All Forum Posts by: Marc Rose

@H J.

What would I do? I would move on. Your likelihood of recovering damages is questionable, the amount of damages is probably not enough to offset your potential legal fees to collect it, the daughter may not have the money to pay them, and you would be suing someone who just lost their dad. Not a great situation. Chalk it up to a life lesson and move on.

@John Collins

Thanks for sharing the article. I’m guessing it is temporary, as people will always want to live in NYC. Also, this speaks to rental/leasing income, not appreciation. I’d expect home values to continue their upward climb, even if there is a temporary slow down due to covid-19

@Alain Perez-Majul

Yeah, I get what you’re saying, but I want everyone to understand that if you take on a loan/mortgage, and it is a full recourse loan to you, then the lender absolutely has the right to come back to you for the deficiency (if any). I get that it rarely happens because (1) the value of RE typically appreciates over time, (2) lenders often require a borrower to put in some equity (which gives them a cushion), and (3) lenders may not want to go through the hassle of chasing down a deficiency claim. But they absolutely can UNLESS it is a non-recourse loan.

Because of 1-3 above, you may be willing to take the risk of putting the minimum down that a lender will require (and I get the financial benefits of leverage - that’s not what we’re debating here), but you are absolutely limiting risk when you put more down or don’t borrow at all when borrowing with a recourse loan (which most mortgage loans are).

@Joe Villeneuve

Thanks for the response. I’m not sure I follow the reasoning here, but I’m new to these forums, so maybe I’m still missing something. So a lender with a mortgage absolutely has the home as collateral, and they lend on that basis. But the borrower is liable for the mortgage amount, regardless of the collateral value. Now maybe the point people are making is that a lender is unlikely to go after the borrower for any deficiency - and people may point to 2008/9 when people were walking away from their homes and lenders weren’t bothering to go after many individuals. But I don’t think this means banks can’t. And I’m not sure why they wouldn’t if they had a borrower with significant assets.

I guess my point is it makes no sense to say that putting less down is safer because you have less at risk. You don’t legally have less at risk by putting less money down. In fact, the less you put down and the more you borrow, the more you owe, and therefore you have more at risk.

@Alain Perez-Majul

I’m curious as to why it isn’t your problem if you owe the bank $100 million (I know the amount is in jest, but using your quote).

I’ve heard this said before but it makes no sense to me. If you are on the hook and personally backstop the debt on a recourse loan, you are putting all of your finances at risk. I guess you could get lucky and have the bank not come after you for the deficiency, but they certainly could. Especially if you have other significant assets (which in my opinion you should if you are investing in rental properties at all).

What am I missing?

Just want to say that I really enjoy the discussion on this topic. I’m new to these forums, but have been considering jumping into rental properties for some time.

I’m generally a debt free guy when it comes to personal finance, although I see the clear benefits that can be gained by using debt (especially business debt on an income producing asset).

Seems to me that at a very basic level, using cash is safer but slower. And using debt is quicker but riskier.

My guess is that until I retire from my day job, I will likely use some % of debt on my rental properties, with the goal of paying the best cash flow producing properties off when I retire by selling the ones that aren’t cash flowing as well as the others. And then becoming a cash investor going forward.

But again, I appreciate the info in this thread.