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?

[James Hamling]

Quote from @Nathan Frost:

Quote from @James Hamling:

Quote from @Nathan Frost:

Quote from @James Hamling:

Quote from @Nathan Frost:

Quote from @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.......

Ehhh I dont agree with this at all.  Its called learning.  I did this because 50% of an IRA was going to crap in 2021-22.  I tripled my net worth by not keeping it in the IRA that was going to be slashed by 40% with market trends. They all are rented for the most part and like 6 on auto pilot.  Just never had a portfolio loan.  Yes looking back could stop at 5 or 7.  Is Pac Morby not made out for REI since his first business failed and he couldn't pay his employees.  I mean come on.  What learning is about.

I mean I am still in a good spot when sell 3.  Creates a nest egg of 60 to 80k.  Then can stash it away or put in index fund as the nest egg for next 20 years.

Ok, so you're arrogantly ignorant, got-that. 

I find it interesting your style of confidently assuming the future, then impulsivity based on that assumption.     Do you see the lack of fact/data based decision making here? 

You say that you had an assumption of the future, so you didn't just hedge for that, you completely changed everything and went ballz-out on things.     I read here that your doing the same thing again; assumptions of the future and making rash significant actions per.    

It's funny your use of Pace as the comfort-excuse that it's ok to be rash, impulsive, assumption, because it's "learning". Because yup, Pace's 1st several business went under and, he didn't do them again. He learned from it all and ADJUSTED. That's what I suggested you consider, an ADJUSTED measure of doing REI.

But as started, clearly you're happy to be in the arrogantly-ignorant club, fly that flag, wear the jacket, and by all means exercise your freedoms to do so. But let's not kid ourselves into some BS lie that it's "learning".     When arrogance is in charge, there is no learning being done, none.     

If you keep on this path of fear based assumptive emotional decision making, it's gonna burn ya. Fair warning. 

 Get it.  What do you suggest then?  Data.  I have the spreadsheet.

2-parts: 

First, take a big step back from things with properties, clear head, go golfing, fishing, whatever just "clear the deck" of everything.     Then, when clear, come at it fresh BUT with a focus that your going to do all things, answer all questions, all "feelings" with MATH. That your going to see what MATH has to say on it all. 

So, your going to have to get accurate with what the math says, of what the properties themselves are now.     As i said before, I have heard nothing of where your Cap-Ex stands. So, do an accurate analysis of where Cap-Ex stands.     

Next, get math of where property and market rent appreciation projects out as for next 1,3,5yr window. NO, this is not a "feeling" based thing, it's DATA driven. If unsure how, lookup local chapters of MFH landlord associations, they are champions of this and may find data from them. Yes, they do different assets but the market data will have a lot of cross over. City Data is another resource. You need to sort out Supply-Demand curve. 

Now if done right, your going to have all this data compiled, your going to have an idea of market direction, of what the future will hold. And, most importantly, what the #'s REALLY look like on those properties. Way WAY too often people get into "cheap" properties only to find they are very VERY maintenance expensive, ticking maintenance bombs. 

LAST PART, don't just knee-jerk "ok, SELL", no, IF the math says "sell" REPEAT this fact/data finding mission to answer the question of how to BEST sell, for MAXIMUM ROI. All this talk of relying on PM's and others to peg an as-is now-Now-NOW sale..... that's just bonkers.

What is the MATH of how to BEST sell? Is it retail at vacancy? Is it via a terms offering retail? Is it maybe offering a terms purchase to existing tenants here-n-now???? There is so many variables and potentials in selling, net-0 is NOT an "Investors" action or journey. 

2nd-Part; Explore the other ways to REI because I got a funny feeling there is a different segment of the industry that would serve a better fit for yourself.

Honestly, these issues you've aired, a cold-blooded "Landlord" wouldn't loose a wink of sleep over. These are for most part what one would call "good problems". Don't believe me, oh-man, just wait until you have REAL Landlord problems, like evicting a tenant because there meth-fueled adult-child moved in and is rapidly destroying the place, only to get it all done over months and receive back a human-feces painted home, copper stripped, destroyed everything...... Or, or, or.... It get's a LOT uglier then what's keeping you up at night, oh-so-much uglier. 

If what you've detailed has been keeping you up with worry, I can't imagine the wreck you'd be dealing with a tenant nightmare. 

SO as said, I get feeling your NOT cut-out for this specific iteration of REI. Which is a-ok, there is a lot of other ways to do REI, it's not a 1-strategy-fit's-all thing. And forcing it, that's a setup for real hardships to come. Because eventually you WILL have a tenant nightmare, it is the law of averages, do landlording long enough and it WILL happen, not if but when.

 Agree.  One thing I have learned is you have to buy off market to get a deal.  Do not buy on Zillow etc.  Anything on market is too pricey.  And that can kill you with cash flow and equity.

I get where your coming from, but it's not exactly true/correct. 

An MLS "deal" can be good, but it takes work, it's not simple, it's "easy" but not simple, buying MLS there is a LOT more losers then REI winners for sure. But off-market can be just as bad if not worse.

