All Forum Posts by: William Jenkins

This generally has me very concerned with Commercial.  Most leases as stated are long term with fixed (non-CPI based) escalators.  These leases have been built around the theory that inflation was going to hover at a 2% indefinitely.  Well..... throw that theory out the window now. 

Couple that with the COVID issues with Office and Retail and Commercial (ex industrial) goes from bad to worse.  We are just seeing the tip of the iceberg of leases rolling off and space going vacant. 

Now add in refinancing risk with higher rates.  The picture goes from worse to terrible.

Caps haven't budged to reflect the new reality..... Not sure when it happens, but it has to a some point.....I think..
 

@Jay Hinrichs - "one thing is certain in litigation its far more expensive to be the plaintiff than the defendant" - This is not necessarily correct.  Many times a contract will entitle the prevailing party to legal fees in addition to damages.  I've used this a few time in the past to my advantage, but you need to be fairly certain that you are going to win.  It is a double edged sword.  

Also assuming the above isn't in the contract, the plaintiff could seek an attorney to take it on contingency.  I've also used this a few times in the past. 

I'm not a fan of lawsuits although I've been involved in way more than my fair share.  I would suggest trying to work it out outside of court.  I would venture to guess lumber and materials costs are the primary reason behind the builders contract default.  These things are coming down..... Perhaps if/when they get to a point in the near future when he can essentially break even on your deal he will agree to perform and everyone can walk away unscathed. 

For what its worth..... If this goes to litigation, I wouldn't suggest having the builder actually build the house.  I would simply try to get damages and move on.  I wouldn't want a house built for me by someone who just lost a lawsuit..... you will not be getting a quality product.   
 
 

OK.... My opinion.

1. My financial advisor does not invest in real estate but has clients that do. (OK)

2. I don't pay him a direct fee but he is also my life insurance guy so he gets paid from my policy. (Doesn't seem like he has a vested interest in discouraging you from real estate unless he is pushing you to further fund a life policy with what you would otherwise invest in RE.  FYI... I really dislike insurance policies that are disguised as investments.  Just get a term life if you need one, otherwise it is probably one of the worst investments (and highest fee) purchases you can ever make.)

2. My 10 properties cash flow at least $200 per month per property, some properties more than that. (This is an issue!  I'm not sure if we are talking 250k properties or 50k properties, but I don't like those cash flow numbers either way.  Any rent rate declines, vacancy, or repairs (roofs, plumbing, etc.) will put you cash flow negative really quick.  Not the purpose of this thread, but I would reconsider your investment strategy if this is all you are cash flowing per deal).  

3. My wife and I have W2 jobs with a combined household income of $450k, not including real estate investments. (This is a positive depending on (1) job security/income stability and (2) your current lifestyle.  If you have significant reliable cash flow from your W2 AFTER all of your personal expenses this can provide a cushion/bailout if your RE investments get into trouble.)  

4. I have over 200k in a 401k, another 200k in cash value life insurance, and another 150 in a HELOC.  (Not liquid and major penalties)

5. My properties have a combined 500k in equity.  (This is good, but that is not liquid funds, and liquidity is what you need if things go south.  You can't fund cash flow deficits with equity.)

General advice.... If you are consistently banking a large chunk of your W2 income and it is reliable then I think you are likely fine.  If the market turns, you simply stop banking your monthly income surplus and use your W2 to fund real estate investment deficits.  Things could be painful, but you could likely weather the storm.

If you do not have a significant w2 income surplus, then I would suggest de levering.  Sell your worst performing properties and use that equity to reduce debt on the best performing existing ones.  Then strategically find other deals with a better cash flow margin.  

My biggest gripe with what you describe is the $200 month cash flow per property number. You are taking on a lot of debt, risk, headache, etc. for a measly $2400 month cash flow. You would be better off buying a REIT.

@Steve Hodgdon - That is an EXTREMELY important lesson that many here could learn by simply reading your post 2-3 times and letting it sink in.

The reality is though is that most will skip right over this, and the ones that don't just think "OK boomer."  No offense on age by the way, but that is the "its different this time" mentality.

