All Forum Posts by: Bryan P.

JScott,

My rental's Principal/Interest/Taxes/Insurance is 500. The rent is 600. I only cash flow about 100. (I didn't count depreciation or interest deduction) That is 13% which is not even close to 50%. Eventually this cost is going to catch up.

My primary home, which I will have to move out of due to relocation, has a PITI of 510. It can rent for about 600. That's again around 13%. This cost will also catch up.

Luckily I have a good job (teaching job) and I have some extra money per month. I don't want to get slammed with expenses from the two rental properties.

The problem lies in the fact that both loans are short. The first property (the rental) is a 10 year loan. My primary is a 15 year loan. This is why I'm stuck at 13% (or thereabouts).

I don't understand how this can't be an issue? I"m going to lose money eventually. Why shouldn't refinancing to a longer term be a smart move?

Closing on 2 properties would cost approx 3200. Going to 30 year notes would do the following (Is it even possible to get 30 year notes on investment properties):

I would take property #1 from 13% to 45%.
I would take property #2 from 19% to 52%.

Obviously a wise person would put away 6 months to 1 year of operating expenses for any property. Assuming that one did this, when following the 50% rule, is the property then labeled "self-sufficient?"

If this is true, one would theoretically buy alot of properties with not alot of reserve/emergency cash and credit. (Oh wait, that's me.) Am I thinking correctly here?

I'm trying to determine whether I should refinance my two properties into longer terms so I can actually meet the 50% rule. Before I started reading BP, I didn't know any of this and I had already acquired the two properties on 15 and 10 year notes (stupid). So now I have two properties that aren't even meeting 25%, let alone 50%. I'll lose thousands of dollars by refinancing due to closing costs, but it might be worth it.

Jeff,

What about using equity to pay for emergencies? I have 18,000 in equity for emergencies. Is this a not-good way to go?

I should just probably refinance the freaking properties.

I should probably include that on my primary, it's appraised at 70. I owe 32 on it. So I have about 7 years left on the loan and I bought it 2 years ago. So I've made some progress.

Jeff,

My first property is my current home which I will rent in the next few years. It's a 15 year loan at 5%. The PI is 513. I can get 650 rent. That's a crapshoot.

My only rental property was bought (downpayment 30% plus repairs 5K) with a line of credit on my primary. So the PI for this property is 475 and it rents 600. 125 cash flow. It's only a 10 year loan. That's what makes the cash flow lower than if it was a 20 year. Again, this investment is not great.

So my thought is....I better hold onto these properties a while or if I do invest in another property, I BETTER do the 50% rule or I'll be truly screwed down the line.

I probably need to flip a property or two to get some cash. I don't have alot of cash on hand. (I'm a teacher for crying out loud.)

The reason I ask is because I COULD theoretically buy two more rental properties with the equity I have in the two properties that I own. However, I would have NO equity in case an emergency occurs. So it seems to me I would have to find a property that REALLY matches the 50% rule. I can tell you that both of the properties I own now DON'T match the 50% rule. I'm about 25% on both.

If I don't allot the 50% rule with the next property I buy, I could become an overleveraged bankrupt idiot.

I guess a part of this is overleveraging with bad investment properties. Can't forget the bad part.

It's obvious that it happens. I was more or less looking for personal examples or close friends/family that overleveraged in buy-hold real estate and screwed themselves. Maybe had to sell for a loss, maybe bankruptcy.....who knows. I'm just curious.

Can anybody give some good real-life examples of people (or yourselves) that have overleveraged themselves in buy-hold real estate? What did it look like? What happened? What were the consequences?

Thanks!