What it all comes down to is be VERY good and thorough in your analysis and due diligence. Always do thorough analysis. Be strategic. 

Never buy a property to buy a property.     When i do a buy for self or client, we are lazer-focused strategic on EVERY buy.     

I will know EXACTLY how we plan to monetize it, what those #'s are, how, why that monetization plan, how long, AND I will have a plan B, C, D.... 

Example, a few buys I am doing now with clients are for Pyramiding equity, into faster appreciating markets with low supply to demand ratio, specific $ point for the SFH's and were deploying into townhomes BECAUSE we are targeting divorcing persons for tenants from the surrounding SFH neighborhoods who have 1-3 kids and a desire to remain in school district during divorce completion to allow for next home purchase. We know the target age, lifestyle, income and hobby of interests.

STRATEGIC. 

But see, that's my "jam". I love doing up-market rentals and have done great in that sphere, it's a fantastic fit for myself and my clients. I did a lot of things over the years, literally EVERYTHING REI. Sec-8, mixed use, MFH, conversions, flips, commercial, land flipping, development in B4R, you name it been there done-that and have the scars to prove it. And up-market LTR focused on transitional housing, like slipping into a nice pair of old cozy slippers.

See this is what I am speaking of by look into other REI avenues, there's an ocean of opportunity out there so find YOUR "perfect fit".

Your in a tight place, but it's not a panic place yet. So chill, take a step back, do the math, make a plan and simply execute. 

[Travis Timmons]

@Jay Hinrichs , @Brian Kloft

The guys that like cash/respect leverage, know that life does not exist on a spreadsheet, and that pay off properties are hiding in plain sight...just like real life where the unassuming rich folks drive old cars and buy clothes at Costco. There are probably a few more than you would expect.

@Nathan Frost

You don't need any more advice. You have plenty of that. I'll opt for a little encouragement. You're doing great, man. You're learning a few things along the way and considering some adjustments. That is normal, healthy, and expected. Be kind to yourself. 

[Melanie P.]

Quote from @Nathan Frost:

Quote from @Louisa Davis:

Quote from @Nathan Frost:

Quote from @Stuart Udis:

@Nathan FrostLet me pose this question to you: What is the upside to continuing to "grind" as you describe it? From what I've gathered the properties will not begin to cash flow significantly better, you are in a market that cannot easily absorb unexpected capital expenditures (greater risk to you in the future) and the principal paydown is pretty meaningless for a while. If you agree with this, aren't you better off selling, recapitalizing yourself and focusing on better opportunities armed with the relationships and knowledge you now possess?  I sense you have an emotional attachment to this portfolio because it likely took time and effort to assemble and this keeps you holding on. 

 Yes, my first ever LTR is in the portfolio that I personally rehabbed myself.  But honestly I am over the personal attachment now that I am older and wiser.  I rather sleep comfortable at night than worry about the next 7k payment / vacancy.  I definitely am smarter now and have way better knowledge.  And yes, you are correct.  These properties will pretty much rent at the same price for the next 5-10 years unless I updated a few of the bathrooms and AC units.  I might break even but I think it is smart to sell 3-4 of them and move on.  The last 2-3 I have acquired in my portfolio are my best cash flowing properties because I have learned over the years how to calculate a deal better than I did when I started with these.

 It sounds like you have answered your own question. It makes sense to sell the worst performers, bulk up your reserves for the remaining properties, and then use your returned capital for something else. 

I started walking down the same road - buying smaller residential properties by myself. I learned the same thing: A lot of hassle for a little bit of profit. I'm also liquidating that (smaller) portfolio and have pivoted to larger properties.

Happy to talk 1:1 if you'd like.

Would love to.  Message me.

 Nathan, Please BEWARE this lady is promoting a real estate investment scheme known as a syndication. These syndications have been collapsing on a daily basis over the last couple of years. Check out the Syndication and Multi Family forums for stories of paused distributions, people losing 93% of their principal invested in deals gone sour. They promise returns "up to" 20% per annum. If you look at what you've done yourself you've probably done the same or better. You receive no title to real estate in these transactions and cannot liquidate them until the promoter decides to sell the underlying asset.

@Louisa Davis, If you want to engage people in an investment pitch it's rather unprofessional to do so under the guise of half-truths and misrepresentations. Playing on a poster's stated concerns to set up a pitch to divorce them of their savings is reprehensible behavior!

When you write you've "pivoted" to larger properties what does that mean? You've put your own money into these deals or earned a commission for placing other people's money in them? 

Let's start with your bio on the Rise Equity site where you extoll the talents of "your team" (taking credit for the work of Katie Loughney's team on which you work) and your own accomplishments as a real estate salesperson. The bio is all about your success as a residential REALTOR. Yet at the bottom of the page and every page your site says "Not affiliated with any real estate broker." Why not? If you're going to help someone invest in real estate cowboy up and put your license on the line to back your representations. You list gross sales of $150M. I seriously doubt the number is more than a third of that, but I'll take you at your word and impute maximum gross commissions to date of $3,750,000. Your bio claims that you're invested in $13,000,000 of multi-family assets. Care to provide any addresses to back this up? How about explaining your source of funds for the other $10,000,000 plus living expenses over the last 8 years?

