How leveraged are you?

[Erik Sherburne]

Curious out there what people use as a general rule for how leveraged they are. How comfortable you are with debt. Do you have 401K loans? Would you cash out a Roth IRA? Do you use HELOCs off your primary?

For me I'm ok with leverage and a little risk but I'm at a point where I need to get creative/leverage myself a little more than my comfort zone or a little bit of both.

[Steve Vaughan]

Originally posted by @Thomas S.:

The major problem with investors wanting to reduce their leverage is they are simply buying their own income/cash flow. Once a property surpasses 40% equity (or less) the property itself drifts into negative cash flow in most situations. It is no longer a asset.

Residential house & plex-only investors tend to think that all loans are fixed forever at 4% or something. Blanket statements about leverage with blinders on. I dont rush out to pay off those products, either.

But not all loans are awesome. I assure you that paid off real estate is still an asset, especially commercial property that no longer is burdened by crappy commercial terms. Adjustable, callable, balloons, rates over 5% and bothering you every year for your financials.

You can say low-levered property drifts into 'negative cash flow' in theory below 40% LTV, but the reality is the opposite. I save more in interest per month than most newbies hope to earn to replace their job. I can deploy 5 figures per month extra against the next crummy commercial loan I have over 6% if I want to, or invest elsewhere. The option is available because of my 'negative cash flow' I guess.