Negative Cash Flow
I did not think about Cash Flow when I refinanced a couple years ago. I have 4 properties with 15 yrs term. Then I joined Marshall Reddick Network and got excited with the hype and bought 3 properties with 5-10% downpayment 30 yrs fixed through the network. It turns out that my rentals were not as high as I was told. I have to add $100-$400/month on each property.
I can afford that additional payment at this time. But vacancy kills me.
I bought all property at retail price. I am still in learning process on the creative side of REI.
By the way, I do not recommend anybody to purchase rental from MRN. They saturate rental market.
To improve my cash flow, my choices are:
1. Leave alone as it is. Take actions when necessary.
2. Sell some property and pay off one. My objections are I have paid closing cost and my interest rate are all good. Do I want to give up the rate and in the future I have to start all over again.
3. Refinance the 15 yrs term with Interest Only, 30 yrs fixed or ARM. My objections are again I have to give up good interest rate and in the future if I buy another property, I have to start the loan from beginning.
The average equity of all is about 25%. I am tight with cash right now, but I have plenty of HELOC credit for emergency.
Any input/suggestion?
Well ew, personally if I had several properties that were not cashflowing I would put them all under Lease/Options. I currently have a property under a L/O for it's 3rd time and like keeping that option payment each time. It is a good estimate that if you had 4 properties in an L/O that probably 2 would actually go through with buying them.
You get to enjoy higher than market rents, possible get your rental to a cash flow or at least break even point, and end up only cashing out one or two and still enjoying your equity. Plus you would have a chunk of money from the options money to sue how you please.
You might give us a little more info. What type of properties? Are they in Phoenix? I just bought two houses in Phoenix with 10% down that are break even. If your properties are in Phoenix and you can hang on, you may be OK, however, if I understand your post you have a total of 7 properties with a pretty big eat.
If your average equity is 25% then you may be able to pull out loan initialization costs with a re-fi. Keep in mind that monthly payment is more important than interest rate. You might give is more information that will help us with suggestions for you.
If you have single family's, maybe you can do lease options? Get a big chunk up front and a little higher than average rent to go toward the purchase.
This is a prime example of teh difference between guru's numbers regarding cashflow and the real world. The most accurate one I have seen in regards to running cashflow numbers is Robert Allan.
GL
[addsig]
If you are satisfied with the properties, you may just want to ride out the negative cash flow for now - you should be able to start increasing rents 2-3% per year; which should start making up for the current negative cash.
I would first decide if you want to own the properties at the prices you paid (including all costs); then if you are happy with the properties consider some of the L/O sugestions from above, or treat your tenants well and ride out the negatives - with proper rent increases you should be able to right your ship.
some food for thought...
25% equity in each property indicates you shouldn't be paying ANY PMI!! Get an appraisal and send it to your lender showing your LTV is below 80%...
Additionally...if a property isn't cash flowing with 25% equity, its either a bad market for investors or not being operated properly. Are rents maybe low?
That being said...I'd hold onto them if you can eat the negative cash flow based on the fact that you are supposedly locked in with a low rate and your on a 15 year mortgage...which means your socking away towards the principal. Check your cash flow before principal...its not money lost...
rmdane2000,
25% equity is average. The lenders do not let me use appraisal value until I keep the loan for minimum 2 yrs.
Yes, it is not negative if I consider principal as income.