a business line of credit or All In One Heloc loan?  Use that as necessary.  Long term building equity.

[Eric James]

Quote from @Nathan Frost:

Quote from @Eric James:

If your "cash flow" estimate doesn't include vacancy, repairs, and cap ex then it isn't cash flow. Ignore the fantasy advice you're getting from some who don't know what they're talking about. Also ignore the cash flow claims of your friends with STRs. 

In East TX right now a lot of properties won't have positive cash flow if financed, which means they don't make good rentals. It sounds like that includes most of your properties. I was talking to my local loan officer the other day who said they are making zero loans on small rental properties right now because the numbers don't work on any of them. 

After all is considered it sounds like you have negative cash flow. If that's really the case you need to sell whatever is necessary to get to somewhat positive cash flow before you burn through your nest egg and start losing properties to foreclosure.

Agree.  But whats your thoughts of a business line of credit or All In One Heloc loan?  Use that as necessary.  Long term building equity.

 Unless it gets you to significantly positive cash flow you're eventually going to bleed cash until you fold. I focus more on building long term equity myself, but you need significant cash flow just to survive problems that will arise. It can also help you qualify for future financing (debt:income, coverage ratio).

[David Fern]

If you’re losing sleep over it, consider selling one. But not two or three. See if one moves the needle for your sleep and mental well-being. Losing sleep and the associated stress could negatively impact your personal and professional life… which could REALLY hurt your finances even more.

One of my golden rules is put your personal (physical, mental, emotional) health first. And everything else, including your finances, will be better off for it. 

All that to say, after reading several of the OP posts, I think the financially savvy move is to not sell. But given his mental frame of mind, I think he should sell one.

[Michael Sloan]

@Nathan Frost you’re talking about taking on more debt to provide a cushion.

You can obviously save money with your job. Otherwise you wouldn’t have a portfolio this big.

Self fund your reserves with savings and the cash flows

[Nathan Frost]

Quote from @Michael Sloan:

@Nathan Frost you’re talking about taking on more debt to provide a cushion.

You can obviously save money with your job. Otherwise you wouldn’t have a portfolio this big.

Self fund your reserves with savings and the cash flows

I get that but also a line of credit is like an emergency fund.  You can still cash flow without it.  But what happens when it is not in place and need it?  What if I were to sell 2 or 3 in the portfolio loan?  I could rehab them with a line of credit then sell them above the release price to prevent paying at closing.  I think that is smart.  Otherwise, without one I have to save up or hope they can sell above release price without the updates.

[Michael Sloan]

@Nathan Frost

If you take out the HELOC then you're putting your home on the line, even if it's just a backup. I'm not willing to do that with my house. Personal preference

[Nathan Frost]

Quote from @Michael Sloan:

@Nathan Frost

If you take out the HELOC then you're putting your home on the line, even if it's just a backup. I'm not willing to do that with my house. Personal preference

All In One Heloc?

Business Line of Credit?

[Nathan Frost]

Quote from @David Fern:

If you’re losing sleep over it, consider selling one. But not two or three. See if one moves the needle for your sleep and mental well-being. Losing sleep and the associated stress could negatively impact your personal and professional life… which could REALLY hurt your finances even more.

One of my golden rules is put your personal (physical, mental, emotional) health first. And everything else, including your finances, will be better off for it. 

All that to say, after reading several of the OP posts, I think the financially savvy move is to not sell. But given his mental frame of mind, I think he should sell one.

I mean it might not be as bad as I think.  I have 12, 1 vacant.  Selling 3.  Its just that big blanket loan stresses me out.  Lender said this.

The pre-payment is a 5-year stepdown (so 5% if paid off in the first year, 4% in the second, 1% in year 5, etc.)

The release prices don’t go down at any point. I believe it’s set up with the general idea that the values would go up throughout the life of the loan.

Was told to tell the property managers not take out any repairs over $300 from rent and to ask me and I can put them on a business cc. Then just pay it off monrhly from cash flow.

