Am I over leveraged?

7 Replies

Hey guys and gals. I’m 24 just started investing in RE a year ago. I have 4 properties. 1 is break even 1 has $300 cash flow 1 has $500 cash flow 1 is going through eviction I have about $330,000 in debt. And $18k in cash reserves. Am I over leveraged? What steps should I take now considering the current market conditions.. thanks everybody!

Hi Michael,

So there's negatively, neutrally, and positively leveraged debt.

You don't want negatively leveraged debt because you need to bring money to the table each month to pay for the bill.

Positively leveraged debt throws off cash each month. This is great if you have the right amount in your mix.

So, to answer your question, I'd like you to classify your debt and consider getting read of the negatively leveraged stuff.

Hope that helps.

What's the total value of your properties and your total mortgage amount. Leverage is based on loan to value. You provided cash flow numbers. 

What is your Debt to Income ratio?

Everything described seems to be OK until I see that eviction (from tenant ?).  Your $18K saving will not last long. Is your FICO above 700?

Not sure about your profession/income steadiness.  I would suggest you not having to borrow as it seems to be on the boarder line. 

@Michael Simolke You would be overly leveraged whenever your servicing of the debt exceeds your cash coming in to service the debt. As long as you have positive cash flow on debt that is tax advantaged you are not over leveraged. If you are worried about being over leveraged first look at your personal debts that are not producing income for you. Remember that when you are increasing equity in a property you are only reducing the risk of the lender.
Originally posted by @Michael Simolke :
Hey guys and gals. I’m 24 just started investing in RE a year ago.

I have 4 properties.

1 is break even 1 has $300 cash flow 1 has $500 cash flow 1 is going through eviction

I have about $330,000 in debt. And $18k in cash reserves. Am I over leveraged? What steps should I take now considering the current market conditions.. thanks everybody!

 This question can't be answered easily. The problem is that each individual is different in terms of how comfortable they feel with leverage.

Michael, that's a scary Forum Title at the beginning of a downturn.

Australia, China, Canada, California, New York have already dropped

and the big banks have recently laid of 100s of high paying mortgage jobs.

With interest rates over 5% for most average SFH buyers, are you leveraged

fixed at 3-4%? Can you handle a vacancy at the same time value drop 25-40%?

If not, generate cash and build credit profiles for free i.e. 800 FICOs and 80 PAYDEX LLCs

because when you need to raise money, the more options the better.

If you need any advice on building credit effectively on the cheap,

feel free to reach out :)

This is my opinion and I'm not licensed,

John Acheson, MBA