DDDD- Dialing down, deleveraging, diversifying...

[wandering]

On the other front... it sounds like you are really a real estate entrepreneur if I understand that your real estate portfolio is your job and means of support? In contrast to other real estate entrepreneurs on this forum for who real estate is a side business rather than their full time job. If so, then build the business but at the some time look at it as a business and also build your personal capital as well... IOW, diversity in your case is having investments that are different from your investment in the real estate business, much like many here develop diversity from employer stock. That way if the "employer" goes belly up, you don't.

Thanks pb4uski, yes you nailed it, I used to call myself a real estate entrepreneur when I was more active in it.

This is a perspective I want to consider as well. I appreciate this.

My marriage is still very strong without any help from any member of my intermediate families. None. Do not read those statistics. Mostly nonsense, IMO.

Well goodbye statistics!

----

I actually shared this thread with my DW after so many of the posts started to become related to our NICU experience.

1- She is touched by all of you who have contributed on this topic and wants me to say thank you.

2- She clarified and told me that it was not the Anchored book by Kayla Aimee! She said it was some other book we were reading while at the NICU (or had a reference a study "maybe from Tulane"??) but she has searched for it and hasn't found it since.

*** BOTTOM LINE, we're deciding to throw it out! ***

----

Lastly, I just want to reiterate how grateful I am for y'alls contributions regarding the NICU and marriage challenges here.

That said, one of the reasons I'd thought about not including that is because it is such an attention grabber, and I do sincerely want to hear lots and lots of thoughts/ideas on the specific, pragmatic parts of life I am faced with right now.

There has been some conversation in this arena too, of course, but that is the major direction that I probably need the most help.

But again, it's been so encouraging and helpful to hear everyone's perspectives, and to officially rule the 97% statistic out of my mind. Seems like it could be false anyways, and there are some great statistics Meadbh has shared that show that even if this statistic were from a real research study, elsewhere in the world (The Netherlands, Canada) the statistics are drastically different.

It just makes sense to leave that thought behind.

----

So, what do you guys think about my financial and career situation? What should I do?

Because of our situation, I have some time to figure these decisions out. I really want to make a great choice, and one that puts early retirement, current semi-retirement, and maximizing life, finances, exploration as top priorities.

What ideas are there for jobs I seek out that would provide maximum:

- Allow me to be as "semi-retired" now as possible
- Allow me to get to "fully-retired" as soon as possible
- Provide great benefits (especially health)
- Align with my values (see earlier post for more but specifically freedom, focus, quiet, flexibility, curiosity, exploration)

Are there any 30-40 year olds that love their jobs around here?

 

[Another Reader]

I'm a long term landlord with a couple of dozen properties worth significantly more than your portfolio and around 18 percent leverage on the rentals. I haven't seen your rent roll or your operating statement, but I don't like what I have seen so far. At least you are honest about your expenses at 50 percent, and I'm hoping that includes capital improvements.

You "own" $4MM in real estate with approximately $600k in gross equity and some complicated financing on the 84 percent you don't really own. Selling expenses, including repairs, commissions, and concessions, could easily amount to 10 percent, or $400,000. There goes two-thirds of your "equity" there. A 5 percent dip in the market, a jump in the interest rate at the end of the 5 year fixed interest rate period for the adjustable mortgages, and/or some protracted vacancy or declines in rents could wreak havoc with that portfolio.

I only have 18 percent leverage, and I'm selling two highly appreciated properties to reduce that further. The last downturn threw a lot of people out of their houses, so rents actually went up and vacancy declined. That does not happen in every downturn. I'm older now and very interested in insulating myself from the future twists and turns of the market. I would think having a child, especially a child with special needs, would make you a bit more conservative as well.

You have only been in real estate a relatively short time and you have benefitted from some unusual market conditions. In your shoes, I would reduce the leverage and aim toward a solid free and clear income from the properties that are left. Otherwise you may be flipping burgers or stocking shelves on the overnight shift at Walmart because you have no significant work history at 30 years old. Not trying to be mean here, I have just seen too many people in your position crash and burn over the last 35 years in real estate.

 

[wandering]

...There goes two-thirds of your "equity" there. A 5 percent dip in the market, a jump in the interest rate at the end of the 5 year fixed interest rate period for the adjustable mortgages, and/or some protracted vacancy or declines in rents could wreak havoc with that portfolio.