[Anil Dham]

@Nathan Frost

Sell your worst 2 or 3 properties that you expect will be the biggest headaches and the ones you can live without. Reduce your debt load or sock away the savings into reserves.

Better to own your best 6 to 8 places then 12 that are not performing at the level you want

[Nathan Frost]

Quote from @Anil Dham:

@Nathan Frost

Sell your worst 2 or 3 properties that you expect will be the biggest headaches and the ones you can live without. Reduce your debt load or sock away the savings into reserves.

Better to own your best 6 to 8 places then 12 that are not performing at the level you want

 Easier said then done.  They are tenant occupied.  Look below.  Left side is what agent said could get but I think if non tenant occupied could get more.

1206 Bishop $82k / Release Price $79,800
1710 Collins $89k / Release Price $78,960
1215 Bishop $89k / Release Price $79,800
1217 Bishop $99k / Release Price $131,880
2904 Pennsylvania $99k / Release Price $100,800

[James Hamling]

Quote from @Nathan Frost:

Quote from @Michael Sloan:

@Nathan Frost you’re talking about taking on more debt to provide a cushion.

You can obviously save money with your job. Otherwise you wouldn’t have a portfolio this big.

Self fund your reserves with savings and the cash flows

I get that but also a line of credit is like an emergency fund.  You can still cash flow without it.  But what happens when it is not in place and need it?  What if I were to sell 2 or 3 in the portfolio loan?  I could rehab them with a line of credit then sell them above the release price to prevent paying at closing.  I think that is smart.  Otherwise, without one I have to save up or hope they can sell above release price without the updates.

I don't get it. 

Why did you buy all these properties and ramp up so quickly just to freak out over what-if, what-if, what-if?....... 

You clearly were on an acquisition BLITZ. Did you honestly expect a moon-shot of rents or appreciation within months?    The first 1-4yr is the grind-time. 

If your thinking sell a few and like magic what's left turns great, your delusional. You'll have same issue but at a different portfolio size, that's it. You've been pretty clear that ALL of your properties are "meah" performers.     

I get the feeling that you already made your decision and did this whole post just looking for validation. 

NO, borrowing more $ is DUMB! Taking out MORE debt, with MORE cost of debt is like saying you got 2nd degree burn so let's go to the beach.... 

The cheapest bail-out $ is a PARTNER, not loans. Selling 10% equity stake in portfolio injects cash at 0% rate, right. No, not ideal but your talking "what-if" for worst case scenarios, well there ya go. 

And don't be dumb DON'T sell em with tenant in, wait for move-out THEN sell em to get FULL retail, that's just simple basic stuff, i don't know why I have to call out the blatantly obvious. 

At this point Nathan, I have a pretty good felling that your NOT cut-out to be a landlord and arguably, should sell 100% of your portfolio. Yup, do it smart, as tenant's vacate, but I think your in the WRONG segment of REI. If something this simple and NON-panic is panicking you to loose sleep, your int he wrong business bud.

And that's ok. Landlording is NOT the only way to REI, not by a long shot. Maybe mini-storage is more your flavor, or maybe being a private $ lender, or, or, or.......

[Jassem A.]

Manage them yourself, go to court yourself and fix them yourself and/or use a cheap handyman. Next time do a lease option that doesn't include maintenance and try and make the tenant-buyer responsible for the repairs. You will probably still be required to provide maintenance at the end of the day most likely but it should relieve some of the burden because they understand your intentions going into the deal.

[Jay Hinrichs]

Quote from @Jassem A.:

Manage them yourself, go to court yourself and fix them yourself and/or use a cheap handyman. Next time do a lease option that doesn't include maintenance and try and make the tenant-buyer responsible for the repairs. You will probably still be required to provide maintenance at the end of the day most likely but it should relieve some of the burden because they understand your intentions going into the deal.

lease options in Texas dont work the same way as in other states.  there is that.