Fort Wayne IN, USA · Member since 2018 · 52 posts · 27 votes
Hello,
Just curious what percentage of equity you guys like to keep in your rentals. I know there are pros and cons to "free & clear" vs "leveraged". I'm interested in knowing what you guys are comfortable with and why so I can have more knowledge to better determine what I will feel most comfortable with. Thank you
Investor · Cazenovia, NY · Member since 2017 · 57 posts · 17 votes
8y
I don't have an answer to this question, but here are a few ideas that come to mind:
1) How volatile is your market? Is it prone to significant price shifts that would jeopardize cash flow in downturns? If yest, then keep more equity in the property.
2) Where are you in your career and on your path towards retirement?
3) How does REI fit into your overall financial strategy? Is it your main business or one of several investments? If it's a business and you are in the growth phase then you may want to minimize equity, while if it is more of a portion of a diversified portfolio, you may want to keep more equity.
For example, I am in the growth phase of REI, with it being more of a business than a portfolio allocation I add to slowly, so I try to keep as little equity in a deal or property as possible while still hitting a minimum cash flow value, thus maximizing Return on Equity (RoE). Over time, I suspect I will become more conservative and have more equity in my properties, lowering the RoE but also lowering risk.
Rental Property Investor · Caledonia, IL · Member since 2015 · 289 posts · 213 votes
8y
I think it depends on your overall goals/objectives. Personally I am at a minimum of 70% LTV and lowering very aggressively as all my SFR are on either 7 or 13/14 amortizations. I am a big believer in being patient on the buy - aggressive on the paydowns as my tenants pay me monthly cash flow in the present and monthly principal reductions for the future.