Whats too much leverage?

3 Replies

Hi all,

I wanted to pick everyone's brains a bit on leverage and how much leverage is too much leverage. Currently I own 5 rental units. One property is fully paid off and the second I only owe about $4,000. I have about $110,000 of equity based on the properties value. All together I owe about $52,000. Each one of the properties cash flow about $600-700. I have been funneling the cash flow into principal payments in order to pay off the homes quicker and pay less interest. 

My question is... instead of making principal payments towards the homes should I be using the cash flow to purchase even more homes? Therefore, how much do you all think is too much leverage?

Yes right now you have a bunch of dead equity sitting there that you could be using to expand your portfolio and buy more properties that would produce even more cash flow and ultimately provide much better returns. 

As far as the leverage question I'd personally keep no more than 20-30% equity and use the rest to acquire more.

I think you are not over-leverage and your cash flow is high. If you like to have more house I think you can pay off the $4000 first and then buy one house with loan, so you have the same number of house on a loan and will feel better than having one more on a loan