All Forum Posts by: Shankar Ramani

I want to add my experience with THD so it is helpful for others. In short, excellent experience and no issues with them. They reached out to me to pay $3500 for a SFH for a short term rental when the advertised rent was $2500 and I only wanted long term renters. They could not find a comparable home in the area for a family whose house was destroyed by a fire. The deal was great so I decided to go with them. Dealing with them has been smooth. The rent checks are mailed a few days in advance of the due date. They do have an agent for the tenant that I work with. The only possible downside could be the issues in dealing with the tenants that come through THD. Although not a big deal, my tenant that is renting my property through THD is typically more demanding with an attitude of "I don't care, the insurance company pays for everything". I went through the initial 2 months having to fix even the most minor of issues that other tenants would normally be very adjusting. But this may just be the tenant and not have anything to do with THD per se and may not be the case every time. Also, it is okay to go through some extra maintenance for the short term. Other than that, it's been great so far. I do not know if THD will continue to find other tenants, they supposedly have a directory of homes and move tenants into them. I will post an update after the current lease ends with THD.

@Patrick M. It's easy to be dismissive and rude. I never said my strategy is the best nor that it works for everyone, I was only sharing my experience. Besides, your dismissal is without proper reading of the facts. I never said I don't cash flow - I said I plough the cash back to do the upgrades, none of my properties are negative cash flowing. Also I only said, typically 2 out of the tenants pay rent approximately 1-2 months late on occasion - you make it look like I always have a problem with rents. They have always eventually paid back. Plus I said properties were expensive - you took it as "ultra wealthy" - how do you make an error like that? No, I said higher income families only with stable income. If you can't be open to people sharing experiences that don't gel well with your strategy, don't be dismissive, just ignore and move on.

I'm a part-time real estate investor for over a decade now with several single-family homes and a couple of duplexes. I got into real estate once my experience with stocks and other vehicles weren't working and I needed a way to save money for retirement. Obviously, these are very different goals compared to full-time real estate investors and those focused on cash flow, but I just witnessed an amazing phenomenon. For the first time in the history of my rental real estate investing, I have reached zero rent pending from my tenants and all within the stipulated payment periods.

Even during the height of the great economy, I always had a couple of tenants who I had to follow up with for delayed and overdue rents. As of yesterday, those tenants have been paying well within time for the last 2 months, thus leaving me with 0% overdue balance for the first time.

The point of this post is to share a highly conservative, risk-averse method of real estate investing. In my view, this strategy should form some part of every real estate investor's portfolio, ranging from say, 10 - 15% for full time investors to 90+% for conservative-minded investors like me.

The strategy is -

- Cash flow is not my criteria for real estate investing - I can afford this and this works for me because of my goal of using real estate investing for retirement funds rather than my active income. That said I do get enough cash flow to get the properties to be maintained on their own without me having to put in additional money after I buy the property.

- I buy only in pristine school districts and this ensures lower downside during crisis times and significantly higher appreciation over the long term. The downside of course is that these properties are more expensive to buy, but since I don't care for cash flow, it works for me.

- I am very selective about tenants - higher-income families, with tenants having stable, longer tenure jobs (Even if they have not so good credit due to a divorce or other reason, which is why they're renting and not buying).

- I give tenants a great living experience and dazzling offers on rent - property is kept up to date, top-notch maintenance service and upgrades. Combined with the good school district and neighborhood, they typically end up staying for years and never moving out unless they really have to. This reduces my loss of rents.

- I don't use property management because I like doing the work, so that saves me that cost too because monthly rents are high for my properties and I would lose a lot of money by applying the 15% - the time I spend on maintaining my properties is equivalent to much less money - I guess that is the problem with percentage-based fees - for larger rents, the fees start looking unrealistic especially for a group of 6-8 homes. As an aside, the real estate industry must consider tiered property management rates with volume discounts. And I'm not into multi-family rentals that at some point will require property management due to the higher number of units. Rather, I have fewer and much higher value properties. I also don't like to deal with tenants who live paycheck to paycheck, that is not a judgment on such people, merely that I can't take the stress of being unsure if I'll receive the next month's rent or not.

- I am net positive on my cash flow, but it isn't much, all if it is put back into the property maintenance and upgrades to keep the properties current. Essentially, I reinvest the cash into the properties doing necessary upgrades regardless of tenants' requests.

