Windfall Level Cash Questions

[BigN8]

To add to what I said earlier about just parking it for a while. I'm giving this advice from perpetual experience. I'm a commissioned sales guy, however I have the ability to take a commission guarantee of X amount. They do this with new sales guys so they don't starve when they first start. I decided long ago to just keep the guarantee in place. What this means is I get paid a set amount of commission at the end of every month no matter how much I sell. What's the down side you ask?? Well, if you sell more than the guarantee you don't get paid that extra amount until they close out the year. So let's say I make $80k more in commission over my guarantee by the end of the year. I don't get paid that extra amount until around January 31 of the following year. I like this method because it levels my income over the year, makes it easier to contribute to 401k with a set percentage, and I run my household at a much leaner expense. Now add my wife's bonus to the mix. She always gets a very healthy bonus around February of the following year. With my commission overage and her bonus it could almost be characterized as a windfall every Q1 of the following year. But now I'm used to it. I just park it in Money Market, I throw a little in my TD Ameritrade account and buy some ETF's throughout the year. This year I added a few Treasury I-bonds to the mix due to our current inflation. I also buy a gun or 2 that the wife never hears about!! But that's about it. It ends up being a nice reserve for God knows what. It's also coming in handy for my daughter's wedding in Oct.!!

 

[Julian]

People whonfollowed the YouTuber fad of buying up every rental property they can get a loan for are especially going to be screwed.

I'll disagree with this point....people who DID this already with amazingly cheap money are laughing all the way to the bank. People who keep doing it as rates climb will find that it will get harder and harder to break even. Rental rates aren't going to go down much, if at all.

I agree with this article:

Council Post: How Will A Recession Affect My Rental Properties?

When you purchase a rental property, you’re buying more than a place for people to live — you’re buying yourself some stability and peace of mind.

www.forbes.com

 

[BlkGS]

I'll disagree with this point....people who DID this already with amazingly cheap money are laughing all the way to the bank. People who keep doing it as rates climb will find that it will get harder and harder to break even. Rental rates aren't going to go down much, if at all.

I agree with this article:

Council Post: How Will A Recession Affect My Rental Properties?

When you purchase a rental property, you’re buying more than a place for people to live — you’re buying yourself some stability and peace of mind.

www.forbes.com

You're assuming people.will.pay their rent, which gets harder in a recession.

My good friend for example, has bought 3 or 4 townhouses as rentals in the last 2 years. He pays the mortgages on them using the rent, pays a management company to handle them, and all the money he would make is on the property going up in value.

Sounds great until you factor in what happens if someone stops owning their rent. He gets to pay a lawyer to try to evict them, while still having to pay that mortgage. He can technically cover the rental mortgage and his own personal bills on his normal salary, but its very tight. If 2 of his renters stop paying, or start missing payments, he's screwed. If 1 renter does and he has to pay to fix something, he's in rough shape.

His real.underlying issue is he bought these properties as values were up. So if prices for low end housing go down, he also does not have the ability to recover his initial investment. Hell, he could end up.in a situation where he has to short sell one or more properties and pay someone else.tontske it off his hands.

Rental properties are fine, but not when you're buying high.

 

[fatboyroy]

You're assuming people.will.pay their rent, which gets harder in a recession.

My good friend for example, has bought 3 or 4 townhouses as rentals in the last 2 years. He pays the mortgages on them using the rent, pays a management company to handle them, and all the money he would make is on the property going up in value.

Sounds great until you factor in what happens if someone stops owning their rent. He gets to pay a lawyer to try to evict them, while still having to pay that mortgage. He can technically cover the rental mortgage and his own personal bills on his normal salary, but its very tight. If 2 of his renters stop paying, or start missing payments, he's screwed. If 1 renter does and he has to pay to fix something, he's in rough shape.

His real.underlying issue is he bought these properties as values were up. So if prices for low end housing go down, he also does not have the ability to recover his initial investment. Hell, he could end up.in a situation where he has to short sell one or more properties and pay someone else.tontske it off his hands.

Rental properties are fine, but not when you're buying high.

Most investor does airbnb now to avoid eviction process. Unless you have 10 units or more, long term rental is a very risky business due to eviction laws.

 

[BlkGS]

Most investor does airbnb now to avoid eviction process. Unless you have 10 units or more, long term rental is a very risky business due to eviction laws.

In a recession, tourism drops, and your airbnb income drops. Also, not all property is in a location that has tourism. That's a very niche market in rentals.

