Leverage
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Leverage (by Sam [TX]) Jan 12, 2022 12:18 PM
       Leverage (by LordZen [MA]) Jan 12, 2022 1:46 PM
       Leverage (by NE [PA]) Jan 12, 2022 1:53 PM
       Leverage (by 6x6 [TN]) Jan 12, 2022 2:21 PM
       Leverage (by LordZen [MA]) Jan 12, 2022 2:35 PM
       Leverage (by myob [GA]) Jan 12, 2022 2:40 PM
       Leverage (by Robert J [CA]) Jan 12, 2022 2:58 PM
       Leverage (by Sam [TX]) Jan 12, 2022 3:05 PM
       Leverage (by myob [GA]) Jan 12, 2022 4:26 PM
       Leverage (by Bonanza [NC]) Jan 12, 2022 5:18 PM
       Leverage (by MikeA [TX]) Jan 12, 2022 5:34 PM
       Leverage (by Pmh [TX]) Jan 12, 2022 6:48 PM
       Leverage (by S i d [MO]) Jan 12, 2022 7:02 PM
       Leverage (by Sam [TX]) Jan 12, 2022 7:30 PM
       Leverage (by Sisco [MO]) Jan 12, 2022 8:42 PM
       Leverage (by Ray-N-Pa [PA]) Jan 12, 2022 9:31 PM
       Leverage (by Dodge [PA]) Jan 13, 2022 9:02 AM
       Leverage (by Dodge [PA]) Jan 13, 2022 9:08 AM
       Leverage (by Dave [MO]) Jan 13, 2022 9:49 AM
       Leverage (by MikeA [TX]) Jan 13, 2022 11:06 AM
       Leverage (by Oregon Woodsmoke [ID]) Jan 13, 2022 12:14 PM
       Leverage (by Sam [TX]) Jan 14, 2022 1:16 AM
       Leverage (by Pmh [TX]) Jan 14, 2022 5:23 PM

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Leverage (by Sam [TX]) Posted on: Jan 12, 2022 12:18 PM
Message:

What percentage of debt to net worth is reasonable before you become over leveraged with loans. I am currently buying as many properties as I can before the Fed raises the rates this year. I am getting 10 to 14 percent ROI on each property. I am just trying to find the balance between taking calculated risk and not over leveraging myself with to many loans. My plan is to buy one more property in the next few months. Then I will pay one or two off and start to use the BRRR method. Any advice or thoughts would be helpful. Thanks --75.87.xxx.xx




Leverage (by LordZen [MA]) Posted on: Jan 12, 2022 1:46 PM
Message:

Hi good afternoon, sorry for my lack of knowledge, in this case what is the 10 to 14 % ROI (Return On Interest?)?

And do you mind sharing the BRRR method?

Thanks --98.216.xx.xxx




Leverage (by NE [PA]) Posted on: Jan 12, 2022 1:53 PM
Message:

I wouldn’t buy so many so fast that you’re not able to manage it all. Regardless of D to I. Because that could be an issue in and of itself. As far as leverage, I would adopt the principal of, “If the deal makes sense, buy it.” --24.152.xxx.xx




Leverage (by 6x6 [TN]) Posted on: Jan 12, 2022 2:21 PM
Message:

LordZen, ROI is Return on Investment. BRRRR (Buy-Rehab-Rent-Refinance-Repeat) --73.120.xx.xxx




Leverage (by LordZen [MA]) Posted on: Jan 12, 2022 2:35 PM
Message:

6X6 thanks for taking your time to explain. --98.216.xx.xxx




Leverage (by myob [GA]) Posted on: Jan 12, 2022 2:40 PM
Message:

yea thanks 6x. I didn't know that either. Back in 87 we didn't use those letters.

The order you have that was a reason I got audited by the irs when I took deductions. that's why I don't buy rehab needed properties (well not a lot of rehab). --99.103.xxx.xxx




Leverage (by Robert J [CA]) Posted on: Jan 12, 2022 2:58 PM
Message:

Let me tell you a story. Way back in 1997 I was looking to buy more apartments. The Economy was lousy and everyone was exiting real estate. I kept on buying and buying like there was no tomorrow -- everything was on sale at a discount.

