24 June 2011

Cashflow - A Tale of Stable Income

Heard from a colleague over lunch. 

He apparently bought a pair of properties for investment previously, paying down only 20% and secured loans for the rest.  The servicing of the loans were offset by his rental income from each of his two properties.  His tenants were all expatriate and paying tidy rentals for his properties which were located in the outskirts of the city area. 

Nice cash flow - using other's people money to make money.  Well done! Proud owner of several properties.

One day, one of his tenants called him to say he was being laid off, and he would not be able to continue paying his rent.  My friend got pretty worried, because he would have to pay a hefty monthly sum to service his loan without a paying tenant.  So he agreed to let his tenant tide over by lowering the rent, and allowed him to temporarily delay payments, hoping desperately that his tenant would be able to secure an alternate job soon.

About this time, his other tenant tried to call him on his mobile.  As he described it, "I was running scared!  I didn't want to answer his call.  Because if he was going to tell me that he had also been laid off, I didn't know what I was going to do!"

This was in the late 90's. More than 10 years later, he's apparently in a similar state.  He's starting to get worried again and is seriously thinking of getting rid of one of his properties.