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?

[JD Martin]

Quote from @Nathan Frost:

Quote from @JD Martin:

Without knowing what kind of portfolio you have it's difficult to give any good advice. 

It sounds like you need either higher rents or lower costs. Aside from ditching the property manager, and evaluating your rents to be sure they are set at market rates, you can either build larger reserves (say from your day job) or pay down notes on the properties not in the portfolio loan. 

If you have $2k cash flow every month, and a job that pays all your bills, you should be socking all that money away into reserves until you are comfortable with your reserve levels. 

 Agree.  Probably won't ditch the property manager due to day job.  Just wonder if holding reserves is smart or to buy 1-2 more to offset the low cash flow.  Tempted to sell 2-3 to be good not sure.

 *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. 

[Sunil Kapoor]

Just curious of what others think of this Plan B option.  Since these properties are on the low-mid price range, and buyers of these properties might have below average credit, would selling these properties using seller financing be a good exit?  In this regard, you will still own the note, get payments monthly, and likely a higher selling price?  Has anyone used this strategy to exit from LTR properties?

[JD Martin]

Quote from @Sunil Kapoor:

Just curious of what others think of this Plan B option.  Since these properties are on the low-mid price range, and buyers of these properties might have below average credit, would selling these properties using seller financing be a good exit?  In this regard, you will still own the note, get payments monthly, and likely a higher selling price?  Has anyone used this strategy to exit from LTR properties?

 He doesn't have anything to sell using owner financing; the properties already have notes in place. He would have to something like a sub-to deal. This isn't really beneficial for the seller unless S/he can't make the payments any more and believe someone else can/will make the payments, because they are still on the hook for the mortgage. Their lender will likely call the note once they realize what's occurring. 

[Sunil Kapoor]

Quote from @JD Martin:

Quote from @Sunil Kapoor:

Just curious of what others think of this Plan B option.  Since these properties are on the low-mid price range, and buyers of these properties might have below average credit, would selling these properties using seller financing be a good exit?  In this regard, you will still own the note, get payments monthly, and likely a higher selling price?  Has anyone used this strategy to exit from LTR properties?

 He doesn't have anything to sell using owner financing; the properties already have notes in place. He would have to something like a sub-to deal. This isn't really beneficial for the seller unless S/he can't make the payments any more and believe someone else can/will make the payments, because they are still on the hook for the mortgage. Their lender will likely call the note once they realize what's occurring. 

Yep, totally forgot about that fact that the houses still have loans on them. 

[Marc Winter]

You have pages of good tips and advice above.  You'll come to your own conclusions, and take the action needed.

Just make sure to analyze this situation to understand it and you'll know how to avoid it going forward.

Investing in real estate: think long term.

[Chris Seveney]

I am curious if there is more to the story as you mention they should Chad flow X.

How long have you owned these ? What are the T-12. People who buy lower class properties tend to get a false sense of security like those in a bad marriage that “oh it will get better”, typically it does not and they are overly optimistic.

$25,000 reserves for 10+ properties is a recipe for disaster, especially in Lower income areas.

It sounds like unless you maintain close to 100% occupancy and have little to no expenses (all unrealistic) these are great

Buying more assets will only dig you a deeper hole - right now I would say you are drowning and not even knowing it.

I would liquidate 1/2 that portfolio.

[Nathan Frost]

Quote from @JD Martin:

Quote from @Nathan Frost:

Quote from @JD Martin:

Without knowing what kind of portfolio you have it's difficult to give any good advice. 

It sounds like you need either higher rents or lower costs. Aside from ditching the property manager, and evaluating your rents to be sure they are set at market rates, you can either build larger reserves (say from your day job) or pay down notes on the properties not in the portfolio loan. 

If you have $2k cash flow every month, and a job that pays all your bills, you should be socking all that money away into reserves until you are comfortable with your reserve levels. 

 Agree.  Probably won't ditch the property manager due to day job.  Just wonder if holding reserves is smart or to buy 1-2 more to offset the low cash flow.  Tempted to sell 2-3 to be good not sure.

 *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 is pretty accurate.  I am not doing the HELOC and can't.  What about an All In On?

I dont think their upside down its just I did this portfolio to pay off debt when I probably should of just sold 2-3 and never did the portfolio loan.

I think I could sell 3 or 4 and cover the release price.  My thought is see what updates I can do to drive the ARV high on them and sell them.  Hardest part is they are all tenant occupied.

[Michael Smythe]

Real estate is a long-term, wealth-building investment.

Too many are trying to turn it into a cashflow game to quit their day jobs.