But I never forgot the lesson of being "cash poor". In the hardest of times even a millionaire could find themselves in a bind -- asset rich but cash poor.

So I carefully did several quick calculations. I was buying another 8 unit property, each unit was called a double. The living room and bedroom's all looked the same. Spacious with large closets. During the day you had a living room and bedroom. But at night the living room doubled as another bedroom. Why? It had a walk in closet with a dressing area, mirror, lots of drawers and cloth rods for hanging stuff.

So during the next year employment because a problem. Over 50% of all of the construction jobs were lost due to the economy.

5 of my 8 tenants wanted to move from their 1 bedroom into a single-no bedroom apartment. I was charging $500 a month and a single down the street was going for only $375. The $125 saving a month as key to my tenants financial survival.

So I talked to Celia about her situation. I said if you move to the single unit, you still have to pay for your utilities. But if you find a roommate, the two of you could split the rent in half. So instead of paying $375 a month, you'd only pay $250, saving even more money. I showed her that her living room was actually also a bedroom.

So instead of having 5 vacant units I had 5 units with roommates. Between the two people per unit, it was easier for them together to pay their rent.

But I had to make a concession, the tenant could drop their rent from $500 a month to only $375, unit they found a room mate. It only took them an average of 4 days until someone else in financial trouble took the up on the offer.

So I was going to loose $125 a month x 5 units, or $625 a month, OR 15% of my total monthly rent. Since I put down enough down payment, I had lots of wiggle room to make any necessary rental adjustment to keep things going smooth.

Had I been too leveraged out, 15% of my total rent would have killed me.... --47.155.xx.xxx




Leverage (by Sam [TX]) Posted on: Jan 12, 2022 3:05 PM
Message:

Thank you for everyones time. --172.56.x.xxx




Leverage (by myob [GA]) Posted on: Jan 12, 2022 4:26 PM
Message:

Robert the bottom line-- other than leveraged out--- you FIGURED IT OUT DIDIN'T YOU?

Most just don't give it HARD thought. --99.103.xxx.xxx




Leverage (by Bonanza [NC]) Posted on: Jan 12, 2022 5:18 PM
Message:

It really depends on your situation. IF it cash flows and you have the down payment and the bank will loan you money and it checks your boxes (whatever they are - good neighborhood, brick, newer construction, ranch, 3 bed 2 bath whatever) then why not do it. Age factors into things as well, if I was 30 I'd be more aggressive. At 60, I'd be less aggressive. On the personal side, I am not going above a 25% debt to net worth situation. Why because a lot of my net worth is real estate. IF it declines in value I might be at 50% debt to net fairly quickly.

Don't get so far into a hole you can't dig yourself out. --201.147.xxx.xx




Leverage (by MikeA [TX]) Posted on: Jan 12, 2022 5:34 PM
Message:

Yes cash flow is important but what happens when it evaporates. Back in the early 1980's when inflation went crazy lots of folks couldn't afford the rent any longer. What happens to a landlord when half his tenants don't pay rent. Lots of properties went into disrepair and many were foreclosed on. So to answer your question you need to know how bad it's going to get in your lifetime. Unfortunately, most people's crystal ball is not that clear. Me, I never got above 70% loan to value across my investments. I didn't stay there long either, maybe 2-3 years before I started paying them down and then the snowballing kicked in. Now I'm pretty much debt free. --209.16.xx.xxx




Leverage (by Pmh [TX]) Posted on: Jan 12, 2022 6:48 PM
Message:

Mike: you might have a point. today’s inflation report showed highest since 1982....rents a big component of current inflation rate. We are getting the rents we want & people are paying. Of course there are cycles but not sure why you do today is determined by what happened 40 years ago...where did all those renters go 40 years ago (?) . To a few posters here. the change in appraised or mkt value is IRRELEVANT. cash on cash is what matters. --107.77.xxx.xxx




Leverage (by S i d [MO]) Posted on: Jan 12, 2022 7:02 PM
Message:

10-14% ROI isn't a lot when you consider the hassle factor. The S&P 500 has returned an average of 10.7% annualized since 1972, and that's true "mail box money", not dealing with tenants and toilets.

