Market changing? Too aggressive? Stress testing your portfolio.

[Javier D.]

Good morning BP. In no way is this a doom and gloom post. Watching the stock market lately and seeing how great the RE market has been since the crazy 08 crash I have been analyzing my properties to see how a market correction/crash/apocalypse would affect me. Since 2014 i have controlled my leveraging maybe more than some. I am naturally an aggressive investor and strongly believe in the power of leverage. Real estate shines in this arena. My south florida market looks overall healthy: overconstruction is heavy in the condo market, 1M+ market is cold. Rates are going up but there isnt much inventory. Unemployment is low(then again we will see how this continues). This post is to see how my fellow investors analyze a hypothetical down market. Can i survive a 15% vacancy rate? A 20% loss of value? Can my multifamily properties cashflow if interest rates go up 3 points 4 years from now? Have i been dipping into my reserves with the mindset” ill put it back when i sell this flip or parcels”. If my helocs get frozen will my portfolio survive? I had this conversation with a group of friends here whom are developers, hml, vp of a public reit. Deep pockets just buy more. They buy...well maybe yours..

sorry if this was long winded. Id love to know what everyone’s strategy is in these hypothetical scenarios.

[Peter Tverdov]

You are going to get crickets on here. I have made several posts like that over the years, asking what people do to stress test their portfolio, evaluate vacancy rates, reserves, etc.

The majority of this board are people who have been in real estate investing for 1-10 years (myself included) and think they're brilliant because they wholesaled some house, did a flip, in an era of incredibly easy money.

What I have been doing for a few years is measuring how much rent would have to drop for my properties to break even. 10%, 20%, 30% all the way to 40-50%.

I do not allow the total portfolio to go above 75% LTV because you can't refi in an emergency.

I also keep 6 months of capital per property. Not a credit card, not a credit line. Not credit period. Cash, equities...money that cannot be frozen and that I can access within a few days.

That's what I do and I think it will work well if something happens but I feel more comfortable doing that then seeing some of the jokers on here bragging that they equity stripped their entire portfolio into a commercial loan and cash flow $200 a door right now and their reserves are their credit card.

Those people will get swept out to sea IMO.

/Rant