If you can deal with that, try to hold on and tough it out.

Other options:

1) See if you can wholesale a property to fund your Reserves

2) You could do the same thing with a Flip

3) Perhaps explore converting one of your properties into an STR to generate more cashflow

[Michael S.]

@Nathan Frost - there is a lot of solid advice already on this thread.  

I would definitely not buy additional houses right now when the properties you own are already giving you sleepless nights. 

Of your properties, are any of them in A or B neighborhoods that at least break even after property manager expenses, insurance, property taxes, and capex?  Those are the properties you should definitely keep when you decide on properties to sell.  A and B will typically have more potential for appreciation and solid renters.  Obviously, if you own anything in an upcoming area or transitional area, best to keep those as well so long as they are even or better.  Good luck.  

[Jeff S.]

@Nathan Frost  Hardest part is they are all tenant occupied.

Now they are all occupied just sit back and relax a little. You can accumulate some cash just be patient and stop spending and buying. When one becomes vacant analyze it and see if rehabbing it would make you a profit to sell or maybe selling as is to get out from under if it is a loser overall.

[Nathan Frost]

Quote from @Michael S.:

@Nathan Frost - there is a lot of solid advice already on this thread.  

I would definitely not buy additional houses right now when the properties you own are already giving you sleepless nights. 

Of your properties, are any of them in A or B neighborhoods that at least break even after property manager expenses, insurance, property taxes, and capex?  Those are the properties you should definitely keep when you decide on properties to sell.  A and B will typically have more potential for appreciation and solid renters.  Obviously, if you own anything in an upcoming area or transitional area, best to keep those as well so long as they are even or better.  Good luck.   

All of them are rented.  Its just out of the ten eight are in a portfolio loan and practically break even with the portfolio loan.  The loan covers taxes and insurance.  Thing is, once one goes vacant or a repair is needed I pay out of pocket a little bit.  Most of the repairs I did in the last two years so hopefully it should be minimal moving forward, but things still come up.  I can literally get through 6-8 months currently I just don't think it is long term sustainable (I understand this).  See below.  Which should I sell?  I am more so trying to figure out, with the help of others, how to fix the issue.  I think selling 3-4 is a starting place then ride with the very good ones.  Its just trying to find a way to cover the release price.  The realtors will say the appraisal value is not attainable since tenant occupied.  Green are keepers.

[Nathan Frost]

Quote from @Jeff S.:

@Nathan Frost  Hardest part is they are all tenant occupied.

Now they are all occupied just sit back and relax a little. You can accumulate some cash just be patient and stop spending and buying. When one becomes vacant analyze it and see if rehabbing it would make you a profit to sell or maybe selling as is to get out from under if it is a loser overall.

This is a good point.  I think its just the mental aspect.  I think I could ride it for 1-2 years and see how it goes.  Analyze as each month.

[Marcus Auerbach]

Correct, before you sell treat it like a flip. Clean, paint and make the really necessary repairs that would offend a first-time home buyer.

Let me give it to you straight. You have two issues here. One is your financial model and the other one is your personal stress level. You have to keep those separate! Money and emotions don't mix well.

If you own quality assets then you can just let them run at break-even, reinvest the cash flow into repairs and improvements and let time do its magic. I disagree with the notion that real estate needs to cash flow, otherwise, it's a bad investment. That is an overly simplistic view. And if you have to supplement a little from W2 there is nothing wrong with that too - you are improving your assets.

But it hinges on asset quality. If your portfolio is in a downward spiral on condition and value and you are not generating enough cash flow to stabilize and change the trajectory, you are in a losing battle and things get worse over time.

About your stress level. 

The whole point of investing is to enjoy your life more, not less!

REI is a long term play, think decades. If it stresses you out, it's not worth it. You'll never get those years back. There is nothing wrong with investing in an S&P500 index and enjoying your life.

Perhaps it's best if you ditch the whole portfolio, maybe only half. Work with your lender how to do that, so you can sell them retail one by one - not to another investor (for a discount). If you keep half, keep the ones that have the best long-term outlook.

[Henry Clark]

Your byline says Wichita Falls but your topic line at the bottom says Lubbock.  Where are your investments?  I love Lubbock Longterm.  Don’t like Wichita Falls.  But each will work with different strategies. 

You might try different strategies:  Don't answer.

1. You have equity in your house. Sell it as a primary 2/5 years no taxes. Move into one of your other units you can get the most value from an ADU or BRRR then 2/5 it. Depends on your family situation. Job and

Home location do they need to be close?  Etc.

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.

