How much leverage is too much?
Hello,
New BP member, just upgraded to Pro
Beginning my real estate adventure, wanting to do buy and hold strategy, looking at potential properties so far around 30-40k.
I plan on using a HELOC for funding. As I'm just starting the cash flow analysis, I use the HELOC and it's rate calculate the debt service. I also add in all of the potential rehab costs (up to 15-20k rehab estimates), thus utilizing little or no of my own money, nearly completely leveraged.
When I do that, the cash flow on these properties become quite low and I’m likely needing to reduce my offered purchase price to make my requisite 100/mo cash flow.
I could be putting more of my own personal money (and I somewhat have the ability).
Should I put up more personal money, or should I leverage much as possible?
Thanks!
Is this a sfh or a multi family?
I've been looking at a SFR as well a duplex (duplex being bit more expensive in purchase price).
I’ve had the same question for either
Here are my thoughts about high leverage:
1. Make sure you have adequate cash reserves if you high leverage.
2. If the market takes a downturn, you're immediately underwater.
3. If you finance conventionally, like your own house, you can qualify for higher leverage loans. But for most investor loans, a minimum of 20% down is usually needed.
4. Make sure that your property cashflows after that big loan. There is no point in doing a deal, if close to 100% of your rent is being paid out as expenses. (unless you're sure you are in a fast appreciating market).
Brian Ploszay looking for good deals in chicago , off the market . Pm if you can please.