All Forum Posts by: Supada L.

Signs you have a dog property.

When the BP peanut gallery says keep it for the Tax Benefits.

2n.   Paydown of mortgage is brought up as a reason to hold on.

SELL N REASSSESSS.

Is there a way to make the property cash flowing?  For example once the tenant moves out switch it to a vacation rental or pass along services?  I charge a gardener fee to my tenants so it doesn't hurt my bottom line.

As a learning experience, I wonder if some of these fixes could have been caught through a home inspection when you initially purchased the property.

@Supada L. Having lived in Meridian, MS I know that entire city depends on the Navy base and that can be risky. I agree with the person that said having $100 CF each month brings about risk so be careful.

@Supada L.

$100 is not cashflow. Any company that tells you otherwise is either clueless/ inexperienced or lying to you.

Here is my beef turnkey (despite starting out with it back in 2012) with 300 dollars per property (2 months of work to buy a turnkey rental) you are going to need 20-40 of these to replace your income. I had 11 of these and good systems in place but still had 1-2 evictions a year and 3-4 big things that were normal annoyances like plumbing leaks, damages from hurricanes, or some vandalism. Image if I had 30, just 3 x those numbers.

Directly investing in a turnkey rental or small MFH is a good way to start to learn and build up the war chest to go into my scaleable investments such as private placement syndications. 

I would talk to the PM and see if you will be able to increase the rent to increase your cash flow in the near future. Sounds like a lot of repairs to take on for a property that only cash flows $100/month.  Also, it doesn't sound like the property was quite "turn key" as they promised.  Is there a warranty on the property?  The whole point of buying those turn key properties from those companies is peace of mind, which isn't the case here.

@Supada L. Well you have a lot of good advice to your question on the low cash flow issue! I have also come across that with a property of my own or with one of my investors. You have to decide what to do since it is now already purchased and you know that you may have made the mistake to start with, but now what to do is up to you. Nobody said RE Investing was easy!

In the same type of situations I have had in the past I get a good accountant that will track my losses as a business expense for starters. From the minor repairs to the loss of income. I then also do what I call "boiling the frog". Any rental property that I have, even if the rent is maxed out or above market rents I will still raise the rents every lease renewal. How much depends on the area, but as an example if it is $1000 or less then I will raise it $25/mo. If it is more than $1000/mo I will raise it $50/mo. When I say raise it... you have to wait for a lease renewal then raise it. I have had properties that were $250/mo over market rent. Why does this work? Well if I have a tenant that is renting for $1000/mo and next year I raise it to $1050/mo they don't bat an eye. If they love the property they will stay verses finding a new place and then having to move. Once the current tenant is over the market rent by enough they will move out and then you just start marketing the property to get a new tenant at the same level as the last one left it at. Most tenants look at "How much can I afford?" and not at "Where is the current market rent?". If it doesn't rent then drop it $50/mo every two weeks until it does. Then next year start "boiling the frog" again!

The concept of losing money with negative cash flow is more of a mental state of mind. If you have 5 properties and 3 are above market rent that can make up for the negative cash flow... then you are ok. Just don't make it a habit of buying with negative cash flow and you will be fine! By "boiling the frog" you may be able to make this one cash flow somewhere down the road and in the meantime take the loss as a business expense and soak up the equity until you can get it sold or refinanced to take some money out on the back end.

I always set up contingencies in my estimate. These include 11 month rental periods (one month vacancy), repairs etc. If condo, check thoroughly if there are any future assessment plans (They are killers)

We have a saying “first year is the worst year”.  There are usually unexpected problems and maintenance that first year.  Also, I would love to have a 10 million dollar building, better yet a 100 M $ building break even while someone else pays down the debt.  Hang in there, stay on top of your property manager, and keep an eye on your expenses.  Buying a deal on a $100/month cash performance is too skinny of a deal, but you’re learning and now you’ll have a better idea of value in the future.  

I covered my first year in my first "real property" in depth on this thread: https://www.biggerpockets.com/...

I did it for cathartic reasons, but also as a lesson and insight for others to see. The TL;DR version is I bought a duplex in an area that has low home prices but stable rents. Essentially looking at a 2% rule property...and while it showed well walking through, there was a lot wrong with it. I had a ton of maintenance and CAPEX items in year one, which I consider a partial year (August 2019 to December 2019) and the first full year was also negative cash flow.

However, I've turned the corner (or what I think is the corner) in year 3. I cash flowed $119 per month/per door this year, and that's with some unexpected bills that came through beyond my budgets. I wouldn't call it a perfect deal, but it provides some tax advantages, and I have investors texting me daily for it. It appraised 40k higher than what I bought it for in 2018 (just refinanced to a much better interest rate, which will save me ~$100 a month in PITI).

In the investment world, folks I respect and have learned from might call it a single. They might even call it a bang-bang play-at-first bunt single. But the amount of knowledge and experience this property continues to provide me, is worth me hanging onto it. I am re-evaluating every year and I need to maintain the $100 per month, per door cash flow, as it suits my CF goal for any property I have. Should my goals change, then my evaluation will change accordingly. 

Point of this is to tell you year 1 is a stabilization year, especially for your first deal. If you're committing to investing, then commit to it. Bounce your financial expectations off another investor or two to make sure its sound, and then evaluate it against that. If you've essentially fixed or replaced all of the items you needed to, you crashed through your CAPEX budget early, but then your CF should be much better moving forward (in theory).