Your representation to Nathan that single family real estate investments tend to break even after considering the costs of improvements would be sad news to the government employees you help find housing in your day job. Further, it's a grossly inaccurate representation of what has happened over the last 10 years in your market or even the 8 years since you got your fresh start in real estate. In NoVA/DC there has been appreciation of 300-500% over that time period. 

Last and most important is your complete and total lack of any experience which would make anyone contact you about a large multifamily asset. Has Rise ever completed a single transaction including principal and profit return to the LPs? Of course not! Have you ever even completed a successful raise in Rise Equity's name? You've demonstrated above your willingness to say whatever you think will motivate someone to send you money. Telling a pack of lies to give potential investors the confidence to pull the trigger isn't just morally wrong, it's a crime. Will honesty make finding someone gullible enough to send Rise money more difficult? Probably. But at least you'll be authentic and look less like a clown aspiring to one day be a thief. 

[Peter W.]

I cannot tell whether these properties are good investments or not. I cannot tell if the portfolio is cash flow negative or positive from your posts either. How you proceed should be determined in a large part by the answer to these questions. You need to be making predictions on a property by property basis of both cash flow and IRR. As James mentioned you need to know your numbers so you know if you are actually in trouble or you are just worried.

I will say this rhymes with how my in laws went bankrupt (scaled low income properties quickly without realizing they all had negative cash flow after maintenance and vacancy costs). So proceed carefully.

It sounds you need to take property management over for at least for a year or two to let rents appreciate to the point where you can afford it and to build up acceptable reserves.

[Rob Isbell]

Sell some properties.  You can't eat equity and as much as you'd like to keep them it sounds like it'd be more beneficial for you to have some extra cash on hand.  There will be more opportunities in the future where you can buy more when the time is right.   Either way, congrats on building a nice little portfolio and good luck 

[Zach Gring]

Honestly to me from the sounds of it, you are over leveraged and under on reserves. I have a portfolio of single families as well; I typically hold 6 months of PITI per property in liquidity.

Everyone is going to have a different "sleep factor" number. least this is what I call it, how much do you need to sleep well?

You could possibly look for an agent to help you on a 1031 as well, get out from underneath the blanket mortgage, you could net a little higher going this route with the plan in place to exchange into something with higher returns. 

Hope some of this helped. 

[James Hamling]

Quote from @Melanie P.:

Quote from @Nathan Frost:

Quote from @Louisa Davis:

Quote from @Nathan Frost:

Quote from @Stuart Udis:

@Nathan FrostLet me pose this question to you: What is the upside to continuing to "grind" as you describe it? From what I've gathered the properties will not begin to cash flow significantly better, you are in a market that cannot easily absorb unexpected capital expenditures (greater risk to you in the future) and the principal paydown is pretty meaningless for a while. If you agree with this, aren't you better off selling, recapitalizing yourself and focusing on better opportunities armed with the relationships and knowledge you now possess?  I sense you have an emotional attachment to this portfolio because it likely took time and effort to assemble and this keeps you holding on. 

 Yes, my first ever LTR is in the portfolio that I personally rehabbed myself.  But honestly I am over the personal attachment now that I am older and wiser.  I rather sleep comfortable at night than worry about the next 7k payment / vacancy.  I definitely am smarter now and have way better knowledge.  And yes, you are correct.  These properties will pretty much rent at the same price for the next 5-10 years unless I updated a few of the bathrooms and AC units.  I might break even but I think it is smart to sell 3-4 of them and move on.  The last 2-3 I have acquired in my portfolio are my best cash flowing properties because I have learned over the years how to calculate a deal better than I did when I started with these.

 It sounds like you have answered your own question. It makes sense to sell the worst performers, bulk up your reserves for the remaining properties, and then use your returned capital for something else. 

I started walking down the same road - buying smaller residential properties by myself. I learned the same thing: A lot of hassle for a little bit of profit. I'm also liquidating that (smaller) portfolio and have pivoted to larger properties.

Happy to talk 1:1 if you'd like.

Would love to.  Message me.

 Nathan, Please BEWARE this lady is promoting a real estate investment scheme known as a syndication. These syndications have been collapsing on a daily basis over the last couple of years. Check out the Syndication and Multi Family forums for stories of paused distributions, people losing 93% of their principal invested in deals gone sour. They promise returns "up to" 20% per annum. If you look at what you've done yourself you've probably done the same or better. You receive no title to real estate in these transactions and cannot liquidate them until the promoter decides to sell the underlying asset.

@Louisa Davis, If you want to engage people in an investment pitch it's rather unprofessional to do so under the guise of half-truths and misrepresentations. Playing on a poster's stated concerns to set up a pitch to divorce them of their savings is reprehensible behavior!

