Cash Poor, House Rich!! Need Advice
Member since 2022 · 19 posts · 16 votes
Cash Poor, House Rich!! Need Advice
Most Popular Reply
Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
2yIF my income got cut in half, the first thing I would do is cut my expenses by a whole bunch. Stop going out to eat, make as few trips to pay less gas, cut expenses drastically. Maybe get a room mate or two to increase your income some more.
Then I would see about selling another property or two. Would life be so bad if you only had 7 properties instead of 10?? Use that income to start a business that will create more income for you. Lots of answers, it is up to you about what you WANT to do.
30 Replies
- 2yJosh YoungPro MemberRental Property Investor / REALTOR® / Property Manager · Gilbert, AZ · Member since 2023 · 384 posts · 421 votes
@Carlos Handler it sounds like you need to trade in some of your equity for cash flow, this will probably require reducing some of the leverage that you have and buying in a different market. You might consider doing a 1031 exchange and selling a couple of your properties that are cash flowing the least amount and buy in a market that is more conducive to cash flow. With that being said I would be careful not to just chase cash flow but instead find a mix of appreciation and cash flow, but at lower leverage. I like Casa Grande, AZ for this, we have new builds that are around $300k and will rent for around $1750/month. You will have basically no cap ex or maintenance expense and will be able to raise rents by the time any of these expenses start. We have super low property taxes and insurance (about $2k/year combine), and we have landlord friendly laws. The builders offer credits to buy the rate down, or they offer a discount if paying cash, so these make sense. Rents and property values will continue to increase here as our population is increasing and good paying jobs continue to move to this area. If you pay all cash this is a 5% CoC return in year one.
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes2y
If your properties are not cash flowing, you need a general rule of thumb on how many you sell per ones you keep.
It is easy to be in building mode all the time, but it is not sustainable if you are not actively making income and have cash reserves.
- Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes2y
IF my income got cut in half, the first thing I would do is cut my expenses by a whole bunch. Stop going out to eat, make as few trips to pay less gas, cut expenses drastically. Maybe get a room mate or two to increase your income some more.
Then I would see about selling another property or two. Would life be so bad if you only had 7 properties instead of 10?? Use that income to start a business that will create more income for you. Lots of answers, it is up to you about what you WANT to do.
- Member since 2022 · 19 posts · 16 votes2y
This is all great stuff! I appreciate your help. I’ve definitely been thinking about selling other properties to start a business just didn’t know if I should sell in the market we are in today or try to stay above water until interest go down. Does anyone know anything blanket loans? Leverage the equity in all my properties to purchase more. Is it worth it? Thanks!
- 2yDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
@Carlos Handler, There's all kinds of strategies that you can use to keep things afloat while you wait for a change in the market or a better employment situation. You could do a selective cash out refinance on one property to give you tax free living cash.
If you do sell you'll want to do a 1031 exchange if you can so that you can avoid tax on all of your gain. It might be possible to sell and 1031 into a different property that gives you better cash flow. Or you can use the proceeds to purchase two replacement properties. And concentrate the cash into one of them leaving it available for you to do an eash cash out refi.
If you can't or don't want to do a 1031 then make a priority list of your properties and sell the one that - brings in the least cash, you've owned the shortest amount of time (so least depreciation) and has the greatest equity. This will at least minimize your tax bill.
The 1031 Investor5137 Reviews - 2yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Carlos Handler:
This is all great stuff! I appreciate your help. I’ve definitely been thinking about selling other properties to start a business just didn’t know if I should sell in the market we are in today or try to stay above water until interest go down. Does anyone know anything blanket loans? Leverage the equity in all my properties to purchase more. Is it worth it? Thanks!
Hey Carlos,
You could leverage your equity via a DSCR loan. As long as the rental income covers the new mortgage payment, you qualify. There are also no ratio products that do not require the property to debt service. You will be required to show reserves (usually 6-12 months).
But if your properties aren't performing well, then you can look into selling and buying rental properties that perform better elsewhere. Or use that money to start a business.
LuxePrivate Investments LLC 572 Reviews - 2yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Erik Estrada:
Quote from @Carlos Handler:
This is all great stuff! I appreciate your help. I’ve definitely been thinking about selling other properties to start a business just didn’t know if I should sell in the market we are in today or try to stay above water until interest go down. Does anyone know anything blanket loans? Leverage the equity in all my properties to purchase more. Is it worth it? Thanks!
Hey Carlos,
You could leverage your equity via a DSCR loan. As long as the rental income covers the new mortgage payment, you qualify. There are also no ratio products that do not require the property to debt service. You will be required to show reserves (usually 6-12 months).
