How to Generate More Cashflow Before the Banks Stop Lending???

Question

Hey guys! So My buddy and I were talking yesterday about the corona drama and our rentals. We were talking worst case scenario. He was telling me that he doesn’t make much from his 3 rental properties (3 SFH) and that he needed more cashflow. He asked me how would I create more. Uhhhh

Anyway, he said that if I remember in 2008-2010ish the banks stopped lending so if he needs to borrow something the time is now!

I told him that I would drop it into the community and see if anyone had ideas. Here is the situation:

He has a wife and a one year old

Sales job 100% commission, (car or RV sales or something. Really slow right now)

She doesn’t work

They have a paid off 200k home

3 single family houses about 200k each, 50% paid off each (2 strong tenants work in the medical field)

$300 cashflow each house per month after all is paid

How would you create more cash in these uncertain times before it gets too bad?

This may help out other people too! Open to all suggestions.

Jim K. · Answer

The banks aren't going to stop lending.

Joseph Cacciapaglia · Answer

The reason bank loans became much tougher to obtain last time around, was because there were a ton of new regulations and the creation of the CFPB. Not only were there new compliance costs and stricter rules placed on lenders, but there was also a ton of uncertainty about what lenders were actually allowed to do. Lenders were accused of making "predatory loans", and there were new laws punishing "predatory loans", but the CFPB didn't even define the term "predatory loans" for a couple of years. Many banks were scared to make loans, because they didn't know what was allowed. These new rules and restrictions were in response to structural flaws in the mortgage industry. We don't have those issues this time around, so there is no real reason to believe bank loans will become as scarce.

Nathan Gesner · Answer

They could consider a HELOC on their primary home. Get it while rates are low, hold onto it and see how things play out. If the market tanks, it will be nice to have some cash on hand to scoop up deals. If the market remains strong, he doesn't have to spend it and it won't cost him anything to keep it.

Brian Boyd · Answer

@Rob Lee Possibly refinance them

To lower rates and get the monthly payment down to realize more cash flow.

Jim K. · Answer

Or in other words, Rob, it's not 2008. The difference is that in 2008, internal forces tore apart a rotted-out, unsustainable system. In 2019, we have a far more robust and sustainable system under external, temporary duress. We have a President who, setting aside his faults, is not dedicated to tearing apart and rebuilding American mortgaging from the ground up. Should he prove unsuccessful in retaining his place in the White House, we have a presumptive nominee of the other party who is similarly not hostile to banking in this country, to the point where he was once very well known as "The Senator From MBNA" for his support of pro-banking measures.

In 2008, half the strippers in this country were flippers and LLs on the side. I have yet to meet a stripper running a string of ghetto BRRRRs on this site. Don't get me wrong, I'm sure some survived and are great at the property game, but it is categorically a different, saner time in American real estate today, a fact that this website and the company behind it have played a significant role in.

So the banks aren't going to stop lending. Encouraging lending is very obviously an extremely high priority for this President, as it is for his main rival.

Just pray that the coronavirus doesn't off both of 'em. I know I do.

Rob Lee · Answer

@Joseph Cacciapaglia

Yea that does sound ridiculous how lacks they were last time! By the way you sound like an expert to me! 😆

Rob Lee · Answer

@Carl Millsap thanks Carl!

Carl Millsap · Answer

@Rob Lee I agree with Nathan G with one small adjustment. I'd take the HELOC on one of the rentals instead of my primary or re-fi one of them to have the cash on hand.

He'll incur the interest (tenants will pay for it), but if he needs it it's available.

Nick Gann · Answer

@Joseph Cacciapaglia

One of the primary issues that seems to be overlooked right now is the collapse of dollar value. The government is stealing from us and whoever they borrowed from and are funding "stimulus" with printed money. When other countries wisen up and realize we cant repay the debts and our best decision as a country is to default and start over, the value of the bonds won't be good. Hell right now you lose money to invest in bonds, people investing in money losing bonds are doing it because their outlook is very bleak for the future of the currency and thus the gauranteed bond loss is still less than holding the currency and inflationary pressure over time.

Bad dollar value, means no bonds purchases which is how we in theory acquire money to loan. The main purchasers of our bonds at the moment is us. How long can you sell 10 dollar bills for 9$?

Jennifer Maldonado · Answer

Hi Rob,

I don't know your friend's long-term goals so I'm coming only from a short-term perspective for the now. If he can't refinance for lower rates or payments, here are 2 ideas on how to increase his cash flow.

- He can offer a lease option to his tenants where they pay a little bit extra more and he can work something out with them including a downpayment toward the purchase price. If they don't execute in x amount of time then they will lose their deposit or will have to renew until they can get financing.

The second idea for a longer-term: if they can't qualify for a loan he can do a wrap-around mortgage with his. Tenants will have to pay a little bit extra but they will become homeowners. Of course, your friend wants to talk to a lawyer since there are new guidelines in wrap around and Dog Franks laws that might impact those creative finance.

I hope this helps

How to Generate More Cashflow Before the Banks Stop Lending???

How to Generate More Cashflow Before the Banks Stop Lending???

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