I need advice on our rental portfolio! Please help!

General Landlording & Rental Properties
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I need advice on our rental portfolio! Please help!

Jesse Kreun
Rental Property Investor · Redmond, WA · Member since 2012 · 15 posts · 6 votes

Hi all - 

I need some help!  My wife and I are real estate investors - we own three properties and none of them are living up to our expectations.  We have been putting a ton of our own money into the properties to keep them going, but at this point there is no more money to keep them afloat, so we need answers.   The only option we can see is to sell them all, but I wanted to post on here to see if there was any advice or options that we haven't thought of yet.  We do not want to make an emotional decision, but we seem to be painted into a corner with our finances.  

Property 1: 4plex (the best performing property we have).  Generally gives us a few hundred dollars per month after paying the mortgage, but we have probably about $100k in equity at this point.  We could refi and get some of the cash out, but that would remove any of the cashflow we have currently, which doesn't seem to make sense. 

Property 2: 24 unit apartment complex.  The numbers when we purchased look good, but we are still not realizing the profit we expected and the expenses seem so high each month.  The managers keep telling us that we'll get to the profit soon, but month after month is doesn't materialize.  I don't believe they are scamming us, but yet we continue to have to dig into our own pockets to cover part of the mortgage. If we sell, there is a little bit of equity here, but not a ton.

Property 3: Hardest property we own. 11 unit apartment complex.  Again - the numbers looked good when we purchased, but again- after years of owning it, it is still not performing and we rarely get any money from the property to even pay the mortgage out of, so it is ALL coming out of our pocket!  We just got rid of a bad tenant and the managers say the property is stabilizing, but it could be a few months yet before we start getting paid.  If we sell, there is a little bit of equity here, but not a ton.

So question-  would you sell one? All?  Any other options that you can think of? What kind of professional can give us advice on this? We are talking to a financial planner this week, but of course they are going to be more interested in selling us on stocks, etc.

Thanks, all!

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Karen F.
Investor · San Diego, CA · Member since 2015 · 435 posts · 421 votes
7y

I just looked at your past posts.  I see you are in Washington State, and that at least one of these properties is in Ohio.  I want to cry when I see that you have taken lots of classes and read lots of books (at what cost?), that have persuaded you to buy apartment complexes far away from you, that aren't making you money.  Your opening post should be required reading for anyone who's thinking about buying rental real estate.  The first rule of real estate for poor shnooks like us is,  buy within 20 minutes of where you live, so that you can keep a close eye on everything yourself.  

The only reason that we got into this business is that my husband can fix almost anything himself., and likes to design and do renovations - himself, with maybe a young guy assistant or two.  He is like a carpenter/electrician/plumber/HVAC guy/social worker all rolled into one.  We search for properties together, negotiate deals together, I screen tenants over the phone, he shows, we discuss how to manage problems together, he fixes. Yes, we use licensed tradespeople appropriately when we need to, but they're all people who we found through word of mouth and who don't charge a lot.  I spend many hours researching real estate online, but I really enjoy doing that.  I also work in healthcare, and earned the money to buy the properties.  We've been doing it now for about 9 years or so, started small, slowly adding to our portfolio, buying for cash.  We've turned about half a million into a portfolio worth about 2 million over the 9 yrs, because there's been some increase in value, and it earns us a pretty good living, too, enough to live on.  We NEVER took a single class, and the only book I ever read was Landlording, because I heard the sample lease in it was good, although I did eventually read Rich Dad Poor Dad just cause it was a good "Ragged Dick" sort of story.  Both books were taken out  of the library, not even purchased!

You need to sell these far away properties.  You will never "turn them around" because the property management company is the only one who is ever going to make money on these.  If you don't have handyman skills, stay out of this business.  If you do, or could do the management yourself, sell all these and buy something very close to home.

Also, if you're in healthcare, consider combining real estate with what you already know, healthcare.  Maybe you should look into buying a white elephant near you, and turning it into the lowest possible level group home or "rest home", the kind that is not regulated, where you house people who are on SSI.  These are homes for people who don't require true nursing care, they just need a little supervision.  This might be your niche, that you can do better than most because you know the healthcare side of things.

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  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    7y

    @Jesse Kreun

    Sorry to hear!! A midwest portfolio should yield about $200 a door. Hard to tell without seeing numbers; am I wrong suspecting low rents and a c-class area? I am guessing turnover and repairs will be the two main cluprits. But I can't really tell you what to do without having seen the details. If you want to email me the last annual statement from your PM I'll take a look and see what it would take. You can send me a message on BP or find my email on my profile page.

    The way I look at it, if you sell them now at current performance you will actually realize the losses and someone else will manage the turn arround and make your loss his profit. Might as well roll up the sleves and do that yourselves. Unless you have bought them too high or there is another major structural flaw in the deal it will be a matter of a good plan to turn them around.

    1Reply
  • Timothy M.
    Arlington, VA · Member since 2015 · 60 posts · 100 votes
    7y

    100k in equity on that first property and only returning a few hundred a month profit?? Ouch :(  And that's the best of the lot?

    That's probably 5k a year profit - on the generous side - on 100k.  

    Property 1: Sell

    Property 2: Sell

    Property 3: Sell.

    Sorry you're going through this, @Jesse Kreun.  Hope you're learning as you go; keep your head up and hang in there.

