For those of you who own investment real estate and have been dubbed “Landlord”, I share with you the absolute worst case scenario of Buy & Hold real estate investing if you’ve bought properties with good margins. Note: Although I live in Houston Texas and wholesale great Houston investment properties, most of my real estate holdings are in my hometown of Columbus Ohio. If you are interested in more info on either location, I can help you out.
Last year I changed property managers because the previous manager just wasn’t cutting it. The new manager came in, collected some late rents, and kicked out a couple of tenants that needed to go. Out of my 18 investment properties that I am keeping to build long term wealth for myself, 11 of them were occupied, and 2 of those have slow paying tenants. For the first three months after they took over I had $1,000 more in expenses than I did income due to all of those vacant houses. I didn’t have a job (Just Over Broke), and I do 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 the previous months and years of investing just in case the “worst case scenario” of a bunch of units being vacant all at once happened. My cash reserve is enough to cover all expenses on all of my units for 3 months, and my own personal living expenses. Without this, I would have been exactly where a lot of other less educated investors were; in foreclosure.
Having a good cash reserve is paramount to your Buy & Hold real estate investing success. Without it, a couple of bad months can wipe you out…and don’t expect the federal government to come in with a $700 billion bailout for you. You will be just another bad real estate investing story.
We’re all in this together!
PS Even though my actual cash flow was negative by about a grand per month for 3 months, I still made a small profit since more than a grand of principal was being paid down on my mortgages. My property manager found tenants for 2 of my houses that moved in on the 1st of the following month, and filled a couple more of my properties the month after. Once all the units were filled again, cash flow was around $3,000 per month on the positive side after all expenses.
PPS When bought at the right price with the right terms, even the worst market and economy can’t stop you from succeeding as a Buy & Hold real estate investor.