My friend for example has 0 airbnb exposure, and the area he is in is rural NC with virtually no tourism, and his properties are low end townhouses that tourists would not want to stay in.

 

[Julian]

In a recession, tourism drops, and your airbnb income drops. Also, not all property is in a location that has tourism. That's a very niche market in rentals.

My friend for example has 0 airbnb exposure, and the area he is in is rural NC with virtually no tourism, and his properties are low end townhouses that tourists would not want to stay in.

OK...if you are in the business of low end properties, I'll agree with you....those become much riskier. That said, my neighbor has 32 apartments for rent throughout the NC State area in Raleigh. All lower end, but since they are in university area, high demand. He doesn't rent to students, had no evictions during covid, and is doing very nicely.

 

[BlkGS]

OK...if you are in the business of low end properties, I'll agree with you....those become much riskier. That said, my neighbor has 32 apartments for rent throughout the NC State area in Raleigh. All lower end, but since they are in university area, high demand. He doesn't rent to students, had no evictions during covid, and is doing very nicely.

He also likely didn't buy them all during a period of record price increases for real estate, paying top dollar for things that were 30+% cheaper a year or 2 earlier.

I'm not saying rental properties are bad investments... I'm saying they're bad investments right now with prices at an all time high.

 

[AZMark]

OK...if you are in the business of low end properties, I'll agree with you....those become much riskier. That said, my neighbor has 32 apartments for rent throughout the NC State area in Raleigh. All lower end, but since they are in university area, high demand. He doesn't rent to students, had no evictions during covid, and is doing very nicely.

Presumably your neighbor is a multi millionaire. The advice to go all-in on rental property shouldn’t be one size fits all.

 

[BlkGS]

Presumably your neighbor is a multi millionaire. The advice to go all-in on rental property shouldn’t be one size fits all.

Agreed.

My friend is not a multimillionaire. He's a single guy making pretty good money (not big bucks like 2kwik4u, so he'd be poor on here lol), putting virtually no money down on crappy townhouses woth several mortgages now.

 

[Julian]

Presumably your neighbor is a multi millionaire. The advice to go all-in on rental property shouldn’t be one size fits all.

He is not. He just knows how to build a business and get good loans. Very shrewd.

 

[Bluewater272]

Not all recessions are the same, and in fact often strengthen the rental market as people get out of homes and need to find somewhere to live. Nothing wrong with it, but personally I'm happy to no longer be a landlord. Currently hunting for a coastal property to rent for part of the season, but likely not until after interest rates stabilize. My money is on them going back down in Q1, and this being a very mild recession.

 

[AZMark]

He is not. He just knows how to build a business and get good loans. Very shrewd.

That’s a lot of leverage. Too rich for my blood.

 

[Julian]

That’s a lot of leverage. Too rich for my blood.

And he manages them all on his own! He's learn a lot along the way. Like....he paints them all the same color. He used to make them all fancy and different colors, now he buys one color paint and no one complains. He doesn't put waste disposals in the kitchens.

 

[BlkGS]

And he manages them all on his own! He's learn a lot along the way. Like....he paints them all the same color. He used to make them all fancy and different colors, now he buys one color paint and no one complains. He doesn't put waste disposals in the kitchens.

So the real question is, how many deadbeat renters can he sustain before the whole thing falls?

A guy I knew at work fought for TWO YEARS to get a tenant out of one of his homes. The guy would pay a month right before he got evicted which reset the clock. He ended up having to sell other properties to make up for that one, and I think he ended up selling that house cheap to get rid of the issue.

The government has already put eviction moratorium into the universe with covid. It feels unlikely that they won't do that again as the recession deepens.

 

[Ohio]

Not all recessions are the same, and in fact often strengthen the rental market as people get out of homes and need to find somewhere to live. Nothing wrong with it, but personally I'm happy to no longer be a landlord. Currently hunting for a coastal property to rent for part of the season, but likely not until after interest rates stabilize. My money is on them going back down in Q1, and this being a very mild recession.

That is how I see it. Owning rental properties would be great, if you didn't have to deal with renters.

 

[2kwik4u]

Deal fell through. No windfall for me.

You guys can stop pretending to be my long lost uncle now!

 

[Quad]

Deal fell through. No windfall for me.

You guys can stop pretending to be my long lost uncle now!

Ah well. I find these kind of thought exercises insightful, it's actually one I work through from time to time as it points to my overall priorities and goals, most of which I can actually do something about even without a windfall if I choose to (albeit at a slower pace )