When you write you've "pivoted" to larger properties what does that mean? You've put your own money into these deals or earned a commission for placing other people's money in them? 

Let's start with your bio on the Rise Equity site where you extoll the talents of "your team" (taking credit for the work of Katie Loughney's team on which you work) and your own accomplishments as a real estate salesperson. The bio is all about your success as a residential REALTOR. Yet at the bottom of the page and every page your site says "Not affiliated with any real estate broker." Why not? If you're going to help someone invest in real estate cowboy up and put your license on the line to back your representations. You list gross sales of $150M. I seriously doubt the number is more than a third of that, but I'll take you at your word and impute maximum gross commissions to date of $3,750,000. Your bio claims that you're invested in $13,000,000 of multi-family assets. Care to provide any addresses to back this up? How about explaining your source of funds for the other $10,000,000 plus living expenses over the last 8 years?

Your representation to Nathan that single family real estate investments tend to break even after considering the costs of improvements would be sad news to the government employees you help find housing in your day job. Further, it's a grossly inaccurate representation of what has happened over the last 10 years in your market or even the 8 years since you got your fresh start in real estate. In NoVA/DC there has been appreciation of 300-500% over that time period. 

Last and most important is your complete and total lack of any experience which would make anyone contact you about a large multifamily asset. Has Rise ever completed a single transaction including principal and profit return to the LPs? Of course not! Have you ever even completed a successful raise in Rise Equity's name? You've demonstrated above your willingness to say whatever you think will motivate someone to send you money. Telling a pack of lies to give potential investors the confidence to pull the trigger isn't just morally wrong, it's a crime. Will honesty make finding someone gullible enough to send Rise money more difficult? Probably. But at least you'll be authentic and look less like a clown aspiring to one day be a thief. 

 Someone got OWNED!!!!....

[Louisa Davis]

Quote from @James Hamling:

Quote from @Melanie P.:

Quote from @Nathan Frost:

Quote from @Louisa Davis:

Quote from @Nathan Frost:

Quote from @Stuart Udis:

@Nathan FrostLet me pose this question to you: What is the upside to continuing to "grind" as you describe it? From what I've gathered the properties will not begin to cash flow significantly better, you are in a market that cannot easily absorb unexpected capital expenditures (greater risk to you in the future) and the principal paydown is pretty meaningless for a while. If you agree with this, aren't you better off selling, recapitalizing yourself and focusing on better opportunities armed with the relationships and knowledge you now possess?  I sense you have an emotional attachment to this portfolio because it likely took time and effort to assemble and this keeps you holding on. 

 Yes, my first ever LTR is in the portfolio that I personally rehabbed myself.  But honestly I am over the personal attachment now that I am older and wiser.  I rather sleep comfortable at night than worry about the next 7k payment / vacancy.  I definitely am smarter now and have way better knowledge.  And yes, you are correct.  These properties will pretty much rent at the same price for the next 5-10 years unless I updated a few of the bathrooms and AC units.  I might break even but I think it is smart to sell 3-4 of them and move on.  The last 2-3 I have acquired in my portfolio are my best cash flowing properties because I have learned over the years how to calculate a deal better than I did when I started with these.

 It sounds like you have answered your own question. It makes sense to sell the worst performers, bulk up your reserves for the remaining properties, and then use your returned capital for something else. 

I started walking down the same road - buying smaller residential properties by myself. I learned the same thing: A lot of hassle for a little bit of profit. I'm also liquidating that (smaller) portfolio and have pivoted to larger properties.

Happy to talk 1:1 if you'd like.

Would love to.  Message me.

 Nathan, Please BEWARE this lady is promoting a real estate investment scheme known as a syndication. These syndications have been collapsing on a daily basis over the last couple of years. Check out the Syndication and Multi Family forums for stories of paused distributions, people losing 93% of their principal invested in deals gone sour. They promise returns "up to" 20% per annum. If you look at what you've done yourself you've probably done the same or better. You receive no title to real estate in these transactions and cannot liquidate them until the promoter decides to sell the underlying asset.

@Louisa Davis, If you want to engage people in an investment pitch it's rather unprofessional to do so under the guise of half-truths and misrepresentations. Playing on a poster's stated concerns to set up a pitch to divorce them of their savings is reprehensible behavior!

When you write you've "pivoted" to larger properties what does that mean? You've put your own money into these deals or earned a commission for placing other people's money in them? 

Let's start with your bio on the Rise Equity site where you extoll the talents of "your team" (taking credit for the work of Katie Loughney's team on which you work) and your own accomplishments as a real estate salesperson. The bio is all about your success as a residential REALTOR. Yet at the bottom of the page and every page your site says "Not affiliated with any real estate broker." Why not? If you're going to help someone invest in real estate cowboy up and put your license on the line to back your representations. You list gross sales of $150M. I seriously doubt the number is more than a third of that, but I'll take you at your word and impute maximum gross commissions to date of $3,750,000. Your bio claims that you're invested in $13,000,000 of multi-family assets. Care to provide any addresses to back this up? How about explaining your source of funds for the other $10,000,000 plus living expenses over the last 8 years?

