Out of all of my properties I maintain minimal leverage. It improves the cash flow and minimizes my stress. A good example of why I don’t have a lot of mortgages is this month. The bi-annual city shakedown happened. In most of the suburbs and now in some cities, the local government will walk in and around your house and tell you what’s wrong with it and make you fix it usually within 60 days. In my case, the neighborhood where I have some of my properties, the local government will sue you and evict your tenants if these repairs, or improvements aren’t done within that time frame.
They made me paint all exterior parts of the house that were wood, the front and back 2 story porches. Paint the basement, and install smoke alarms and carbon monoxide detectors too.
I had to replace the front concrete steps. The original ones from 1920 were cracking and crumbling from almost 100 years of use and having ice melting salt thrown on them.
It was a pretty big job. Going forward I am putting in the lease that salt can’t be used, only sodium chloride. I also had water bills this month and small maintenance on my other houses.
Total expense for the month ~$10,000
Total income $0
I didn’t receive any monthly income. I received the receipts and the statement from my property manager that all the expenses were paid and everything was up to code now, but no money.
This is something that had to be done, however I’ve never had a month where I earned $0 in rental income. Every month I have a mortgage to pay. With no income I had to go to my cash reserve. If I had many mortgages and was highly levered, this would ruin me. I couldn’t do it. I knew a day like this would come. It’s rare maybe once every 7-10 years, but it will happen. To combat this, I keep a cash reserve just for my real estate, I also don’t like to take out big loans, and have bought with large down payments and have worked to pay off debt as quick as possible. I’m sure I could buy 10 more houses if I took out equity loans on my buildings, but at what risk? What level of stress? Isn’t the dream to not worry about your investment and have everything passive? If you’re starting out, and have cash to carry you through a down month or two, you will have to get a couple mortgages. I’m mainly concerned about over leveraging, growing too fast and having too many bankers to pay. All landlords run their business different, and invest in different areas. I’m giving my personal example and what works for me; with minimal stress.