5.  Map out your end game or expectations. See which path will get you there and the resources needed.  

[Nathan Frost]

Quote from @Henry Clark:

Your byline says Wichita Falls but your topic line at the bottom says Lubbock.  Where are your investments?  I love Lubbock Longterm.  Don’t like Wichita Falls.  But each will work with different strategies. 

You might try different strategies:  Don't answer.

1. You have equity in your house. Sell it as a primary 2/5 years no taxes. Move into one of your other units you can get the most value from an ADU or BRRR then 2/5 it. Depends on your family situation. Job and

Home location do they need to be close?  Etc.

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.

5.  Map out your end game or expectations. See which path will get you there and the resources needed.  

 Their all in the Wichita Falls area.  So just rent steady and not much appreciation.

[Henry Clark]

Quote from @Nathan Frost:

Quote from @Henry Clark:

Your byline says Wichita Falls but your topic line at the bottom says Lubbock.  Where are your investments?  I love Lubbock Longterm.  Don’t like Wichita Falls.  But each will work with different strategies. 

You might try different strategies:  Don't answer.

1. You have equity in your house. Sell it as a primary 2/5 years no taxes. Move into one of your other units you can get the most value from an ADU or BRRR then 2/5 it. Depends on your family situation. Job and

Home location do they need to be close?  Etc.

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.

5.  Map out your end game or expectations. See which path will get you there and the resources needed.  

 Their all in the Wichita Falls area.  So just rent steady and not much appreciation.

Evaluate your Longterm goals. Then map out an REI strategy that will get you there. In Wichita Falls I would be looking at trailer parks. You don't want to own the trailers. Use the hard REI investing environment to your advantage. People will be pushed downward to lower cost housing for years to come.

[Nathan Frost]

Quote from @Henry Clark:

Quote from @Nathan Frost:

Quote from @Henry Clark:

Your byline says Wichita Falls but your topic line at the bottom says Lubbock.  Where are your investments?  I love Lubbock Longterm.  Don’t like Wichita Falls.  But each will work with different strategies. 

You might try different strategies:  Don't answer.

1. You have equity in your house. Sell it as a primary 2/5 years no taxes. Move into one of your other units you can get the most value from an ADU or BRRR then 2/5 it. Depends on your family situation. Job and

Home location do they need to be close?  Etc.

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.

5.  Map out your end game or expectations. See which path will get you there and the resources needed.  

 Their all in the Wichita Falls area.  So just rent steady and not much appreciation.

Evaluate your Longterm goals. Then map out an REI strategy that will get you there. In Wichita Falls I would be looking at trailer parks. You don't want to own the trailers. Use the hard REI investing environment to your advantage. People will be pushed downward to lower cost housing for years to come.

 Agree can you tell me how the land works?  Where to look?

[Henry Clark]

First determine your goals. Then find your REI strategy that fits your goals.

You literally could be at the end of your learning process in your current investment type.  Or if you make a scale template might find you need 50 doors to get there and you have to add team members.  

If you go the mobile home park route you have about 3 months of forging in info and
 doing many deal analysis.

If you’re going to do the property tax sales as a cash snowball you need to start googling and learning.

AnotherO poster in Lubbock wanted a specific type of property.  I looked at loopnet and one had been on the market for a while and was priced for what it is versus what it could be.  Determine your strategy first. 

[Jay Hinrichs]

Quote from @JD Martin:

Quote from @Sunil Kapoor:

Just curious of what others think of this Plan B option.  Since these properties are on the low-mid price range, and buyers of these properties might have below average credit, would selling these properties using seller financing be a good exit?  In this regard, you will still own the note, get payments monthly, and likely a higher selling price?  Has anyone used this strategy to exit from LTR properties?

 He doesn't have anything to sell using owner financing; the properties already have notes in place. He would have to something like a sub-to deal. This isn't really beneficial for the seller unless S/he can't make the payments any more and believe someone else can/will make the payments, because they are still on the hook for the mortgage. Their lender will likely call the note once they realize what's occurring. 

exactly you dont sell on owner contract props that have DSCR loans on them that can lead to a very quick default of the entire portfolio.. As I am sure  the OP knows one default and they all default plus default interest etc etc.  Its too late but the refi to you die scenario can be a very risky one in low value basically non appreciating assets.  if it was me I would be trying to sell them all pay off all debt and start over.  OR bed is made going to have to grind it out.. and pray you dont have some bad turnovers and bad tenants.

