Need Adivice..Losing $$ Every Month
Hello everyone, I have read this forum for three years but never posted, always remained in the background..until now…The short story; I need advice on my situation. I have a regular job but started late with 401Ks IRA. Etc. I’m reasonable young (36) and desire to retire early. I had the great idea to get into real estate due to I am handy, have no kids, and like challenges. I bought a 5 plex in 2005 at the peak of pricing, fast forward two years and things are not great. The First year went well as I sunk 30K in to renovating the building to a nice, well maintained state. Things seemed well, I was breaking even, mainly due to rising Insurance and taxes here I was not able to cash flow well. The units were 100% occupied with decent tenants. 2006 went well, not very profitable but not a loss and nice tax write-offs.
..
2007…Things turned rather quickly, 3 Tenants left to rent houses because the glut of newly renovated homes now renting for dirt cheap so investors can help cover their mortgages. Insurance is still a bear and taxes high, I have had limited success filling the apartments and current 2 of 5 sit empty. EVERYWHERE there is a for rent sign, competition is tough, Landlords giving free 1st month rent, etc. RENTS ARE ACTUALLY GOING BACKWARDS as all the other landlords are lowering rents and standards; many buildings are luckily 75%+ occupied. Much different from 2006.
Here I am losing about $1500.00-$2000.00 a month and not having much luck at re-renting. What to do?
>
a) Lower rents and live with putting $1000.00 to $1500.00 into my investment every month to make up the difference even with 100% occupied? Hope to slowly raise rents over the next few years and appreciate the tax write-offs while having someone pay off the mortgage?
>
b) Throw in the towel, sell for what little profit I could make in this terrible sellers market, I would say 1/3 of the Apt Buildings in my area are being sold by owners who have held on and are looking to cash out or like me….in over their head.
>
c) Give Up !! Sell for a loss to get out quicker, I can only see sinking more money every month, not enough to kill me but definitely will affect my personal income
>
I will say , wow what a fun, tough learning experience. I really like to be a landlord/property manger but my numbers look to bleed me slowly for at least two years to come.
Thanks for the advice…fire away! I have thick skin, good humor and really appreciate the pros advice. …Man, I should have seen it coming but I am new to investing and maybe bit off more risk than I can sleep on at night. To break even after so much work is devastating…to loss money in the end will be a tough life lesson.
So far $13,500.00 has been paid back towards the principle, not even enough to cover the 6% commission. I have decent reserves but wonder how smart would it be to keep spending it without really cash flowing well and hoping for another appreciation run up in the future.
Oh yea, this was a no money down deal I worked, so mainly I would be just seeing 2 years of intense labor/, management headaches and dreams go down the drain.
[ Edited by RatherBFishing on Date 06/12/2007 ]
Thanks for the reply..the state is AZ. I liked this one because it was in my backyard < 15 minutes away.
Johna1
I would love to learn how you bought 11 properties without using your personal money.... If you dont mind sharing the secret of course....
Is there any way you can change the use of the building to a another use? assisted living maybe.
Quote:
On 2007-06-12 19:07, RatherBFishing wrote:
Hello everyone, I have read this forum for three years but never posted, always remained in the background..until now…The short story; I need advice on my situation. I have a regular job but started late with 401Ks IRA. Etc. I’m reasonable young (36) and desire to retire early. I had the great idea to get into real estate due to I am handy, have no kids, and like challenges. I bought a 5 plex in 2005 at the peak of pricing, fast forward two years and things are not great. The First year went well as I sunk 30K in to renovating the building to a nice, well maintained state. Things seemed well, I was breaking even, mainly due to rising Insurance and taxes here I was not able to cash flow well. The units were 100% occupied with decent tenants. 2006 went well, not very profitable but not a loss and nice tax write-offs.
..
2007…Things turned rather quickly, 3 Tenants left to rent houses because the glut of newly renovated homes now renting for dirt cheap so investors can help cover their mortgages. Insurance is still a bear and taxes high, I have had limited success filling the apartments and current 2 of 5 sit empty. EVERYWHERE there is a for rent sign, competition is tough, Landlords giving free 1st month rent, etc. RENTS ARE ACTUALLY GOING BACKWARDS as all the other landlords are lowering rents and standards; many buildings are luckily 75%+ occupied. Much different from 2006.
Here I am losing about $1500.00-$2000.00 a month and not having much luck at re-renting. What to do?
>
a) Lower rents and live with putting $1000.00 to $1500.00 into my investment every month to make up the difference even with 100% occupied? Hope to slowly raise rents over the next few years and appreciate the tax write-offs while having someone pay off the mortgage?
>
b) Throw in the towel, sell for what little profit I could make in this terrible sellers market, I would say 1/3 of the Apt Buildings in my area are being sold by owners who have held on and are looking to cash out or like me….in over their head.
>
c) Give Up !! Sell for a loss to get out quicker, I can only see sinking more money every month, not enough to kill me but definitely will affect my personal income
>
I will say , wow what a fun, tough learning experience. I really like to be a landlord/property manger but my numbers look to bleed me slowly for at least two years to come.
Thanks for the advice…fire away! I have thick skin, good humor and really appreciate the pros advice. …Man, I should have seen it coming but I am new to investing and maybe bit off more risk than I can sleep on at night. To break even after so much work is devastating…to loss money in the end will be a tough life lesson.
So far $13,500.00 has been paid back towards the principle, not even enough to cover the 6% commission. I have decent reserves but wonder how smart would it be to keep spending it without really cash flowing well and hoping for another appreciation run up in the future.
Oh yea, this was a no money down deal I worked, so mainly I would be just seeing 2 years of intense labor/, management headaches and dreams go down the drain.
<font size=-1>[ Edited by RatherBFishing on Date 06/12/2007 ]</font>
I have been buying and selling RE for the last 30 years and I have one piece of advice for you. The first loss is the best loss...
Lets face it, this RE market is not going to turn in the short term so unless you have high hopes for this property and plenty of capital to see you through the next 2 -3 years I would lower the price and take your lumps now.....
I have seen too many people try and hang on way too long and lose their shirts.
Do not forget about the most precious resource of all..... your time.
Although I like the tenacity of Cash Flow Queen, you have to consider the cost of allocatting your time to this particular property. If you spend all your investing time dealing with this particular deal, with the best probability being to get back to break even, then you are wasting valuable time.
In the words of "Gordon Gecko" from the movie Wallstreet, "the key is your capital reserve, without it you cannot pee in the tall weeds with the big dogs." Even if your goal is not to control the world (as his was), your capital is more importatn than your pride, learn to not loose it.
Cut the bad horses loose, and go get another pony to ride.