Now let's be clear: are you including ALL components of ROI? Those include:

1) Free and clear cash flow after all expenses, including a reasonable salary for whoever does your managements and maintenance, and after set asides for Capital Expense reserves for the big stuff that slowly wears out over time.

2) Loan balance paydown/amortization.

3) Appreciation of the asset.

4) Tax savings caused by depreciation.

You might be seeing rosier numbers after all that. On the other hand, if you are including all of that already, then I would say try to do better. I'd want a minimum 20% with all factors included on my money or if I can't find that rate then I'd settle for something with much less hassle.

Keep in mind we got into this to make money, not buy ourselves unpaid volunteer jobs.

--108.230.xxx.xx




Leverage (by Sam [TX]) Posted on: Jan 12, 2022 7:30 PM
Message:

Sid I appreciate your time but my question was not how to calculate ROI it was about what percentage of debt to net worth is reasonable before you become over leverage with loans. --172.58.xx.xxx




Leverage (by Sisco [MO]) Posted on: Jan 12, 2022 8:42 PM
Message:

Keep borrowing For those 10-14% ROI deals, take no interest in people trying to encourage you to be sure that you have included all expenses, and you will likely soon find the breaking point. --149.76.xxx.xxx




Leverage (by Ray-N-Pa [PA]) Posted on: Jan 12, 2022 9:31 PM
Message:

Lack of ash flow will kill any business

If your DSCR is less than 1:1.2 then the caution lights are flashing. --24.101.xxx.xxx




Leverage (by Dodge [PA]) Posted on: Jan 13, 2022 9:02 AM
Message:

Stop buying when the additional risk isn't worth the additional dollars.

Will be different for everyone. And will change over time. --174.198.xxx.xxx




Leverage (by Dodge [PA]) Posted on: Jan 13, 2022 9:08 AM
Message:

Stop buying when the additional risk isn't worth the additional dollars.

Will be different for everyone. And will change over time.

For me, both sides of the equation have changed. When starting out, I was hungry and naive, now I'm a bit more risk adverse and find I really don't need that extra penny. --174.198.xxx.xxx




Leverage (by Dave [MO]) Posted on: Jan 13, 2022 9:49 AM
Message:

If your asking the question of how much leverage is too much? You might be at the tipping point ?

Everyone investors have a different leverage range. --174.202.xxx.xxx




Leverage (by MikeA [TX]) Posted on: Jan 13, 2022 11:06 AM
Message:

PMH, the renters lost their jobs as the economy contracted. It started with the construction industry which basically came to a halt because of high interest rates. All those workers were now not eating out and spending their dollars. Many businesses in the service industry closed next. Then every business felt the pinch and started cutting back on expenses, labor being a big one.

Many landlords were using adjustable rate mortgages which ended up being a double whammy. Half their tenants were out of work and the mortgage payment went from $300 to $700 overnight. --209.16.xx.xxx




Leverage (by Oregon Woodsmoke [ID]) Posted on: Jan 13, 2022 12:14 PM
Message:

[[[[...... .where did all those renters go 40 years ago (?) . To a few posters here. the change in appraised or mkt value is IRRELEVANT......]]]]]]

I don't know where all your renter went but my good renters all moved away to somewhere else where they thought they could get a job. So maybe someone else got them as tenants, but they were gone and out of the area, so I sure didn't get them as tenants.

Rents dropped to half of what they were and vacancies were long. It was not a good time to be highly leveraged.

Sam, figure out how many you can keep if rents drop and don't buy past the point where you can figure out how to pay for them in a soft market.

Who knows, maybe there won't be another cash, but historically, real estate has always moved in a cycle. Sometimes the cycle isn't deep sometimes it is a disaster. --76.178.xxx.xxx




Leverage (by Sam [TX]) Posted on: Jan 14, 2022 1:16 AM
Message:

Thank you for everyones time --172.58.xx.xxx




Leverage (by Pmh [TX]) Posted on: Jan 14, 2022 5:23 PM
Message:

well Mike. The problem was the adjustable rates. I have always done 30 yr fixed on my rentals & double up on principal payments. I still have the fall back to the basic payment. again: those renters went somewhere else to rent...don’t be afraid of leverage (opm) --107.77.xxx.xxx



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