After surviving the storm, crack open the safe and start filling up on assets. The value of liquidity and access to it cannot be understated.

 

Sounds really good. Wish I had done this. But there are some downfalls not discussed- what happens when there is a downturn and your renters can’t pay the rent? You evict them right? Most states that takes at least two months. So you are out those two months rent. Then you have to rehab the property and get new renters - another month at least. Then in a downturn you likely have to lower the rent. Will that now cover you expenses? Maybe. What if this happens on multiple properties at once? Multiple mortgages being paid with no income plus the renovation costs. I have managed properties before and seen this so yes very possible even likely in a downturn.

 

I was told I was absolutely stupid by my captain that I didn’t buy a Florida beach rental condo in 2007 like him with the Alpa claim/note. You know, the condos people were flipping that all went bust? And the ones who held out had to pay larger and larger shares of the HOA pots on saltwater maintenance and FL landscaping? Glad RE worked for you! . The Great Recession was not kind to a number of others.

 

Maintaining proper reserves is a must. If you are operating so close to the margins that a rehab and a few months of lost rent puts you out of business, the problem wasn't with tenants or the market. The failure was with capital allocation. Concentration in a market is great until it isn't. Having a mix of tenants and properties can reduce the risk of concentration. It's unavoidable in the beginning with only a few tenants. In my case, any time one area of the portfolio represented too much concentration, I grew elsewhere.

I left residential real estate in 2015 and made a few mistakes when returning in 2019. The biggest two mistakes were geographic concentration and too much interest rate risk.

Even with rate cap insurance, variable rate debt can wipe out cash flow and equity faster than most people realize. In hindsight I would have gone lighter into MF turnarounds with bridge loans (Capital gains play) and heavier into long term holds with fixed rate debt (yield play).

The good news is that inflation fixes most problems if you don't screw up the leverage. The best way to not screw up leverage is to consistently grow your portfolio. If you have a meaningful portion of your net worth that you want allocated to RE, do it over a few years, not a few months. This is chess, not checkers.

 

You lost me at condo... Also, don't take investment or marital advice from a captain.

Cash flow investors in workforce housing did much better than speculators or vacation housing.


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what is workforce housing? Those with prices in the bottom 60% of the local market?

 

Agreed. Definitely cycles to everything. With that said Real Estate looks rough across the board right now. Not too many deals available that are slam dunks with considerable Margin of Safety. Even the S&P 500 looks pricey with 10 years of negative real returns a sold possibility.

 

​​​​​​Class B/C apartments
Single family homes rentable by median income

NOT govt subsided or rent control property.

​​​​​It varies by market, but a million dollar home is not it.

 

thx filler

 

Agreed. And the RE market tends to be optimistivally over leveraged in good times and is extreely sensitive to "correction" (we must never say the other "c word").

For the "the market always goes up 8-10% including the great depression etc" crowd, yes, I suppose it does. But those who put money in leading up to it were out 30 years not including inflation and 50 years including inflation and it was only the massive economy edangering government/FR fueled bubble pumps that have been providing those returns for much of the up swings that provide that average number.