@Jay Hinrichs - Your comments couldn't be more on point.  I sometimes feel like I am taking crazy pills when I read all of these max leverage and refi until you die posts.  For the last 10 years its worked though, and that is the only market most BP posters have ever seen in their life.  You get a vague post like this, and EVERYONE says, "No your fine.... fire your advisor and buy more property.  While your at it, tap your home equity too... Its dead money." 

I can't predict a recession or correction, but this is EXACTLY the mentality that leads to them.  These people will get flushed just like the ones in 2008 did.  Fifteen years from now when they are rebuilding their portfolio they will be on forums like this being the voice of reason like you.

@Dana Whicker and @Tom Gimer - My attorney confirmed everything you both said to the letter.  I don't really post questions much on BP, but I'm really thankful and impressed with the quality of the responses here.  Yours included. 

I just found out the tax deed buyer fully rehabbed and rented the property.  Its has new floors, kitchen, bathrooms, etc.... It looks better than the day I sold it.  I can't believe they would have spent all of that money without having clear title.  Unbelievable really, but I guess that is just the current state of the market and the players in it.  

@Tom Gimer - That makes complete sense.  I completely wrote this note off some time ago, but looks like this could now be found money.  This is completely going to ruin this investors day, but good for me.  

Thank you all.....  

@Ned Carey - I've never been served until now with the quiet title suit. The property has been delinquent on taxes for years now and advertised accordingly. The county could have easily found me by simply visiting the secretary of state, looking up the LLC registered agent, and then contacting me accordingly (sending certified letter or personally serving me).

Question you may know more about..... When I sold the house I took back a 10% second.  The 90% first was financed conventionally.  In the quiet title I didn't see anything about the first..... Almost like it no longer exists.  Is there any reason why this would be? 

If the first still exists in some form then I am wiped out (which is ok) but if not then I still may have a play.  

I am looking for a little advice regarding a tax sale property in Missouri.  I realize any advice given is not to be considered legal advice.  I have this in front of my attorney for review, but I am looking for some additional color on the situation from those that are in the know on this process....

Prior to the financial crisis, I sold a house to an individual.  The buyer obtained a 90% first mortgage and I took back a 10% second.  In the years following the buyer went delinquent on the first mortgage/second mortgage and stopped paying the real estate taxes.  In 2015 I was contacted to participate in a short sale as the second lien holder, but the agent could never get the deal done. 

Fast forward to 2020 and someone purchases the tax deed on the property.  I never receive any redemption notification or other notices regarding the sale of the tax deed.  Last week I was served with a quiet title as I am still showing as a deed of trust on the property.  For some reason the first mortgage is not showing at all on the quiet title suit which is strange (I'm not sure what happened to it....but I appear to be in a first position now??).

What are my options on it?  Any chance of getting some type of payoff to release the lien?  Any chance I could "redeem," payoff the tax deed purchaser and take title to the property? 

Not an expert in tax sales/deeds so any info would be greatly appreciated.  

 

Easiest way to view leverage........

Most on here are BRRRRR max leverage type people. The vast majority of this group did not go through the 08 downturn and don't know what they don't know. Their are a few in the complete opposite camp that never borrow. Most of these are older investors that have been through one or more market cycles. Then you have those in the middle.

The max leverage group has been partying for the last 10+ years, and they just cant fathom why anyone wouldn't do the same.  There are some huge success stories of people that went from rags to riches in this time frame by literally borrowing every penny they could.  The never borrow group has performed OK in this time period, but they get laughed at because they are too conservative, and people view them as "missing out." 

A market correction is 100% inevitable.  I can't predict, when, where, or how, but it will come.  Those that are max leverage will go BK (simple fact that has been repeated many times through history).  Meanwhile the non levered will still be doing OK or will even prosper (if they can buy).

In my opinion you want to be anywhere in between the the no leverage camp and the modest leverage camp.  If you are max leverage you are "market timing." and you will get wiped out if/when things turn.  Real estate is a marathon and not a sprint.