Just happen to look at my all my mortgages and wonder what would happen if all my tenants stop paying all at once? the result will be devastating. I have been expanding so fast in the last couples year and did not really think about this fact. Here are some step that i am taking to cover this risk:
- Do not over leverage: My favorite entry ratio is 20% down and 80% mortgage. this will keep your payment low and the cash flow should be more than enough to cover the expense and debt service. Later on, you can either move to a 0% leveraging by paying everything off or 100% leveraging by taking all your money out to further reduce the risk.
- Stay Liquid: The worst time to sell is when you have to sell. I tried not to enter this position ever in my career by carrying a big fat bank account with me all the time. This is easier said than done. However, if you have for example 10 houses and have like 5 bucks in your bank account. you have a real problem. Stay liquid! stay liquid! stay liquid!
- Do not settle for ok deal: I keep telling to myself is that i buy only great deal, not ok deal because during bad time, great deal will do Good and ok deal will do bad! Whenever you buy a deal, think about the worst case scenario and negotiate the price base on that scenario
- keep tap on the market pulse: If you pay attention, you can mostly predict when the market will turn and act accordingly