But if your properties aren't performing well, then you can look into selling and buying rental properties that perform better elsewhere. Or use that money to start a business.
You may also finance your properties with a blanket loan, and can do partial releases.
LuxePrivate Investments LLC 572 Reviews - Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes2y
@Carlos Handler You have a lot of wealth built up it sounds like. I would sell one, 1031 exchange into a cash flowing market and see what you like. It a market like KC $250k in equity will get you around 10 units for $1mm (+ or -) and can cash flow pretty well. This will get your feet wet and see if you want to continue out of state investing. Landlord friendly, low taxes, no rent control, and strong metro growth make it a high quality investment for a lot of investors. Happy to help look at this option with you.
- Member since 2022 · 19 posts · 16 votes2y
Quote from @Alex Olson:
@Carlos Handler You have a lot of wealth built up it sounds like. I would sell one, 1031 exchange into a cash flowing market and see what you like. It a market like KC $250k in equity will get you around 10 units for $1mm (+ or -) and can cash flow pretty well. This will get your feet wet and see if you want to continue out of state investing. Landlord friendly, low taxes, no rent control, and strong metro growth make it a high quality investment for a lot of investors. Happy to help look at this option with you.
- Member since 2022 · 19 posts · 16 votes2y
Hi Alex,
Definitely something I’m interested in. I’m fairly new to real estate even though I purchased 10 units. I’ve always wondered about out of state just didn’t know how to break in. - 2yPeter MckernanBusiness MemberResidential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
Quote from @Carlos Handler:
I own 10 properties in Southern California area. All my properties pay my mortgages on all homes and break even. In all my homes I have about 1.7 million equity. The problem is I can’t touch any of the equity. Recently my employer downsized and I’m making 50% less income. Not sure what my next move is. In the process of selling one property but don’t want to. I need advice from experienced investors. Thank you in advance!
Sounds like you need to sell one or two, or you can do a HELOC (check more than one lender on HELOCs on them) to value add the deals (ADU, and or buy another property to cashflow).
The cash flow is what you are looking for and tapping that is going to take some moving of money by selling your most equitable one to grab a property that is cash flowing or build two ADUs/second units to get higher cash to come each and every month. The HELOC should be on the second most (if you sell the highest equitable property). Take that money and look for cash flow, and/or adding value to the properties you have to cash flow.
The McKernan Group4.954 Reviews - 2yJake AndronicoBusiness MemberRealtor · Reno, NV · Member since 2019 · 1k+ posts · 938 votes
Depending on how you live, in my opinion you could be financially free early-mid next year.
If you were to sell and 1031 into better cash flowing markets, OR just sell and pay the taxes (maybe you're left with $1.1-1.3mil), you could pay cash for 2-4 properties, get property managers in there to handle everything, and net probably $6k-9k per month.
Depends if you still want to be in "growth" mode, or if you just want to be financially free in the simplest way you can.
Whatever you decide, you're in a phenomenal position!!
- Realtor · Providence, RI · Member since 2022 · 404 posts · 262 votes2y
@Carlos Handler - agree with the sentiment here - sell some properties increase your cashflow and DTI and rebuild.
- Inland Empire · Member since 2022 · 9 posts · 3 votes2y
Hey Carlos,
As always, the Bigger Pockets community has given some great advice. As an agent in the SoCal/Inland Empire area I can tell you one of the issues we're facing is an inventory shortage. There are still buyers but there's not enough properties to go around. If you do decide to sell a couple of your properties that could work to your advantage.
- Investor / Mentor / Contractor · Arcadia, CA Buying Out of State · Member since 2015 · 654 posts · 622 votes2y
Sell em all and get those funds working for you out-of-state in a growth market. With those funds you should be in multifamily no single homes. With those funds you should be Cash Rich from all the positive cash flow. Sell. You've made your money here. Time to Level Up!
- Member since 2022 · 19 posts · 16 votes2y
Quote from @Tim Ryan:
Sell em all and get those funds working for you out-of-state in a growth market. With those funds you should be in multifamily no single homes. With those funds you should be Cash Rich from all the positive cash flow. Sell. You've made your money here. Time to Level Up!
thank you to everybody! This is all really good advice and information I never would’ve thought of. I would love to take some money and go out of state. I just wouldn’t know what markets are good in multifamily and are growing. I guess what I probably need as a mentor because the more I think about it, the more inexperienced I am, in all this. BiggerPockets, is a great in Community.
