All Forum Posts by: Ericka G.

Ok, so it seems like most on here are strongly in favor of using leverage for several reasons: tax benefits, more/faster growth with less of a personal investment, better returns, less at stake in case of litigation, etc. All valid and well taken points. Most also note that it is important to not be OVER leveraged. Can any of you who use leverage extensively share more on that? What is your formula or stop-threshold to avoid over-leverage? I also can't help but think of the last downturn when many people pulled equity out of their homes and ended up upside down and/or losing everything...how does one avoid that scenario this time around?

Isiah Ferguson your point "With leveraging, lower cash flow per door after expenses doesn't quite make sense to me yet when the goal is to acquire enough cash flow too cover your expenses etc. Appreciation isn't always guaranteed and I had the same issues with bank too." Is exactly what I've been struggling with on wrapping my head around leverage...but the points other folks are making about taxes, growth potential, and the risk of having all cash houses if sued are all making me think that it is definitely time to start making better use of leverage. Now the question is how...Have really not been impressed with any of the banks I've dealt with so far

Andrew Johnson the tax point is another good one in favor of leverage...based on everyone's feedback I think I'm going to start exploring leverage to help me get into deals that I otherwise wouldn't be able to do without wiping out my cash, plus leverage is good for taxes and diversification while rates are still low...I'll continue to pick up the small "too good to be true" cash deals cash flow $600-$1,000+ after expenses when I can too. I will follow the deals and let fate decide from there...

@Shiloh Lundahl  I love your idea to use the method that has been working to reach our goal for 2017 for that one last deal (we are sooo close!) and then branch out and use leverage to build from there.  That will satisfy my husband's desire to diversify and help me manage my anxiety about taking on debt and jumping into the MF pool for the first time.  We can still likely do both this year, but switching the order is a simple fix that would give me more peace of mind.

True MF deals seem very scarce in Atlanta these days but I find my solid little SFR deals in our niche market monthly. Patience is a virtue I'm still working on.

@Darren Budahn I've learned the hard way not to share my exact target locations in Atlanta and elsewhere, but will share that we're able to collect higher than market rents by focusing on an employment niche that value proximity to the airport and a few other secret ingredients that we can then charge a premium for.  Word of mouth has been huge in this niche...I have a constant wait list of folks to get into our properties, so I include vacancies in my calculations, but never really have them. 

@Dean H. Yay! Glad I'm not the only one on here who likes (and see success with) the cash for cheap SFR model. Leverage is both tempting and scary...

@Thomas S. I was waiting for someone to call out my expenses...you're right that they aren't listed very accurately. According to more formal calculations (including vacancy, CAPEX, repairs, etc) the net income on each is:

Option A (Fourplex @ $225k): $1,041/mos or $260/unit/mos

Option B (SFR): $657/mos

While I see your point on spreading cash thin to own as many properties as possible generating a return from Other Peoples Money...the reality is that I've had very little luck finding other people/banks willing to give me money despite 730+ credit, ample cash reserves ($250k+), and a six figure job.  I am able to get financing on the quad but they are acting like i'm "risky" b/c I freetired and worked for myself for almost a year consulting/building our portfolio...so now that shows as a gap on my employment history.  I hate banks.

So, I see the OPM posters and it looks cool, but in reality, no one is trying to give me money.  I also am hesitant to take on a ton of debt spread thin...what happens if the market tanks, all of my tenants move out, and/or I lose my job? I'm still on the hook for all of those mortgages, whereas with cash deals, as long as I pay my taxes, I'm fine if a house is empty (though they never are).  How have you navigated the "risk" side of being heavily leveraged?  I don't want to let fear keep me from using leverage, but the lofty concept of it doesn't match my reality - I'm genuinely trying to understand how others use it to close 100 deals when I can barely get a bank to loan me money for 2 or 3, hence why we've used leverage for 3 deals and cash for 4 deals thus far.

Brent Coombs I hadn't thought of it that way, but another good point to consider...and when I do, the MF comes up short. The Fourplex's asking price is $225, we offered $210k (looks like one owner is unloading a set - other identical fourplexes of his have sold for $190-215k in the past year). They have multiple offers so asked for best and final by EOD Monday. If we get it at $225k I think it is worth $225-250k max. Honestly $225k feels like I'm overpaying based on the comps and the fact that the schools are trash in the area. The single family homes, on the other hand, we almost always are able to get under market value with a bit of patience. The last $50k house we bought is worth $80k+ now...I'm thinking that this is another reason why that path might be the better one at the moment.

Michael Beeman This is why I love BP, I just had a lightbulb moment when you said "these deals are not even" - I hadn't been looking at it that way but you're absolutely right. Why would we take on debt to pay more per unit in a MF than we'd pay for a SFR? That makes me think that we need to keep waiting for the right MF deal...this is the best one I've seen so far in our city sadly. One thing I should have mentioned that also makes the MF attractive is that it is in our town whereas our SFR model has worked best out of state.

If you have cash, should you use it or is it better to use leverage if you can?  So far, I've almost exclusively used cash to build our small portfolio.  My goal for the year was to fully replace my current after tax income with an equal amount of income (after expenses) from our properties.  

Based on my calculations, I'm one deal away from reaching that goal, but I'm at a crossroads trying to decide which path to pursue next and would appreciate input...

Option A: Use leverage and  ~$70k as downpayment/closing costs to buy a multi-family four-plex for $225k, gross income: $2,750/mos, net income: $1,375/mos.  

OR

Option B: Use cash and buy a 3/1 SFR for ~$50k, gross income: $1,440/mos, net income: $1,000/mos - this has been the model we've used to build our portfolio thus far and we have a proven niche approach for this scenario

My husband is advocating that we diversify and buy a MF and also use leverage while I can since I have a very solid "9 to 5" right now and struggled to get financing when I was freetired and focused on growing the portfolio. I see his point but am hesitant to take on debt if I don't have too since the cashflow really isn't a whole lot more on the MF.

Any thoughts?

I've learned the hard way that bad credit = trouble. The last "bad credit" tenant I allowed was a friend of my cousin, used a guarantor, and paid 4 mos up front. Guess what? He was LATE when that initial payment was done. He always had an excuse and was just generally a pain. I always had to chase him down. So, after that experience and a couple of others, I've become a firm believer that most people with bad credit have bad credit for a reason and I also feel that credit is in some ways a reflection of CHARACTER. Unless there was a major life tragedy like an illness that prevented them from paying their bills, I say keep looking since it sounds like this is a desirable property