[Nathan Frost]

Quote from @Jay Hinrichs:

Quote from @JD Martin:

Quote from @Sunil Kapoor:

Just curious of what others think of this Plan B option.  Since these properties are on the low-mid price range, and buyers of these properties might have below average credit, would selling these properties using seller financing be a good exit?  In this regard, you will still own the note, get payments monthly, and likely a higher selling price?  Has anyone used this strategy to exit from LTR properties?

 He doesn't have anything to sell using owner financing; the properties already have notes in place. He would have to something like a sub-to deal. This isn't really beneficial for the seller unless S/he can't make the payments any more and believe someone else can/will make the payments, because they are still on the hook for the mortgage. Their lender will likely call the note once they realize what's occurring. 

exactly you dont sell on owner contract props that have DSCR loans on them that can lead to a very quick default of the entire portfolio.. As I am sure  the OP knows one default and they all default plus default interest etc etc.  Its too late but the refi to you die scenario can be a very risky one in low value basically non appreciating assets.  if it was me I would be trying to sell them all pay off all debt and start over.  OR bed is made going to have to grind it out.. and pray you dont have some bad turnovers and bad tenants.

I agree with this.  I have a portfolio of 10.  Other 2 not on the blanket loan.  I am looking to sell 3-4.  Don't think I can sell all of them since they are tenant occupied.  Need to be able to clear release price.

I didn't realize till after the refinance that they add twenty percent to each one these in a release price it's frustrating.  So I likely have to keep 5.  Some are saying to grind it out cause they are all rented.

if I pay equity down how does the release price work?

[Jay Hinrichs]

Quote from @Nathan Frost:

Quote from @Jay Hinrichs:

Quote from @JD Martin:

Quote from @Sunil Kapoor:

Just curious of what others think of this Plan B option.  Since these properties are on the low-mid price range, and buyers of these properties might have below average credit, would selling these properties using seller financing be a good exit?  In this regard, you will still own the note, get payments monthly, and likely a higher selling price?  Has anyone used this strategy to exit from LTR properties?

 He doesn't have anything to sell using owner financing; the properties already have notes in place. He would have to something like a sub-to deal. This isn't really beneficial for the seller unless S/he can't make the payments any more and believe someone else can/will make the payments, because they are still on the hook for the mortgage. Their lender will likely call the note once they realize what's occurring. 

exactly you dont sell on owner contract props that have DSCR loans on them that can lead to a very quick default of the entire portfolio.. As I am sure  the OP knows one default and they all default plus default interest etc etc.  Its too late but the refi to you die scenario can be a very risky one in low value basically non appreciating assets.  if it was me I would be trying to sell them all pay off all debt and start over.  OR bed is made going to have to grind it out.. and pray you dont have some bad turnovers and bad tenants.

I agree with this.  I have a portfolio of 10.  Other 2 not on the blanket loan.  I am looking to sell 3-4.  Don't think I can sell all of them since they are tenant occupied.  Need to be able to clear release price.

I didn't realize till after the refinance that they add twenty percent to each one these in a release price it's frustrating.  So I likely have to keep 5.  Some are saying to grind it out cause they are all rented.

if I pay equity down how does the release price work?

Nathan I noticed you keep asking the same question how does the release's work.. in your case its in writing in the mortgage.. but usually you can negotiate a bit. you need to call the note holder and have that conversation.. asking on the internet is just going to give you 20 different opinions..
I work with releases all the time.. One in loans i make on multiple props where I am the bank.
and two with my developments where my bank gives me releases for my new builds.

what you have is a DSCR loan and those are the most difficult to deal with by far. U probably also have pre pay penalties etc etc.  So instead of just guessing or asking until you get an answer you like :)  call the lender full stop its their call.. anything short of that is just wasting time.

[Nathan Frost]

Agree.

[James Hamling]

@Nathan Frost I am reading a whole-lot of emotion here, and very little in logic and data. 

Example, I don't see any information or details that speak to an ability or effort to measure forecasting of performance.    I don't see anything detailing where cap-x stands, what anticipated expense adjustments going forward will be, of anticipated rent appreciation, price appreciation, Price Vectoring of the properties and market.... 

These details, depending what they are, would drastically change what makes sense. 

Let's say the details are a 5%+ annual compounding appreciation in rents and property value is to be had.... Well then you'd kick yourself down the road for acting impulsively and emotionally dumping and running before compounding appreciation had it's time to do it's work of growing ever more comfortable margins. 

I say take a deep breath, step back, have a drink, chill-out, then approach the situation in a way to answer everything with MATH. use math, data, details to say how good or bad each property is, and to dictate what direction should be. 

[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!

[Mike Dymski]

Great post and openness to feedback.