- Real Estate Agent · Member since 2021 · 52 posts · 12 votes2y
Quote from @Carlos Handler:
Quote from @Tim Ryan:
Sell em all and get those funds working for you out-of-state in a growth market. With those funds you should be in multifamily no single homes. With those funds you should be Cash Rich from all the positive cash flow. Sell. You've made your money here. Time to Level Up!
thank you to everybody! This is all really good advice and information I never would’ve thought of. I would love to take some money and go out of state. I just wouldn’t know what markets are good in multifamily and are growing. I guess what I probably need as a mentor because the more I think about it, the more inexperienced I am, in all this. BiggerPockets, is a great in Community.
I sent you a request to connect! We should talk! I have some ideas and some stuff I'm involved in and we can discuss and compare.
For someone who supposedly doesn't know a lot, you're doing great!
I'd love to chat, keep it up! - Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Carlos Handler:
I own 10 properties in Southern California area. All my properties pay my mortgages on all homes and break even. In all my homes I have about 1.7 million equity. The problem is I can’t touch any of the equity. Recently my employer downsized and I’m making 50% less income. Not sure what my next move is. In the process of selling one property but don’t want to. I need advice from experienced investors. Thank you in advance!
Carlos, sell 3 houses every February 15 every year. That's the key. Don't do 1031 if you have ten LOL, just pay tax. Started with the one that has lowest equity.
1.7 million into 10 houses is actually only 1.4 after commision. - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Carlos Handler:
I own 10 properties in Southern California area. All my properties pay my mortgages on all homes and break even. In all my homes I have about 1.7 million equity. The problem is I can’t touch any of the equity. Recently my employer downsized and I’m making 50% less income. Not sure what my next move is. In the process of selling one property but don’t want to. I need advice from experienced investors. Thank you in advance!
With absolute certainty it's time to sell some, if not 50%. Now, that does not necessarily mean take the cash and just sit on it.
There is a long standing rule, older than any of us on BP have been alive; DIVERSIFICATION. From what your saying here your heavily concentrated, and that's risky. More over due to fact it's just appreciation/equity play's, adding an amplification to that risk, and now with threats to active income, yet another amplification to risk factor.
I say it's time it liquidate 50%-75% of that portfolio, yes that's right 75% because that's only way to gain access to that full equity "power" potential. That set's you up to have near 1-million liquid right, great. You than assess which is best, take the tax hit or 1031.
I would 1031, for diversification, seeking best "set-it-and-forget-it" position meaning a really good performing market, asset, that WILL have cash-flow given the down-payment position you'll be making.
Yes, will use leverage, have to but should. Because done-right, you can double that portfolio, get into a fresh 0-cap-x cycle for next ~5yrs, leverage for sub-market rate on leveraged capital, AND get cash-flow very rapidly thanks to ~40% down positioning.
Remember, it's a math game, that's intersects Real Estate St..
So I'd say it's time, no doubt, and yes you can math your way through this but it's going to take good strategy and all but certainly doing some positions, if not all of these new positions, outside CA. Just a fact, it's way harder to get the kind of performance I'm talking about in CA in manner you need it.
For example: Say I could pickup a new construction townhome right now, at $325k. Get 30yr lock at 6.25%. Get builder paid closing to $10k, and a few freebies included. And than also get a 2-1 or 3-2-1 rate buydown making yr 1 3.25% to help exaggerate my yr1 cash-flow ahead of the curve. And I do 30% down ($100k) empowering where I can do 10 of these. Market rents are $2,750 but let's go soft and say $2,500 just to be all the more conservative.
With an HOA fee of $275mnth thrown on top, which is ROI for that as we get everything exterior covered 100% including lawn, snow, private dog park, hazard insurance, private playground etc..
That makes our yr1 monthly expense out the gate $1,699. Add PM at $110mnth, were at $1,809 mnth. That's $691mnth cashflow. X10 $6,910mnth cash-flow.
AND, your still getting appreciation, probably more than before because you didn't trade 10 properties for 10, you did 7/8 for 10.
And remember, we nerf'd down the actual market rents on this. Real potential is $8,910mnth cashflow.
"But what about as rate increases too that 6.25%'.... Yup, your right, what about that. Say it's 2yrs and now your at grand total monthly payment on all now (yes I have been including property tax's and insurance) of $2,217. Yes, cash-flow would be a lot smaller from that $2,500-$2,700+ mnth rents. BUT.... it's 2yrs later, that's 2 annual rent increases. If rent goes up ONLY by historical average of last 20 years, that means rents are now $2,730-$2,948. Or better said, cash flow of $513-731mnth per.
If you could buy a property right now today, with 2yr old everything, that does a cashflow after everything, after pm, of $625mnth, would you poo-poo it or jump on it with both hands?
