Key facts
- Brannon Potts, 54, has built a portfolio of 14 rental units across eight properties over five years.
- Potts learned the hard way that having multiple leases expire simultaneously can lead to significant vacancies.
- To mitigate this, Potts now staggers lease expirations, ensuring only a couple of renewals occur each year, spaced apart.
- Potts also realized he had overleveraged one multifamily property with an 80-85% loan-to-value ratio.
- He now aims to keep his loan-to-value ratio between 70% and 75% to maintain a comfortable financial cushion.
Brannon Potts, a 54-year-old investor, shared two significant mistakes he made while building a portfolio of 14 rental units across eight properties over the past five years. His goal was to create an additional income stream to retire in his 50s.
Potts' first major error was allowing too many leases to expire simultaneously, which led to a period of substantial vacancies and lost income. He learned from this experience and now strategically staggers lease expirations to ensure a more consistent occupancy rate. For instance, at a fourplex, only two leases renew annually, spaced about 60 days apart. He applies a similar strategy when finishing multiple properties, marketing them one at a time to avoid overwhelming the local rental market.
The second mistake involved taking on more debt than he was comfortable with. On one multifamily property, his loan-to-value ratio reached 80% to 85%. Drawing from his background in commercial lending, Potts recognized the risks associated with high leverage, having witnessed foreclosures of over-leveraged individuals. He now prefers to keep his loan-to-value ratio around 70% to 75%. This approach leaves more equity in the properties, providing a crucial cushion and flexibility should market conditions change or unexpected issues arise, preventing him from becoming 'upside down' on his investments.