Cash flow and loan to value ratio

[Curt Bixel]

It seems pretty clear that you can get yourself in quite a pickle if you go to high on your LTV ratio, saddling yourself with a negative cash flow. I wonder if the opposite is true. If you find something that is only a marginal investment at 70% LTV, can you turn it into a good investment by going with a 50% loan to value.

Clearly you could improve your case flow, but you would be diluting other measures of investment performance by increasing your equity. I wonder if there is always a sweet spot that needs to be calculated.

[Chris Seveney]

@Curt Bixel

While it may cash flow your ROI will be reduced.

Think of it this way, if you put $50k down and cashflow $100/month or out $20k down and cash flow -$100/month I would rather do the latter (actually neither but you get my point). It would take 20+ years of negative cash flow to equal cash already out the door.

There is a sweet spot but numbers are not the only thing, you need to weigh the risk and many other factors such as property location potential for appreciation, property condition...

A property in Pittsburgh area with 20% down and 100/month cash flow is not a good deal but if that was in DC you would be celebrating by doing backflips.

So lots to ponder but key is never over leverage