And this scenario I detail, NOT theory, this is REAL WORLD, today, drawn from real properties, real prices, real rents. Yes, bought properties, yes realized rents, realized rates, all real world.
So, summary; don't be afraid to take the next evolution up to help your today and tomorrows, it's time.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes2y
Your net worth is in the top 3-4% of the population. We should be taking advice from you. A lot of the advice on this thread is a bunch of self-serving nonsense from people who own 10 less properties than you. Keep doing what you are doing...and maybe switch jobs to get back closer to 100% of your earning potential.
- Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes2y
Quote from @Carlos Handler:
I own 10 properties in Southern California area. All my properties pay my mortgages on all homes and break even. In all my homes I have about 1.7 million equity. The problem is I can’t touch any of the equity. Recently my employer downsized and I’m making 50% less income. Not sure what my next move is. In the process of selling one property but don’t want to. I need advice from experienced investors. Thank you in advance!
Sell some and buy rentals OOS with 10% or better net caps
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes2y
Some day dreamer advice here. Above all, protect your principal. Which means avoid getting on thin ice. Liquidate a small portion to stabilize and protect the larger portion, avoid going into a downward spiral at all cost. It could cost you everything. You have to maintain liquidity, pay your bills, maintain your properties.
This is not the time to start a new business without time and reserves. Going into more debt is horrible advice, especially with current rates.
The point of investing in real estate is primarily long term wealth, secondly cash flow. Fix your active income side first before you go an invest out of State. OOS is everything but easy! I live and invest in a classic "cash flow markets" (which has seen 8 years of steady appreciation and is hyper competitive and has very little inventory), and I would not feel comfortable to promise you quick and easy cash flow, certainly not within the time limitations of a 1031.
It takes time to learn a new market. We see it all the time. Just had an investor here from LA, who has been a PM for 17 years and said rough areas don't scare her. One of my agents took her on a tour to see B, C and D areas and now she understands why we don't buy in D or even C minus markets. Whicht BTW is only a smal part of the inner city. Milwaukee is very often misunderstood; what looks great online and on paper (super low price, high cash flow) is usually fools gold in the form of a 100 year old hours that needs everything new, the poorest neighborhood, and high maintenance tenants. It takes time to learn these things. MKE is still a great market, but quality investment grade properties are not exactly cheap and that is probably true for most Midwest markets.
- 2yKerry Noble JrPro MemberInvestor · Indianapolis, IN · Member since 2018 · 2k+ posts · 1k+ votes
Quote from @Rick Pozos:
IF my income got cut in half, the first thing I would do is cut my expenses by a whole bunch. Stop going out to eat, make as few trips to pay less gas, cut expenses drastically. Maybe get a room mate or two to increase your income some more.
Then I would see about selling another property or two. Would life be so bad if you only had 7 properties instead of 10?? Use that income to start a business that will create more income for you. Lots of answers, it is up to you about what you WANT to do.
I like this one especially the creating a business part
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Kerry Noble Jr:
Quote from @Rick Pozos:
IF my income got cut in half, the first thing I would do is cut my expenses by a whole bunch. Stop going out to eat, make as few trips to pay less gas, cut expenses drastically. Maybe get a room mate or two to increase your income some more.
Then I would see about selling another property or two. Would life be so bad if you only had 7 properties instead of 10?? Use that income to start a business that will create more income for you. Lots of answers, it is up to you about what you WANT to do.
I like this one especially the creating a business part
The failure rate for persons who start business's for intent and focus of making $ is astronomically high.
Passion, dedication and grit is what makes a start-up successful, not the hunt for $$$$.
There is a universe of difference between doing something to make $, and making $ by doing something.
- Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes2y
Quote from @Carlos Handler:
Quote from @Alex Olson:
@Carlos Handler You have a lot of wealth built up it sounds like. I would sell one, 1031 exchange into a cash flowing market and see what you like. It a market like KC $250k in equity will get you around 10 units for $1mm (+ or -) and can cash flow pretty well. This will get your feet wet and see if you want to continue out of state investing. Landlord friendly, low taxes, no rent control, and strong metro growth make it a high quality investment for a lot of investors. Happy to help look at this option with you.
This is something that I can help you with. I have helped dozens of California investors break in to the Kansas City market by showing them details investment maps of where to invest, introduction to lenders, property managers, attorney's insurance, you name it. Also if you read David Greene's book "Long Distance Real Estate Investing" if you will be of great help and give you the confidence you need. How can I help?
Join the conversationCreate a free account to reply, vote on answers and follow this thread.