Another Reader, these concerns are what embody my stress, in no way do I view you as "trying to be (or being) mean" >> I want your thoughts and what you've seen, and I only benefit from your perspective.

No significant work history is a major reality for me as well, and the year I took off our medical situation doesn't help either, although I kept up some part-time remote consulting work, etc., it's not resume material.

I have a couple questions I'd really appreciate your thoughts on:

1- You would advise I reduce leverage, and aim toward free and clear real estate-- what do you think of my idea of throwing these assets into a partnership, raising capital, and giving up equity? Use that capital to pay off my Private Lenders, pay capital gains, and land with 64% debt on the portfolio? It would allow me to keep snowballing, although in a much smaller position... but it would insulate me from the negative effects of my leverage.

2- Do you have any advice as to my "career"? Stay in real estate? (I have a Master's in real estate that makes me somewhat marketable for that line of work. Undergrad was in Finance.)-- my aversion to a job partly comes from watching all my graduate buddies work 70+ hours, and their "promotions" come with higher pay but more severe stress levels and even more hours...

>> Still, I've considered getting some sort of a job for a myriad of reasons... if you want the long-story, message me and I can give more insight, but the #1 reason would be stable predictable cash flow, along with benefits. I have kind of swept benefits under the rug for my entire career, but reading this forum and other retirement websites has opened my eyes to things I was ignorant of.

Some days, a break from the life of entrepreneur doesn't sound terrible, and other days it does.

I would think having a child, especially a child with special needs, would make you a bit more conservative as well.

You have only been in real estate a relatively short time and you have benefitted from some unusual market conditions.

Though I can't say it with the same authority of your experience... this feels very real to me.


Do you have any other thoughts on a direction I might go in?


Really appreciate the thoughts you offered.

 

[Scrapr]

Wandering

Don't get a day job. Unless it's just a job loading trucks at night to keep the lights on. You are doing fantastic in your RE. The drive and the "figuring things out" that you have done so far will be much better served to your family if you continue in the RE. Maybe tweak it a bit. I see larger contractors with a portfolio of rentals form a management company. I don't know your rent roll. At the size of your management fees it might make sense to bring that part in house. Maybe do it yourself. Or hire someone with a bit of experience to tutor you how to do it.

This will give you some flexibility in your home life. Frankly I've been at my career for almost 30 years and even early on I could not make the jump back to W2 employment.

There is a million ways to make money in RE. Scratch out other opportunities. And network! So you don't have to reinvent stuff. You can do this!

 

[brucethebroker]

A comment on the real estate, from another investor...
What is the cap on the ARMs? Many of us here remember 8-12% rates in 80's and some of still remember 15-17% FHA rates of the late 70's. Those numbers would hurt you and destroy any thoughts of re-financing in the future.

My friend investors in their 40's came of age with decreasing interest rates and great ARM deals. That party may be over. Just a thought....

Welcome, BTW....you know that one, right?!! haha

 

[Another Reader]

Wandering

Don't get a day job. Unless it's just a job loading trucks at night to keep the lights on. You are doing fantastic in your RE. The drive and the "figuring things out" that you have done so far will be much better served to your family if you continue in the RE. Maybe tweak it a bit. I see larger contractors with a portfolio of rentals form a management company. I don't know your rent roll. At the size of your management fees it might make sense to bring that part in house. Maybe do it yourself. Or hire someone with a bit of experience to tutor you how to do it.

This will give you some flexibility in your home life. Frankly I've been at my career for almost 30 years and even early on I could not make the jump back to W2 employment.

There is a million ways to make money in RE. Scratch out other opportunities. And network! So you don't have to reinvent stuff. You can do this!

If the OP has to get a job loading trucks at night to "keep the lights on," I don't think he or anyone else would describe that situation as "successful." Real estate is all about numbers. If he is supporting his family consistently with the income from the real estate without taking on a huge amount of risk, then he is "successful." If he loses the properties in five years and has no job, he's in a world of hurt.

Without seeing the entire picture, i.e. all the numbers, it's difficult to form an accurate opinion of his chances of success. From what I see, it looks like far too much risk for me.

Some people lose it all, learn from the experience, and come back stronger. I don't think the OP, with a young child and a wife depending on him, wants that type of education.

 

[Meadbh]

I am reminded of a realtor I knew who bought three highly leveraged properties at the peak of the property market, with a view to flipping them. Then came the crash. He could not sell, and became a landlord with negative cash flow. His tenants were very well behaved and did not move. Because of rent controls and no turnover, he was unable to increase the rents to cover all expenses, so he fell behind on condo fees and incurred liens and interest charges. Eventually he fell behind on mortgage payments. The lenders foreclosed on all three properties, leaving him with nothing. He is now close to 70 and has no hope of retiring.

