All Forum Posts by: Account Closed

Some say sell all the properties. Some say sell enough properties to pay off all debt, and keep the rest of the properties free and clear. Some say sell or cash-out refinance enough properties to have enough cash reserve to support minimum 5 years of recession and assuming 30% rent drop; in addition, keep the short term loans LTV below 65%, so the 65% LTV can survive a longer recession (such as 10 years recession) by able to refinance the same loan at 75% LTV to another 5 years (assuming a 32% house price drop in the first 5 years). What are your thoughts to survive the coming crash (may be in 2 to 7 years)?

News came out yesterday 9/27/2017. Researchers found, a 20% increase in home buildings is needed to achieve a 10% drop in prices. But the San Jose Mayor said there is no more land. https://www.google.com/amp/abc7news.com/amp/realestate/new-report-reveals-bay-area-home-prices-wont-roll-back-anytime-soon/2459819/

Originally posted by @Account Closed , for showing us a very valuable cash reserve example.

For the buy and hold investors, using the cash reserve example Minh Le shown us,

investors should be able to weather the next recession storm. 

Example 1:

Portfolio value: $11,500,000

Portfolio debt: $6,440,000

LTV: 56%

Annual total Rent:$825,000.00 (estimate 7.2% of the portfolio value)

Annual total expenses: $660,000 (80% of "current" annual rent, include operating expenses, debt services, 10% vacancy etc.)

cash flow: $165,000 (20% of "current" annual rent)

Let say rent is dropped 30% this coming recession,

cash flow is negative (-$82,500) annually or negative (-$6875) monthly.

To prepare 3 to 5 years recession with break even ($0) cash flow.

5 years = 60 months reserve for recession.

$6875 x 60 months = $412,500

minimum 60 months reserve to weather the next recession (with 30% rent drop or less) is: $412,500

Example 2:

Portfolio value: $1,000,000

Portfolio debt: $560,000

LTV: 56%

Annual total Rent:$72,000.00 (estimate 7.2% of the portfolio value)

Annual Total expenses: $57,600 (80% of "current" annual rent, include operating expenses, debt services, 10% vacancy etc.)

cash flow: $14,400 (20% of "current" annual rent)

Let say rent is dropped 30% this coming recession,

cash flow is negative (-$7,200) annually or negative (-$600) monthly.

To prepare 3 to 5 years recession with break even ($0) cash flow.

5 years = 60 months reserve for recession.

$600 x 60 months = $36,000

minimum 60 months reserve to weather the next recession (with 30% rent drop or less) is: $36,000

Note:

This example assume that the investor do not rely on this portfolio income to support their cost of living.

If investor rely on this porfolio income to support their cost of living,

they need a positive cash flow instead of break even cash flow,

where the positive cash flow is greater than their cost of living.  

I would not sign a 6-month or 1-year lease with them yet in case they are bad tenants who don't pay rent. I would sign a month to month lease with them at the same rate at the beginning, just try to get a signature from them on the lease agreement that we are now landlord-tenant relationship. In case they don't pay rent, I can take the lease agreement to file an eviction. After signing the lease agreement, wait one month or two month to test if they are good tenants pay rent on time or not. If they don't pay rent starting the first month, I would file eviction immediately. If they are late on rent starting the first or second month already, I would give them a 30-days move-out notice one month later. If they pay rent on time and you consider them good tenant, I would give them a new lease offer with raise rent ($100 to $150 cheaper than the market price plus security deposit) two months later. If they sign the new month-to-month lease and pay you the security deposit, that's great. If they do not sign the new lease or do not pay security deposit, give them a 30-days move-out notice immediately, in case they don't sign the new lease and try to stay there forever. Have them move-out. After signing the new lease for 6 to 12 months, raise the rent to market price or $50 cheaper than the market price.

I manage all my properties. Sometimes busy, sometimes more free time, but financially free now, no more W-2 job

I was working 7 days a week, more than 12 hours a day... Even now, I still work 7 days sometimes, and then off 7 days after it...

It took me 5 years or 1825 days to become financially free...

Yes, I'm still buying today. Currently, I have two deals in escrow, in the process of negotiating a 3rd property. :)

In my local market, from time to time, I saw investors dump their portfolio. Around end of 2015, I saw an investor dumped all of his 70 properties. I bought 2 properties from him. Have had 35% appreciation on those 2 properties after bought from him. Around end of 2016, another investor sold all of his 50 properties, I bought 1 property from him, have had 20% appreciation on the one property after bought from him. Two months ago, another investor dump all of her 30 properties, I bought 1 property from her. Two month ago, another investor need to dump his 15 properties, asked me if I'm interested. I'm the type of person who like to plant all my rentals at my backyard within 5 minutes to 20 minutes distance. His properties are 45 minutes from my backyard, back and forth round trip would cost me 90 minutes. Too far away for me. I didn't buy any. He had it on MLS listing, 80% have been contingent in a short period of time. He told me he need cash to buy a large apartment buildings. To be honest with you, I'm holding all of my properties very tight; but it doesn't mean I won't sell it. I am currently looking for an apartment building within a short distance from my backyard. Once I found something I'm interested in, I will sell at least 10 of my properties to cash out trade for an apartment building. When an investor sold all of their properties, holding the cash is one option, but not necessarily the same option for all sellers. Some investors dump their portfolio, because they see a better opportunity somewhere else to park their money such as buying a larger size of an apartment building. :)

Purchase a property using personal name can get a better rate and loan terms such as conventional loan. However, property under LLC cannot get conventional loan, but can have a better protection. We won't be able to get both advantages - both conventional loan and LLC. If you want the conventional loan, then need to give up the LLC title, but you can buy umbrella policy. If you want the maximum protection of both LLC and umbrella, then you cannot get the better rate of conventional loan. If you purchase the property using your own name with a conventional loan mortgage, then transfer it to a LLC, it may trigger the due-on-sale clause, taking the risk that the lender will ask you to pay the loan balance back immediately. We can only choose one of it, not both of it.