Your representation to Nathan that single family real estate investments tend to break even after considering the costs of improvements would be sad news to the government employees you help find housing in your day job. Further, it's a grossly inaccurate representation of what has happened over the last 10 years in your market or even the 8 years since you got your fresh start in real estate. In NoVA/DC there has been appreciation of 300-500% over that time period. 

Last and most important is your complete and total lack of any experience which would make anyone contact you about a large multifamily asset. Has Rise ever completed a single transaction including principal and profit return to the LPs? Of course not! Have you ever even completed a successful raise in Rise Equity's name? You've demonstrated above your willingness to say whatever you think will motivate someone to send you money. Telling a pack of lies to give potential investors the confidence to pull the trigger isn't just morally wrong, it's a crime. Will honesty make finding someone gullible enough to send Rise money more difficult? Probably. But at least you'll be authentic and look less like a clown aspiring to one day be a thief. 

 Someone got OWNED!!!!....

To any readers who come across this, please note that *I do not know this person and have never interacted with her!*

This was a personal attack, totally uncalled for, based on wildly inaccurate assumptions. To anyone who's wondering: Yes I'm still an active realtor as my day job, yes I've owned rental properties by myself, and yes I now focus on investing in larger properties with partners! I've found larger rental properties to be much more profitable personally. I don't make any claims about asset classes or strategies as a whole, but I am always happy to share my experiences.

I love to meet others investing in real estate to see what we can learn from each other. Feel free to reach out to me 1:1!

[Kyle Mccaw]

@Nathan Frost
I once had a large portfolio loan covering 28 houses. I appreciated making a single payment, but it can become problematic when you sell a few properties. The terms often require that all proceeds go toward the principal. This can worsen your situation because, although your rental income decreases, your payment remains unchanged.

[Joe S.]

Quote from @Kyle Mccaw:

@Nathan Frost
I once had a large portfolio loan covering 28 houses. I appreciated making a single payment, but it can become problematic when you sell a few properties. The terms often require that all proceeds go toward the principal. This can worsen your situation because, although your rental income decreases, your payment remains unchanged.

How did you end up getting out of that situation?

[Kyle Mccaw]

@Joe S. I had cashflow from other properties and business income to cover the shortage. I pushed rents up hard. What sucked was the capital gains tax I generated at each sale when I didn't get cash at closing. I did get to 1031 some of them at the end. I did end up making a great return. It just hurt like hell for a while.

[Eric James]

Quote from @Jay Hinrichs:

Quote from @Brian Kloft:

@Nathan Frost First I did not read every response but I am going to give you my answers since I tend to be of a different philosophy than most on here when it comes to debt. We have a very low debt level on our properties so we have a high cash flow and don't lose sleep over making payments or if a tenant is going to pay or not. We just had to pay $60k for 3 renovations at the end of the year and a roof is coming up next month. It drained our reserves for the property but it has been growing fast again. Your problem is what all of the people that keep saying to refi and buy more, refi and buy more, don't talk about. They think it is low risk because they have zero equity, but they never factor in the risk or the stress of having it all collapse on you; which you are starting to realize.

First, stop buying. You need to build up a much much bigger reserve for your properties. With that high of debt, $60k is not enough let alone the $25k that you have. You have 12 properties. You need to focus on stabilization and optimization now. Every penny you make from the properties needs to go into reserves to build it up. If you have any extra money from your W2 job at the end of the month, set that aside for a secondary reserve as well. Build up that war chest. If you wanted to sell a property because you don't like it, that is fine, just put all you make into your reserves. However from what I saw it looked like all you are going to get from all but one property is $10k per property or less. If you can go a year without any issues then that will add another $24k to your reserves, bringing it up to $49k. That should give you a little breathing room, even though it should be higher.

I challenge you to look at your investments in a different way. Imagine how it would be if you owned all of your properties free and clear. No Loans. In current dollars, how much would you be making. Would you be very happy with that? It is a lot easier to deal with 12 properties that are paid for than to deal with 48 or more properties that have heavy debt on them. Also how much are they worth and what would that look like if they were all paid off? If you want to have more income and more net worth than what the 12 can provide you, even if paid off, that is fine. Just take a break from buying and get yourself on solid ground. Get your debt paid down so that you have some cushion if you need it. You don't want to have to sell 4 or 5 properties just to pay for some big problem when having $60k+ in the bank would do that and you would still have your properties. Build up your reserves to $140k+ and if you are in a better place then you can take $40k and buy another property, but you will have that $100k reserve to help you weather any storms. 

Like I said, my approach is just about the opposite of everyone on here, but I can tell you that two of my paid for renovated units cash flow more than your 12 units do and I don't worry about making any of our payments and managing 2 units is way easier than 12. Even my "high" debt property I could sell for cheap and fast and still come away with a lot of money to cover any huge issue because it is not leveraged at 70%+ of the value. I am not against debt, just high debt to value ratios.

