Where's the unseen risk in long term buy and hold?

Question

I'm looking for any insight into a blindspot in my portfolio I may have. I own a few single families, duplex and fourplex in MN/ND. Mortgages vary from 20 year loans we will redo in 5 and 10 to a 30 year fixed. Interest rates are all around 5. Properties are all C class properties. Cities are all very stable supported by agriculture and manufacturing. My business partner and I each have stable average paying careers. Short of total economic collapse, which our region is usually the last to feel, and major maintenance issues, where am I susceptible to getting into trouble? I know this is a vague question with a lot of variables, however there is a lot of talk about coming recession. Other than things getting incredibly tight cash flow, how are long term buy and hold investors exposed to problems similar to 08? At this time I just don't see it, however I started buying in 2010 and have yet to live through it as an investor. I feel like so long as you can support the properties through lows it really shouldn't matter as long as tenant base is there. Any insight or discussion is appreciated!

Account Closed · Answer

As long as you are setting aside money for reserves for the capex items that will come up over time you are fine.

I think when people get in the most trouble is when they require the cash flow (and 100% occupancy) to put food on their own table. Looks like you and your partner aren’t in that boat.

My rentals all produce cash flow and I have no plan to use that money until years down the road. I’m in the expansion time of my portfolio.

Jason Underdahl · Answer

Thanks for taking the time to respond Eric and Brian. This is how we felt but its always nice to hear it from an unbiased perspective. Looks like rates are continuing to dip and we can hopefully gain more security and cash flow with a refinance. Thanks again and best of luck!

Brian Adzadi · Answer

@Jason Underdahl

I have the same sentiments as you do right now. What we have to understand about real estate, especially in the USA is that it varies from state to state, city to city, town to town. When the recession of '08 occurred, some cities were hit hard, others flourished more. So when all these speculators are making all these predictions about the next market downturn, I don't listen to them. I listen to local news to know what industries are moving or out of my town because they will determine the success or downturn of my rental property. As long as you are not over leveraged, cash flow positive on all your properties and your tenants are respectful, you will make it through anything.

I remember what one of the bloggers on Biggerpockets had wrote. He said how he had couple of properties in C-class neighborhoods. When the recession of 08 happened, a lot of people who had high paying jobs and living in A class neighborhoods, lost their jobs. So the only place they could afford was the properties he owned. Thus, you had A-level tenants living in C-class properties. You can only guess how quickly the value of his properties went up.

You are good where you are Jason. Don't let these speculators fool you. If another recession does hit, it would not be as bad as the one in 08, because those NINJA loans are not as prevalent, the banks require way more proof of income and higher down payments.

Where's the unseen risk in long term buy and hold?

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