Don't be over leveraged.

 

[Scrapr]

If the OP has to get a job loading trucks at night to "keep the lights on," I don't think he or anyone else would describe that situation as "successful." Real estate is all about numbers. If he is supporting his family consistently with the income from the real estate without taking on a huge amount of risk, then he is "successful." If he loses the properties in five years and has no job, he's in a world of hurt.

Without seeing the entire picture, i.e. all the numbers, it's difficult to form an accurate opinion of his chances of success. From what I see, it looks like far too much risk for me.

Some people lose it all, learn from the experience, and come back stronger. I don't think the OP, with a young child and a wife depending on him, wants that type of education.

JFC people. I'm going to call wandering a kid. Because he's 29 and done a good job so far figuring out a path. Is it perfect? Of course not. He's got some responsibilities. But he also has some flexibility in his schedule. He doesn't have to"work for the man". He is the man!

I love his attitude on getting this thing going. I'm not big on partners. I've been in 2 partnerships and they both ended the same way. One partner thinks they are doing too much work for too little money. I'd make my own way. But that's me.

There are many ways to make money in RE. He could flip houses. He could rent to own since the 'rents are backstopping the rent anyway. He could manage it himself. He could (and maybe is) become a Realtor and do his thing there. He could move into multi family. Maybe buy a plot of land and develop a small apt complex. Sometimes a night job is what it takes to get past a cash flow situation. He's young. He can handle it

Sure looking at his set up there is a lot of leverage. And that should probably come down. But this "kid" has got moxie. He would be miserable working for somebody. Kid has got the bit in his teeth. Let the big dog run

 

[Aiming_4_55]

Wandering - Welcome to the forum.

We have a few things in common, but different:

Real Estate - I was leveraged heavily in my 20's, but most were paid off within 15 years regardless of the terms. Between buy and hold with several flips. By 40, I was pretty much mortgage free and enjoying the pure cash flow that I fed into the stock market. I generally never touch the assets in real estate or stock market. Real Estate is part time to me, but is valued over $1M with cash flow that covers my typical living expenses now.

MBA grad here - I'm one of those silly guys working for the "man" 50 hours a week to earn a pay check, but it adds a layer of security that my family desire. Stock options/RSUs will be 6 figures this year. Sure, I sold my soul to something I enjoy and DW is a stay at home mom with quality time for the kids. That's priceless to me.

Married with Preemie - Married 17 years and preemie is 10 now. She was 7 weeks early, in NICU to term, and product of several out of pocket IVF processes. Sure it added stress to the relationship, before and after, with 50% chance of IVF success, 10% chance of healthy delivery, but we are doing fine and looking forward to "growing old together". Preemie spent part of the day trying April Fool's jokes on DW, brother, and I. Even taped the TV remote and computer mouse to prevent it from working. Topped off her 529 fund and approaching quickly on the 529 fund target for her brother.

Life is a roller coaster, get the best seat and go with the flow. Have open conversations and value what your spouse is saying.

 

[wandering]

What is the cap on the ARMs?

I'm not familiar with caps during the operational phase of a rental (e.g. I guess I could get them appraised to determine NOI on Appraised Value?). I'm only familiar with Going-In Caps on acquisition/development, and Terminal Cap rates in my pro forma's/IRR projections.

Would you mind specifying, and I can provide this for your insight?

Welcome, BTW....you know that one, right?!! haha

Hahaha... yes I have seen that one

Don't get a day job...You are doing fantastic in your RE. The drive and the "figuring things out" that you have done so far will be much better served to your family if you continue in the RE. Maybe tweak it a bit.

Scrapr, really nice to hear your encouragement and enthusiasm, thank you

I don't know your rent roll.

Gross Potential Income is ~$440,000 annually.

...And network! So you don't have to reinvent stuff. You can do this!

I mentioned this to my wife... she goes, "Yeah, you suck at networking." --- it's true, I need to step this up. I appreciate this, and I'm going to start networking more instead of isolating

...He is now close to 70 and has no hope of retiring.

Don't be over leveraged.

Yikes! I love the stories you guys have that remind me not to kick against the goads.

Sure looking at his set up there is a lot of leverage. And that should probably come down.

