NOW WHAT TO DO - Posted by Question Guy

Posted by Zach on June 01, 2007 at 21:25:48:

Can you refi them and get some better terms seeing the ltv has dropped? Email me for more help with this.

NOW WHAT TO DO - Posted by Question Guy

Posted by Question Guy on June 01, 2007 at 21:07:54:

I purchased 10 duplexes in a Fayetteville Arkansas 2 years ago. The bank financed 100% of the acquisition and the units have increased in value by over 20%. However, the rent doesn’t quite cover the note,insurance, and tax payments, as well as operational costs. The amount varies but I"m around 15% short monthly. Making up the monthly delta is becoming a challenge and I’m not sure how much longer I can hold on.

Can someone recommend some options to deal with this situation?

Sell eight keep 2 - Posted by monoplyplayer

Posted by monoplyplayer on June 07, 2007 at 19:31:57:

If you are correct at values you can sell 8 and Keep 2 and have great cashflow…

However not likely to be a marketable item if values have increased 20% But yet origianl debt amount is not supported by RENTS…

Are rents Under market considerably? If not then Refi to more favorable term is probably best move…

Good luck

Re: NOW WHAT TO DO - Posted by Finance Guy

Posted by Finance Guy on June 04, 2007 at 07:04:06:

You stated that you had financed these using 100% LTV? Your rates are probably very high and probably have MI, am I correct?

Re: NOW WHAT TO DO - Posted by Penny

Posted by Penny on June 02, 2007 at 16:50:32:

In addition to the previous posts, you could look to reduce expenses. You could also sell some or all, then reinvest your equity into something more profitable.

I would suggest that you lay out a month by month recovery plan that includes the previous post suggestions plus looking at realistic ways you can reduce your operating expenses.

In order to make the 15% negative monthly cash flow turn to black, you need to a) increase revenue, b) decrease expenses, c) any combination of a and b. Since this won’t happen overnight, you would want to estimate how much more bleeding will occur before turning things around, assuming the turnaround is possible. This estimate, plus your previous monthly loss totals, is your cash investment in these properties. Once turned around, will the cash on cash return satisfy your investment goals?

I would also suggest analyzing the profit potential individually for each unit in this group of properties. If the rents are increased, financing terms improved and expenses reduced, do you still have a monthly deficit for that unit or does the profit meet your return criteria? Hopefully, most properties will be positive but a few may be negative - providing some quantitative guidance as to which to sell if you decide to do so.

Your plan should include projected rent increases and when they would go into effect, potential vacancy effects on income as a result of tenant turnover, expense reductions and when they would go into effect, etc. It should also include any upcoming major maintenance that can’t be deferred, as this will increase expenses and adversely affect your cash flow.

Lastly, I would suggest that you calculate your expected return on investment. Does it meet your expectations of return for the amount of effort you will put into this? The answer to that question should provide you with additional insight as to the sell versus keep dilemma.

Hope this helps - best of luck!

Re: NOW WHAT TO DO - Posted by mcole

Posted by mcole on June 02, 2007 at 09:47:13:

Could you raise the rents a little? If not, at least raise it on units as they go vacant and you re-rent them.

If need be, you could always sell a couple of units and use the profit to subsidize the remaining units for a while. And hopefully raise the rents before that runs out.