For those of you who own investment real estate and have been dubbed “Homeowners,” I share with you the absolute worst case scenario of Buy & Hold real estate investing if you have purchased properties with good margins. Note: Although I live in Houston, Texas and wholesale great investment properties in Houston, the majority of my real estate assets are located in my hometown of Columbus, Ohio. If you are interested in learning more about any of the locations, I can help.
Last year I changed property managers because the previous manager just wasn’t up to the task. The new manager came in, collected some back rent and kicked out a couple of tenants who had to leave. Of my 18 investment properties that I hold to build long term wealth for myself, 11 of them were occupied and 2 of them have slow paying tenants. For the first three months after they took over, I had $1,000 more in expenses than income because of all those empty houses. I didn’t have a job (Just Over Broke), and I like to eat something other than instant noodles.
So how did I survive? Well, it’s quite simple; I had a cash reserve built up from previous months and years of investment in case the “worst case” of a bunch of vacant units happened at the same time. My cash reserve is enough to cover all expenses for all my units for 3 months and my own personal living expenses. Without this, I would have been exactly where many other less educated investors were; in foreclosure.
Having a good cash reserve is critical to the success of your Buy & Hold real estate investment. Without it, a couple of bad months can kill you…and don’t expect the federal government to come with a $700 billion bailout for you. You’ll be just another bad real estate investment story.
We are all in this together!
-MNM
PS Even though my actual cash flow was negative by about a grand per month for 3 months, I still made a small profit as more than a grand principal was paid on my mortgages. My property manager found tenants for 2 of my houses who moved in on the 1st of the following month and filled a couple more of my properties the following month. Once all the units were filled again, the cash flow was about $3,000 per month on the plus side after all expenses.
PPS When you buy at the right price on the right terms, even the worst market and economy can’t stop you from succeeding as a Buy & Hold real estate investor.