Ok, so coming from the crowd of experience, it sounds like there is a consensus that I should deleverage. I'm going to do it. Too much risk on my back. Still up in the air, personally, on what to do next for career.

Wandering - Welcome to the forum.

...Preemie spent part of the day trying April Fool's jokes on DW, brother, and I. Even taped the TV remote and computer mouse to prevent it from working.

Life is a roller coaster, get the best seat and go with the flow. Have open conversations and value what your spouse is saying.

Thanks... and I chuckle reading the April Fool's jokes you mentioned, haha


---

SO, my big picture takeaways thus far are:

1- My leverage puts me in a risky position. It seems that everyone is voicing a need for deleveraging on my Balance Sheet.

For me personally, this risk admittedly has started bothering me since I had a child.

As I look at all the stories here on E-R.org of folks who steadily grew their wealth to the point of early retirement, and didn't lose sight of that goal, I feel that my path may need to get balanced a bit.

Rather than trying to retire @ 30 years old with $75,000 of passive income, perhaps I need to deleverage, diversify, and push the goal back a while. I want to be as young as possible though.

Any words of wisdom are appreciated here.

2- My career seems to be a question mark. Coming from folks who both worked standard careers and from folks who were entrepreneurs, I'm hearing some points on both sides of the fence. That's good. That helps me consider both sides.

I'm interested to hear of any ideas for careers that maintain maximum flexibility, but could help me stabilize etc. Not because I am absolutely convinced I should go the "Career-Route" but because I don't have many ideas in that category that appeal to me.

I'd love it if one jumped out. Does anyone have any ideas for a balanced hybrid between entrepreneurship and working-world career?

I want to leverage the early growth I've had to spend max-time with my family as my children grow up, but then also have a spectacular retirement with my wife once the kids leave home.

Any thoughts on a guy like me pursuing taxable investment accounts vs. pre-tax, etc.? I currently have virtually nothing in these traditional investment vehicles, so I have some learning to do.

Thoughts on that front welcomed too.


Thank you everyone for all your replies. I'm floored that there are folks out here on the internet who are helping me think through these big questions in my life... thank you all for your diverse perspectives.

 

[Golden sunsets]

Potential careers depends largely on your skill set. With a masters in real estate and a BS in finance, you should be marketable. There is no magic bullet though for a job that to use your words guarantees immediatlel semi retirement, high salary, great benefits and low stress. That seems to be what you are seeking. Quite honestly, that kind of job typically comes with a hard work, nose to the grind stone type of approach. There's no free lunch.

 

[evilanne]

I'm interested to hear of any ideas for careers that maintain maximum flexibility, but could help me stabilize etc. Not because I am absolutely convinced I should go the "Career-Route" but because I don't have many ideas in that category that appeal to me.

I'd love it if one jumped out. Does anyone have any ideas for a balanced hybrid between entrepreneurship and working-world career?

Have you considered being a financial advisor with one of the companies with customer focused offices in your local area? I have no idea what type of salary or benefits they provide but you have a finance background and it might help you figure out how to diversify your own portfolio. My mother has account with Edward Jones and the advisor seems to be pretty laid back with balanced work/family life with regular office hours.

 

[wandering]

Have you considered being a financial advisor with one of the companies with customer focused offices in your local area?

Yes, I have.

There are some Financial Planners running, "Lifestyle Practices," that appeal to me. I spent a good bit of time networking and researching this idea last fall.

Ultimately, the sales side of planning became an intimidating aspect of the job, for me... but I have and still do consider this a serious possibility.

Thank you for the suggestion.

 

[nun]

I'd be worried about the ARMs with rates now on the upswing, so much borrowing and having so much of my net worth locked up in rentals. I'd sell some and split the proceeds between increasing equity in the remaining rentals and setting up a boring stock and bond portfolio to diversify.

I have a single rental that is paid off and I use it for retirement income, it's simple and low risk.

 

[NgineER]

Welcome to the forum and congratulations on having a DD.
First off, you are doing great in your real estate venture, although highly leveraged.

I have one income property but I am trying to add more to my portfolio as I think it is a great way to add an income stream.

You net $220k based on your stated 50% expenses. What I would try to do is get a line of credit on your home for emergency fund, drop $50k into the highest interest loan and try to funnel as much money into that one loan to pay it off. Once it is paid off, add the extra cash flow to pay the next loan off and continue accelerating the loan payments to deleverage. If you have enough budgetary flexibility to do this I think you can when you are at a comfortable debt level accrue more properties, pay them off completely or start investing the extra money into stocks. My main concern is that you don't have that much flexibility at the moment.
Does the 50% expenses include your mortgage payment, or is that in addition to those expenses?

