Hi, I have several rentals that I've acquired over 2-3 years (many thanks to advice from BP). The past 2 months have been a maintenance nightmare, with most of my properties having repair issues, some major, and tanking my income and cashflow. Every email I get seems to be another service or repair issue. I'm reeling financially a bit and not sure how to proceed and work through all this---how do you do it when the hits just keep coming? Thanks.
Did you buy all cash, some cash, or financed?
This sounds so familiar...
Hopefully, you've found over your tenure in the rental property business that these things sort of even out over time. I think we've all had those few months where it just seems to never stop. Here's how I've managed to ease that pain somewhat:
- Fund your capital expense accounts: There is a lot written on BP about this, but I put aside 3% of the purchase price and 5% of rent into an account to deal with the capital expenses. This helps buffer the hit to cash flow a bit. I'm not sure that all of your expenses are capital, but if you've got more older homes, you might want to consider this for maintenance expenses as well (I do calculate 5% of rent for repairs).
- Raise rents: As property tax, insurance and repairs have all creeped up a bit, I've found that I could raise rents. It one meeting with my property manager over the summer, I was able to raise rents across the entire portfolio. This gave me the equivalent of another SFH rental income without buying a new home.
- Ditch the low performers: I've been investing in SFHs for about 7 years now and I've always been reluctant to sell. Now that SFH prices are up, I have started to prune the low performers. I'll hang onto that cash until I find a better performer, especially now that I've learned from my earlier mistakes.
Probably nothing here that you haven't thought of already, but if nothing else, realize that you aren't alone.
Originally posted by @Andrew R. :
Thank you @Joe Hines , those are encouraging tips
and @Joe Villeneuve, I have most of my properties financed, 1 owned outright.
If you sold the negative cash flow properties right now, how much cash would you walk away with?
If you kept those negative cash flow properties, how long would it take before your negative cash flow eats away, and eliminates the cash you could have walked away with...right now?
The safe recommendation is to set aside approximately 50% of the income to cover vacancies, maintenance/capital expenditures, taxes and insurance, etc. You save those funds in a separate account and never touch them until you need to. After setting aside 50% for expenses and paying your mortgage, the money left over is fairly safe to spend and what most people refer to as "cash flow". It sounds like you've been paying your mortgage and then spending whatever is left. That's a very dangerous game, as you can see.
Selling a property takes time and may not happen quick enough to save you. My recommendation is to see if you can cash out some equity on a property that will cover the current expenses and give you a little savings for anything else that pops up. Once you get stabilized, put ALL your money into a savings account until you have a healthy nest egg that can protect you for several major disasters. Once that account is built up, then you can consider taking cash-flow again.
Yes I had been putting some $ into a reserve account, but I got overconfident when everything was going fine--I didn't expect to have several thousand dollar repairs at multiple properties in the same month. When it rains it pours I guess. Looking back over my annual numbers, my properties are still positive cashflow in the long run. I'm just annoyed that everything is going wrong at once and the stress is getting to me more than anything. Thanks for the feedback and tips. This is all part of the deal I suppose. Next term, I think i'll look into unloading a poor performer in 1-2 years.