Mild bubble or not, this is what I’m doing...
I am looking to acquire more properties despite my belief that we are heading towards a mild ‘correction’ in the market.
What I’m doing is hedging this hunch by keeping LTVs around 50%...while still purchasing properties.
Is that leaving potential borrowed money on the table —yes. Is it also securing that if there is a correction I won’t be over leveraged — yes.
I’ve been going back and forth on this because I don’t expect a drop in the rental market rates and vacancy. Since my properties are all long term holds, why should this stop me from pulling more money out of my existing portfolio to buy more units?
In the end, I guess it’s more comfort level for me. I think being able to be more picky on deals knowing I only have smaller/more limited funds to reinvest keeps me focused on really analyzing all the numbers to make sure it’s not a good deal, but rather a great deal.
My little theory could work two fold because if values drop say 10%, i will still have some equity to pull from in order to by cheaper/better deals. The buyer pool, in theory, will be smaller too which allows for better deals to be found.
Anway, there you go. This, in my opinion, is a good middle of the road outlook on how to invest heading into a potential correction: lower your LTVs but keep buying.