I have been making this same point on BP for the 10 years I have been here. However pretty much get shouted down by the refi till you die crowd  max leveage get as many doors etc etc.
With low value assets.. ( to me thats 150 or so and under)  paying those off as soon as possible for long term hold I think is a smart play..

 It isn't just on BP. From what I gather those who purchase large multifamily complexes and commercial properties rely on cash flow. They generally don't look to break even and count on appreciation.

[Jay Hinrichs]

Quote from @Eric James:

Quote from @Jay Hinrichs:

Quote from @Brian Kloft:

@Nathan Frost First I did not read every response but I am going to give you my answers since I tend to be of a different philosophy than most on here when it comes to debt. We have a very low debt level on our properties so we have a high cash flow and don't lose sleep over making payments or if a tenant is going to pay or not. We just had to pay $60k for 3 renovations at the end of the year and a roof is coming up next month. It drained our reserves for the property but it has been growing fast again. Your problem is what all of the people that keep saying to refi and buy more, refi and buy more, don't talk about. They think it is low risk because they have zero equity, but they never factor in the risk or the stress of having it all collapse on you; which you are starting to realize.

First, stop buying. You need to build up a much much bigger reserve for your properties. With that high of debt, $60k is not enough let alone the $25k that you have. You have 12 properties. You need to focus on stabilization and optimization now. Every penny you make from the properties needs to go into reserves to build it up. If you have any extra money from your W2 job at the end of the month, set that aside for a secondary reserve as well. Build up that war chest. If you wanted to sell a property because you don't like it, that is fine, just put all you make into your reserves. However from what I saw it looked like all you are going to get from all but one property is $10k per property or less. If you can go a year without any issues then that will add another $24k to your reserves, bringing it up to $49k. That should give you a little breathing room, even though it should be higher.

I challenge you to look at your investments in a different way. Imagine how it would be if you owned all of your properties free and clear. No Loans. In current dollars, how much would you be making. Would you be very happy with that? It is a lot easier to deal with 12 properties that are paid for than to deal with 48 or more properties that have heavy debt on them. Also how much are they worth and what would that look like if they were all paid off? If you want to have more income and more net worth than what the 12 can provide you, even if paid off, that is fine. Just take a break from buying and get yourself on solid ground. Get your debt paid down so that you have some cushion if you need it. You don't want to have to sell 4 or 5 properties just to pay for some big problem when having $60k+ in the bank would do that and you would still have your properties. Build up your reserves to $140k+ and if you are in a better place then you can take $40k and buy another property, but you will have that $100k reserve to help you weather any storms. 

Like I said, my approach is just about the opposite of everyone on here, but I can tell you that two of my paid for renovated units cash flow more than your 12 units do and I don't worry about making any of our payments and managing 2 units is way easier than 12. Even my "high" debt property I could sell for cheap and fast and still come away with a lot of money to cover any huge issue because it is not leveraged at 70%+ of the value. I am not against debt, just high debt to value ratios.

I have been making this same point on BP for the 10 years I have been here. However pretty much get shouted down by the refi till you die crowd  max leveage get as many doors etc etc.
With low value assets.. ( to me thats 150 or so and under)  paying those off as soon as possible for long term hold I think is a smart play..

 It isn't just on BP. From what I gather those who purchase large multifamily complexes and commercial properties rely on cash flow. They generally don't look to break even and count on appreciation.

I dont know the syndicators currently struggling sold their deals on 2X multiples in 3 to 5 years exits.. that's appreciation either organic or forced..

[Melanie P.]

Quote from @Louisa Davis:

To any readers who come across this, please note that *I do not know this person and have never interacted with her!*

This was a personal attack, totally uncalled for, based on wildly inaccurate assumptions. To anyone who's wondering: Yes I'm still an active realtor as my day job, yes I've owned rental properties by myself, and yes I now focus on investing in larger properties with partners! I've found larger rental properties to be much more profitable personally. I don't make any claims about asset classes or strategies as a whole, but I am always happy to share my experiences.

I love to meet others investing in real estate to see what we can learn from each other. Feel free to reach out to me 1:1!

 What was inaccurate? Please tell me so I can apologize.

The only thing someone should be meeting you 1:1 about is buying a townhouse in Arlington. Provided you can stick to that business and not constantly be dropping hints about your $13 million in multi-family holdings. Can you provide examples for a portion of that? Say $10 million? Educate us.

[Jacob Sherman]

When you're in a blanket and sell you have to pay down 120% of the loan balance of each property when the blanket is broken . Individually is always the best way to go 

[Nathan Frost]

Quote from @Jacob Sherman:

When you're in a blanket and sell you have to pay down 120% of the loan balance of each property when the blanket is broken . Individually is always the best way to go 

 Subto the portfolio package to an investor?

[Kristen Haynes]

The very first thing to do is to do an 'Engineering Based Cost Segregation' study performed to see where you can get back some serious money, using your rentals, to get back some serious money from the IRS. They're cheap to do, compared to the money that you would gt back. and these strategies can be used over and over again, with each property acquired or rental-renovated. Reach out to me if you would like more information, and we'll see how much cash we can get back for you to offset your losses and expenditures (100% free to do the study, then they give you the amount of the savings and cost to get that money back, and you then determine if you want to move forward).