I plan to do what you have done, accrue highly leveraged, (I am assuming 50% expenses and must cash flow $150-200 per unit after mortgage payment) and once I have 10 units start to deleverage by snowballing the loan payments.

I do have the benefit of having a j*b that pays the bills, so I can use all extra income to pay off the loan should I want to.

There are many seasoned income property investors here that will have better insight than I have.

Good luck!

 

[wandering]

nun and NgineER

Nice to hear both of your thoughts. I like the idea of snowballing down the mortgages, NgineER.

I plan to do what you have done, accrue highly leveraged...

I'm curious why you want to make your acquisition stage highly leveraged?

(I am assuming 50% expenses and must cash flow $150-200 per unit after mortgage payment) and once I have 10 units start to deleverage by snowballing the loan payments.

The cash flow has depended on a number of factors, for me, but the biggest one has been financing (leverage, amortization period, interest rate). If you acquire with a 20% down payment, and your average acquisition cost if $200,000, you'd make a down payment of $40,000.

If you are amortizing over 30 years (with your W-2 income, and a conventional mortgage), you might expect more like $300-350 per, rather than $150-200, even if you are simply buying open-market properties.

I do have the benefit of having a j*b that pays the bills, so I can use all extra income to pay off the loan should I want to.

That is tremendous. Especially if you have W-2 income... you can get up to 10 Fannie/Freddie mortgages, good terms in that route. Most of mine are bank loans (commercial)...

 

[NgineER]

nun and NgineER



Nice to hear both of your thoughts. I like the idea of snowballing down the mortgages, NgineER.







I'm curious why you want to make your acquisition stage highly leveraged?





The cash flow has depended on a number of factors, for me, but the biggest one has been financing (leverage, amortization period, interest rate). If you acquire with a 20% down payment, and your average acquisition cost if $200,000, you'd make a down payment of $40,000.



If you are amortizing over 30 years (with your W-2 income, and a conventional mortgage), you might expect more like $300-350 per, rather than $150-200, even if you are simply buying open-market properties.









That is tremendous. Especially if you have W-2 income... you can get up to 10 Fannie/Freddie mortgages, good terms in that route. Most of mine are bank loans (commercial)...

With highly leveraged I mean 20-25% down payment, just so that I can acquire more properties with less money. Highly leveraged might not be the right terminology for 20-25% down.

 

[wandering]

With highly leveraged I mean 20-25% down payment, just so that I can acquire more properties with less money. Highly leveraged might not be the right terminology for 20-25% down.

Gotcha-- ha, I'm the new guy, and I forget what crowd I'm in on this forum! Highly leveraged here is like... you have a mortgage

 

[wandering]

following up

This is primarily a thank-you post.

I just wanted to say thanks to everyone who spoke up and shared their opinions and voices when I posted this a while back. Your input was invaluable to me in a time when I felt like I was navigating intense waters.

Here's the update:

I sold two properties. My two largest assets, in fact. This has substantially recapitalized where I sit, and I feel over-the-moon. I got really good sales prices (full asking price offers within 24 hours) on the two duplexes, which felt primarily sweet, partially bitter-sweet (should I have asked more?!).

And at the last minute, I thought about 1031 exchanging... but remembered this post and how badly I needed to deleverage. When you do an exchange, you pretty much can't deleverage. SO I cancelled it.

I'm still deciding how to invest the cash, but I gotta pay a boatload of taxes so I have to keep a bit of in on hand.


There's the still the question of, "What's next?" for me. But I've got some hints now.


Anyways, thank you everyone.

 

[NgineER]

Congratulations-gotta feel good!

 

[evilanne]

Congrats on deleveraging! How are wife & baby doing?

 

[wandering]

Congrats on deleveraging! How are wife & baby doing?

Thanks--

Wife is getting healthier all the time. She started an internship at a company doing something she's always been interested in, which is really exciting for her (and me).

Baby is lovely and a ton of fun. Healthy too, such a joy

 

[Meadbh]

Good news all around, then! Thanks for the update.

 

[evilanne]

Great news

 

[Crewer]

Great news! My DD (the 27 wk preemie born over 28 years ago) is visiting right now. A joy of my life!