Preparing for the Apocalypse.

[Charles A.]

The new government in DC is barely 60 days old.

Yet one of the most noticeable early goals it has set for itself is the repeal of Dodd-Frank.

Although this law is more complex than most people seem to think,it might be worth your while as a real estate investor to google it and familiarize yourself with some of what it does and doesn't.

Those BP members who were in the game in 2006-2008 understand that Real Estate can be a blood sport.

We like to beat up on stocks.We like to say an entire stock portfolio can be wiped out by some extenuating circumstances while real estate is tangible and can be driven to,visited and touched.

However,thanks to NINA and NINJA loans (google them),real estate proved every inch as dangerous as stocks in 2006-2008.

At least when most people own stocks,it's usually almost all their own capital.When mortgages go bad,you not only lose your own equity,but now you own a ginormous amount of money to a lender who must foreclose on you.Bankruptcy may follow as value add.

I feel it's my responsibility as an experienced investor to throw this out here at this time in our national political journey for those newbies who keep salivating over all these tempting threads on BP about "so and so" buying "150 units in 12 months".

Now more than ever,it's extremely important to learn from the bitter lessons of the not too distant past.

leverage is a two-edged sword.The wise ensure they purchase a sheath as well.

The new government's policy post-repeal of Dodd-Frank (if it's that easy) may well birth an unprecedented job growth explosion and asset appreciation that we never have to worry about rental units vacancies again.

But experience tells every savvy investor that is a pie-in-the-sky expectation.

So what is my company doing to prepare for what is to come?

1.Equity

It's not a surprise that the stability in the market over the past decade since the sub-prime crisis can be linked to the elimination of NINA and NINJA loans.

When investors must have a skin in the game,speculators leave the industry for the real professionals who actually know what they are doing.

Speculators belong in Vegas.

True professionals don't hold 90-100% of their portfolio with less than 3% equity.That's a suicide party waiting to happen.

We are not a fan of this whole "creative financing" and "No money down (NMD)" movement on BP.

It's cool if it helps gives some average Joe their start in real estate,but when it becomes your sole strategy,you will surely get eaten when the apocalypse arrives.

We currently hold all assets in a 25% Equity position.You don't have to be the only one coming up with equity.Find partners.

Skin in the game is where it's at.

There's a good reason banks talk of LTV and DSCR when you apply for loans.The new government may get rid of all that as part of the coming repeal of all those "evil" regulations.

Currently,on many of our duplexes,rent from one unit alone covers the mortgage payment.

We believe that to be almost recession-proof.

2.Location!Location!!Location!!!

It's a cliche.

However,one other fad we have seen on BP is this pull to lower priced markets (I won't mention names so as not to offend sensibilities,but you probably know them).

The reality of the business is that these markets are lower priced for a reason.

You may be getting an assassin's cash flow and C-O-C returns today from your units in these markets but when jobs hemorrhage in a recession,your cash flow rapidly turn negative.

Big markets suffer less in a massive recession.Occupancy and vacancies mirror what the local job market is doing.

The sole reason I relocated to Jacksonville from Cleveland in 2011 is to stop being an "out-of state investor".

That brings me to the other point under this topic.

We saw a very lucrative 16-unit listed some 18 months ago.Well,it should be lucrative,except despite listing at an attractive price,most interested buyers couldn't get the numbers to work.

The numbers didn't work because the out-of-state owners were getting absolutely wiped out year-on-year by phony expenses logged by their "boots-on-the-ground" and PMs.

Even in strong markets,it's crucial to buy in good parts of town.That way,when vacancies inevitably occur during the apocalypse ,your copper wiring or HVACs won't be stolen....or your property vandalized.

Choose your market wisely.

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Are there any other steps you're taking to prepare for what is to come?

Let me know in the comments.