There's also a FREE webinar discussing this tax strategy tomorrow, Wednesday May 15th, at 10 am PT / 1 pm EST that you may register for here (safe link): https://linda-b251e.gr8.com/

Best of luck to you! Kristen Haynes Realty Pros / Northstar Group

[Jay Hinrichs]

Quote from @Nathan Frost:

Quote from @Jacob Sherman:

When you're in a blanket and sell you have to pay down 120% of the loan balance of each property when the blanket is broken . Individually is always the best way to go 

 Subto the portfolio package to an investor?

you transfer title sub to and I will 95% bet your DSCR lender is going to put you in default.  These are not fannie freddie lenders who really only care about payments.. DSCR has covenants you agreed to.. you violate them they will ( at their unilateral choice) invoke the Alienation clause.
careful on that one I know its soup de jour but consider who is giving you this advice to sub 2.
And in addition ONE default defaults the entire portfolio..

[Jay Hinrichs]

Quote from @Kristen Haynes:

Quote from @Kyle Mccaw:

@Joe S. I had cashflow from other properties and business income to cover the shortage. I pushed rents up hard. What sucked was the capital gains tax I generated at each sale when I didn't get cash at closing. I did get to 1031 some of them at the end. I did end up making a great return. It just hurt like hell for a while.

 @KyleMccaw- if you haven't done an Engineering Based Cost Segregation study yet, you should. It will give you back some of your money that the IRS is 'holding' that you can get back! Reach out to me to learn more, or attend this webinar (you can also make residual income as a Property Manager for your owner clients that can use these strategies, as well.

The very first thing to do is to do an 'Engineering Based Cost Segregation' study performed to see where you can get back some serious money, using your rentals, to get back some serious money from the IRS. They're cheap to do, compared to the money that you would get back. and these strategies can be used over and over again, with each property acquired or rental-renovated. Reach out to me if you would like more information, and we'll see how much cash we can get back for you to offset your losses and expenditures (100% free to do the study, then they give you the amount of the savings and cost to get that money back, and you then determine if you want to move forward).

There's also a FREE webinar discussing this tax strategy tomorrow, Wednesday May 15th, at 10 am PT / 1 pm EST that you may register for here (safe link): https://linda-b251e.gr8.com/

Best of luck to you! Kristen Haynes Realty Pros / Northstar Group

Kristin,  Not commenting on your advice.. cost seg is a tool for ones tool belt.. but there has been big threads on BP lately about those who cut and paste answers .. and i see on this one thread you have done that twice.. I suspect you have a ton to add but careful with just cutting and pasting your
Engineered Cost seg comments on multiple threads is going to get you put into time out :)  

[Kristen Haynes]

Quote from @Jay Hinrichs:

Quote from @Kristen Haynes:

Quote from @Kyle Mccaw:

@Joe S. I had cashflow from other properties and business income to cover the shortage. I pushed rents up hard. What sucked was the capital gains tax I generated at each sale when I didn't get cash at closing. I did get to 1031 some of them at the end. I did end up making a great return. It just hurt like hell for a while.

 @KyleMccaw- if you haven't done an Engineering Based Cost Segregation study yet, you should. It will give you back some of your money that the IRS is 'holding' that you can get back! Reach out to me to learn more, or attend this webinar (you can also make residual income as a Property Manager for your owner clients that can use these strategies, as well.

The very first thing to do is to do an 'Engineering Based Cost Segregation' study performed to see where you can get back some serious money, using your rentals, to get back some serious money from the IRS. They're cheap to do, compared to the money that you would get back. and these strategies can be used over and over again, with each property acquired or rental-renovated. Reach out to me if you would like more information, and we'll see how much cash we can get back for you to offset your losses and expenditures (100% free to do the study, then they give you the amount of the savings and cost to get that money back, and you then determine if you want to move forward).

There's also a FREE webinar discussing this tax strategy tomorrow, Wednesday May 15th, at 10 am PT / 1 pm EST that you may register for here (safe link): https://linda-b251e.gr8.com/

Best of luck to you! Kristen Haynes Realty Pros / Northstar Group

Kristin,  Not commenting on your advice.. cost seg is a tool for ones tool belt.. but there has been big threads on BP lately about those who cut and paste answers .. and i see on this one thread you have done that twice.. I suspect you have a ton to add but careful with just cutting and pasting your
Engineered Cost seg comments on multiple threads is going to get you put into time out :)  

@Jay Hinrichs Thanks, I didn't know that one could not post in multiple areas- it is applicable to all areas posted, but thanks for letting me know! And- agreed, this is one idea in a toolbox full of them- but I wish that more Investors used this strategy, as many people don't even know about it. I saved $78 K on one rental property and $278 K on the other- doing three others once I make some renovations. My reaL estate client just make $320 K and $68 K, respectively, for less than a 10% fee- and she was over the moon! I apprecite your advice- hopefully, they won't kick me off for trying to help other Investors! :) Kristen

[Jay Hinrichs]

Quote from @Kristen Haynes:

Quote from @Jay Hinrichs:

Quote from @Kristen Haynes:

Quote from @Kyle Mccaw:

@Joe S. I had cashflow from other properties and business income to cover the shortage. I pushed rents up hard. What sucked was the capital gains tax I generated at each sale when I didn't get cash at closing. I did get to 1031 some of them at the end. I did end up making a great return. It just hurt like hell for a while.

