All Forum Posts by: Calvin Thomas

Yea, everyone tells me I am a bit too conservative.  In NY/NJ/CT, 250k is not much sadly. 250k, is not pocket money.  That's just what I built up from my current rent flow.  As I buy more MFH, the reserves go up.  

No doubt. However, the 20% was just how much I may use from margin.  I keep around 250k in cash/CDs for emergencies on my properties.  Not worried about flood or fire damage, I just do not want any mortgages on my credit.  

So I took over two new MFH's that already had tenants in them.  Unfortunately, the seller's lease never had any disclosure of possible lead paint.  The homes are both pre-1978.  I do not think I can give new leases with the disclosures, can I?

The seller did give me a statement that there are no known issues with lead or asbestos.  However, the renters never signed anything, and that gets me a bit concerned.

Ideas?

 I get that debt makes a person rich.  Not trying to be rich, I am just trying to maintain what I have along with some stable grow through a variety of different means.  I.E. like not having all your eggs in one basket.  

Are their any mortgages or lines of commercial credit out there that I wouldn't have to PG? Not really looking to PG anything.  As for a cushion of cash, I do keep some in cash to handle expenses and maintenance on my properties and other businesses.  Just trying to level out the risks from everything.

I can assure you the market will not just drop 30%.  I am also a RIA, so I am pretty well versed in the market.  Not perfect, but I do have over 20 years under my belt with the market.  Markets do not just drop like that.  There are breakers placed in to prevent a major drop/panic.  In addition, even the worse daily drop, excluding the flash crash which was reversed by the regulators, was in 87 at 22%.  Which, recovered I believe in about 2 months.  With that said, using only 20% of the margin shouldn't cause much of an issue.  I will have continue to test my theories and results, but it's a pretty safe bet.

 Just about.  They are in Vanguard funds and actual high quality bonds.  Since I selected the portfolio option, I can borrow up to nearly 80% at around 1.5% all-in-all.  Since I would only borrow around 20%, there is more than enough room to prevent a margin call.  Plus, I would use the income from the rental properties to pay off the line of credit ASAP.  The divs from the muni and corporate bonds pull in around 5%, so the account will still be generating around a 3.5% - 4% return.  It is possible that I would be open to a mortgage or a line of credit against the properties at some point, I am just trying to avoid it as much as possible.  

They aren't, and each property passed even though they are 50 + years old each.  The PM also give the disclosures and have them sign the waiver.  

Yep, that what I was thinking.  I am getting a bit of a push back as I have several properties.  However, I have an independent broker trying to obtain quotes for 5m for all properties.  If that fails, the backup plan would be to place a 2m rider umbrella on each policy per property.  Rather not do that later as it is going to be more expensive and a tedious task..

Thank you both for your replies.

I have my portfolio setup in a fairly complex, but prudent way. I have a main LLC, which is a c-Corp. It controls the financial reserves, expenses and payroll. Each property is in it's own LLC owned by the main LLC. Each LLC also have it's own property/liability insurance. The main doesn't have any insurance, however, I was thinking of adding a 4 million umbrella just in case. I just worry about claims or issues that can happen in the future its mold, structure issues, lead, etc. Properties are in NY, NJ and CT. Am I being a bit worrisome for no reason? I worry because my main company holds significant stocks and securities, as well as being the sole owner of all my other properties.

Here we go.  Initially, I was a web guy and I founded a few large web sites, which I sold a few years ago.  I still have a few, but the large ones I sold off.  I picked up a house, a car and the rest were in Vanguard funds.  After the crash, errr correction, I started to buy up Real Estate in NY/NJ/CT college towns.  I only have a few properties, but I keep on adding one or two every year to my portfolio.  I've always purchased for cash, no mortgage.  Some, I borrowed on margin against my portfolio, and just paid it off.  At a 1% rate on margin, it beats a mortgage any day of the week.  

Others are telling me now that I should look into commercial mortgages instead of funding them myself.  I am hesitant for a few reasons.  One, I hate debt.  When I was running one of my bigger web sites, I had seven figures of debt over my head as the sole owner each month (salaries, rent, expenses, etc.).  It was a lot of pressure for me (never took VC).  I sold in early 2008.  At that point, I had a few bucks and vowed never to go back into debt.  I run a tight ship with all my businesses.  There is a daily P&L ledger for everything.  

I also structure my real estate as each property is in its own LLC, which in turn, is owned by my main corp. Each LLC has its own insurance, and my main corp has an additional 4m umbrella in case of any liabilities from my disregarded entities (LLC properties).

I am not sure how the mortgage game works, as I've never had to deal with it before. I come in as a cash buyer always. If I am sure, I write a check from my margin account to my bank account, create a note to the new LLC, and get a bank check for the amount. I know I will not be able to continue to do debt free as I grow. However, I am just hesitant about mortgages. I do not like having to give tax returns, pay stubs, notices and reasoning as to why I only have a salary at this amount. Why don't I have a staff. How can you manage all of these properties yourself (I have a PM company sub-manage everything). Maybe I am missing something. Maybe I just do not understand the rationale. I am hoping someone can guide me here. It is not that I am afraid of going into debt. I know I can always borrow from my margin, or get a line of credit against any of my properties. I just do not like not owning everything 100% and having to listen to a bank demand this or that.

What am I missing?  Or, essentially, what am I doing wrong or not understanding which is holding me back from expanding further and faster on new opportunities due to my reluctance in taking on any debt?

Thank you.