    0Reply
  • Vinay H.
    Cambridge, MA · Member since 2017 · 268 posts · 247 votes
    7y
    @Susan Xu Certainly
    0Reply
  • Vinay H.
    Cambridge, MA · Member since 2017 · 268 posts · 247 votes
    7y

    @Jesse Kreun

    It's time to take the bull by the horns and allocate time and effort for you to do a site visit. You need to be there on the ground to observe what is taking place. Is it the tenants, the area, the management staff?

    Once you get an insight, then you can develop a plan of attack. In addition, perhaps you can work with a mentor or financial adviser with Real Estate experience to determine the path to follow.

    Finally, it it is still too much for you or you just need a change in scenery, start working on selling some of those underperforming assets...

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    7y

    This is the common story of a tired long distance landlord, who was lured by the promise of cash flow. Most likely these C or D class properties will never perform as you projected. You keep having repairs and trouble retaining good tenants.

    The good news for you is that real estate investing is very popular right now. There are tons of new investors who would be happy to take these properties off your hands and for a nice profit. 

    I would reinvest the profits in a higher quality property or a more passive real estate investment (syndication or REIT).

    0Reply
  • Theo Hicks
    Rental Property Investor · Tampa, FL · Member since 2015 · 1k+ posts · 969 votes
    7y

    It looks like you learned a major lesson about underwriting from the 24 unit and the 11 unit. I am not sure how you currently underwrite deals, but whatever decision you make, I recommend underwriting your deals more conservatively so that you minimize the chances of running into the same issue again in the future!

    0Reply
  • Jabari Long
    Real Estate Broker · Detroit, MI · Member since 2014 · 384 posts · 149 votes
    7y

    @Jesse K. Where are these properties located? Are they all with the same Manager? It sounds like you grossly overpaid or they are being severely mismanaged.

    0Reply
  • Stuart Walthour
    Member since 2019 · 2 posts · 3 votes
    7y

    Stuart from ny state get rid of number 3 property have u heard of David Landell he’s lived in Massachusetts

    0Reply
  • Curt Smith
    Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
    7y

    @Jesse K. What Levi was right and it's the property managers that are the problem. Dig into are they miss managing or ripping you off and these properties are actually decent and you should keep them all.

    0Reply
  • Karen F.
    Investor · San Diego, CA · Member since 2015 · 435 posts · 421 votes
    7y

    Michael P, "Ragged Dick" was the first of a series of books written in the 19th century in the USA by a man named Horatio Alger.  They featured an attractive street urchin shoe shine boy, "Ragged Dick", who decided to work hard, save his money, who pulled himself up by his bootstraps to become a highly successful businessman.  They were sort of morality tales for young boys, to encourage them to work hard and save, and that by doing this they would become rich important business leaders some day.  I don't know how realistic it was back then, but they were very popular, and made their author a ton of money.  Sort of like the author of Rich Dad Poor Dad!

    OP, Joe Splitrock is right.  You're in luck.  Everyone and his brother wants to buy multifamily units now.  So you should be able to sell them easily.  So many people are paying to take classes on learning smoke and mirror concepts (many of which I'm seeing people echo in these comments) about how to refinance or consolidate and pay down mortgages to yield positive cash flow, or that you're just not managing  these likely Class C multis right from a thousand miles away. "Make a trip out there and get it all straightened out!"  (For another several thousand dollars in flights, hotels, and car rental on a complex that's not producing, change the management to another charlatan property management firm, and nothing changes except you're out a few thousand dollars and some vacation days from your real job.)  It's all total BS.  Say you have a property that's worth 500K, that you are into for 100K with a 400K mortgage.  It's not "cash flowing"; in fact, it's losing money.  So you put in another 100K to pay down the mortgage.  Now it's neutral - neither losing nor "cash flowing".  So you put in another 100K, and now it only has a 200K mortgage.  Voila!  It now "cash flows", although very little.  But it cash flows!  Success!  You're into the property for 300K, and it's making you a pittance a year.  But that's okay, it cash flows, and someone else is paying your mortgage!  Success!  In 30 years you will own that building outright!  And it is costing you nothing!

    BS.  It's costing you the 300K in capitol that you're into it, that's producing almost nothing.  If you had bought a three family building near home outright for 300K, that brought in 3000 a month in rent, it would likely have produced 25K/yr in PROFIT, with you managing it yourself.  Or if you had bought three buildings like that, each for 100K down with 200K mortgages, and managed them yourself, the three would have brought in 60K/yr in PROFIT, with you managing them yourself.  Point is, "cash flow" is a BS concept, smoke and mirrors, that these charlatans running expensive courses teach you.  What matters is return on investment, meaning how much money is your money making for you?  And of course, we should all buy property in areas which are going to experience high and rapid appreciation, so it doesn't really matter if you aren't making money on your investments, because you chose them so carefully that while they're "cash flowing", they're also going to increase in value!  The corollary to that is to be sure to buy your stock investments right before they're going to go up, so that you'll make lots of money!  (And there are expensive courses to teach you how to do that as a day trader in stocks with your own money, too, that are worth just as much as these real estate investment courses.)  Idiot schnooks like us know how to time a real estate market about as well as we know how to time the stock market - meaning, not at all!

    Take advantage of the fact that the bottom hasn't yet fallen out of this "Florida land rush" current fascination with multifamilies and apartment complexes, and SELL them!  Then look into investing in real estate very, very close to home, that you can manage yourself while still holding down your day job.

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