 @KyleMccaw- if you haven't done an Engineering Based Cost Segregation study yet, you should. It will give you back some of your money that the IRS is 'holding' that you can get back! Reach out to me to learn more, or attend this webinar (you can also make residual income as a Property Manager for your owner clients that can use these strategies, as well.

The very first thing to do is to do an 'Engineering Based Cost Segregation' study performed to see where you can get back some serious money, using your rentals, to get back some serious money from the IRS. They're cheap to do, compared to the money that you would get back. and these strategies can be used over and over again, with each property acquired or rental-renovated. Reach out to me if you would like more information, and we'll see how much cash we can get back for you to offset your losses and expenditures (100% free to do the study, then they give you the amount of the savings and cost to get that money back, and you then determine if you want to move forward).

There's also a FREE webinar discussing this tax strategy tomorrow, Wednesday May 15th, at 10 am PT / 1 pm EST that you may register for here (safe link): https://linda-b251e.gr8.com/

Best of luck to you! Kristen Haynes Realty Pros / Northstar Group

Kristin,  Not commenting on your advice.. cost seg is a tool for ones tool belt.. but there has been big threads on BP lately about those who cut and paste answers .. and i see on this one thread you have done that twice.. I suspect you have a ton to add but careful with just cutting and pasting your
Engineered Cost seg comments on multiple threads is going to get you put into time out :)  

@Jay Hinrichs Thanks, I didn't know that one could not post in multiple areas- it is applicable to all areas posted, but thanks for letting me know! And- agreed, this is one idea in a toolbox full of them- but I wish that more Investors used this strategy, as many people don't even know about it. I saved $78 K on one rental property and $278 K on the other- doing three others once I make some renovations. My reaL estate client just make $320 K and $68 K, respectively, for less than a 10% fee- and she was over the moon! I apprecite your advice- hopefully, they won't kick me off for trying to help other Investors! :) Kristen

also keep in mind  ( I have used cost seg personally as well ) that you dont make those dollars per se you lower your tax burden but if you do sell you have to recapture that.. so its not like earned income that never gets taxed etc.. of course if you keep for ever and give the asset to your kids with stepped up basis that does make that saving pretty much earned.. But you know who is thinking 20 to 30 years from now. LOL..  PS I love Charleston don't know if you work there but I built about 35 homes in the downtown core over the last 8 years.. But alas I cant find any lots that work anymore.. it was a great run though !!

[Kristen Haynes]

@Jay Hinrichs Yes, I got mine back and my Accountant took it that same year, saved the next one for this year, which offset my taxes both years- very helpful to keep for the years where I made more money than others.

Yes, I am a Realtor in both Charlotte, NC and in Charleston, SC- I own a three bedroom short term vacation rental in the Wild Dunes resort just outside of the Charleston Penninsula in nearby Isle of Palms, SC- that's the one that I did the Cost Seg on that saved $278 K. I expect to retire in the Charleston area, but that's a ways off, as I am only 56- I'll rent or sell the IOP / Wild Dunes villa and get a home with an elevator so I can 'age in place', lol.

[Jay Hinrichs]

Quote from @Kristen Haynes:

@Jay Hinrichs Yes, I got mine back and my Accountant took it that same year, saved the next one for this year, which offset my taxes both years- very helpful to keep for the years where I made more money than others.

Yes, I am a Realtor in both Charlotte, NC and in Charleston, SC- I own a three bedroom short term vacation rental in the Wild Dunes resort just outside of the Charleston Penninsula in nearby Isle of Palms, SC- that's the one that I did the Cost Seg on that saved $278 K. I expect to retire in the Charleston area, but that's a ways off, as I am only 56- I'll rent or sell the IOP / Wild Dunes villa and get a home with an elevator so I can 'age in place', lol.

not to get way off topic but if I found Charleston 30 years ago I would have moved there and set up shop.. Folks on the West coast I dont think understand much about Charleston and IP etc.. Lots of money in that town.. I built 7 new st.  and many many others in the historic area. I was the first one to build across the tracks . And now that area exploded my first home i built I sold to Shep :) And it was on his TV show.

[Roy Gottesdiener]

@Nathan Frost I had the exact same issue, got excited, bought more and more properties and then I realized that on such thin margins it's just too stressful.

My advice would be forget about spreadsheets and being fully optimized on capital allocation, but rather decide what's your risk tolerance and how much of these losses you can stomach. For me it resulted in selling a couple of properties and decreasing my CoC, but at least I get to sleep well as night.