During the pandemic, I was afraid that I would take a hit and never expected the opposite. The 2 tenants who were always behind perhaps found that they couldn't anyways take their vacation or go out anywhere and decided to get current with their outstanding rents (typically it was always 2 months outstanding, now it is zero). None of my other 6 tenants had any issues during the pandemic, they have all had stable jobs and in good financial condition.

The cons side of my strategy is obviously that it is too conservative and doesn't get me great cash flow. However, I think we need to look at the Total cost of ownership and Total return over 20-30 years. Over this term, I will have higher returns due to property appreciation, lower rent losses and will be insulated from downside risks during recessions and crisis times.

A couple of years ago, I consulted a real estate investor for optimizing my mortgages and he said that I was too conservative and leaving money on the table. That might be true, but I consider it risk premium and freedom that I get to worry less and use my time for other investments and things in life.

Similar to a stock investing strategy, I would recommend some percentage of such a defensive strategy be part of every real estate investor's portfolio - my personal experience confirms how this strategy works well without flaws and has been tested for a decade now. It's a way of deliberately opting for lower short term returns for bigger long term returns and insulation against other higher risk investment vehicles.

Depression for sure, but this time the frustrating thing is that the impact on real estate, stock markets, dollar value etc.. is going to be hard to discern. Our economies, financial instruments, accounting, market manipulation, crony capitalism, derivates, currency printing and delinking from gold standard leave our economy extremely complicated and fragile compared to 1929 when things were not as complicated. The state of the depressionary cycle will be painful leaving all analysts, economists and estimation models failing repeatedly for the next decade or so. Yet, things will not be as bad where fundamentals are reasonably okay, Real estate is one of them. Post 2009, lessons were learned to a large extent and poor quality buyers and mortgages were flushed out. So the underlying fundamentals are good in real estate except for one aspect - like all other asset classes real estate has also been the victim of cheap money and hence inflated - to that extent, prices should see a correction. However, a crash like 2009 in real estate won't happen due to underlying fundamentals being reasonably okay. Of course, it won't escape some broad correction in addition to just inflated asset values, but historically real estate and gold have always been the store of wealth across centuries and values will come back. If anything, once we hit the hyperinflation phenomenon due to reckless money printing, real estate will shoot up in value. This may be the beginning of the death of other funny money assets inflated out of proportion - stock markets likely will be hit harder due to derivatives - remember Warren Buffett's description that they are financial weapons of mass destruction - that has to come true at some point and the current depression seems like a good time for it. As someone said, this is a correction and survival of the fittest in terms of asset classes, the bad and weak will be flushed out. Some lessons have to be learned by real estate investors too - excessive leverage will be flushed out permanently. Those in the real estate market in the long haul and not so obsessed with just cash flow (without much appreciation value in their properties) will probably make it out better in the end and even with some great opportunities in the years to come. High cash flowing properties, especially multi units that thrive on lower or middle income population may be hard hit due to the recession. It's my experience that such properties more or less appreciate lower than those single family rentals in excellent school districts which do not cash flow as much. Good luck everyone and remember good health and life is more important than money any day.

I'm probably just crystal balling but hopefully picturing a balanced scenario. This involves looking at how countries like China are recovering now that they are past the peak of the Covid 19 infection curve. It took them 3 months to gradually begin to get people back to work. With aggressive measures in the next 2-4 weeks, one hopes that people will be able to get back to work by May - despite all criticism about America's handling the crisis, because forwarned is forearmed, almost aways. So the crisis should be less severe than China's or Italy's because ultimately it comes down to the people more than the government itself. America's population as a percentage is more educated than say China or India's. The other critical factor will be the speed at which testing for the virus becomes commonplace. Once again, given some developments like drive-in testing and research labs working round the clock, it is safe to assume that by May, we will have the ability to test anyone who wants to be tested. That means that we will all settle down to some sort of an organized way of dealing with the crisis. Like everyone who shows up to work must be tested and prove that they are negative. This will cause the economy to limp back to normal. In summary, we're seeing a worst case scenario of a 3 month hit countrywide. After this, we have to deal with those permanently displaced from their jobs as businesses go bankrupt or those student rentals that will take longer to come back to normal since those are not the highest priority. Give those cases another 3 months to go. Right this moment, we are all grappling with the worst case scenarios but the world has seen pandemics, wars and recessions before and we all are much smarter and technology innovation is at its peak. It's hard to believe that hell will continue to break loose beyond 3-6 months or that 100% of our tenants will remain unemployed. Like all other recessions, this one will test the leverage investors and banks have and a new normal will be established once again for the cushion necessary, which is a good thing in the end. We cannot get away or get through this without those lessons being learned the hard way.