How much debt do you have?

General Real Estate Investing
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How much debt do you have?

Perry Ivy
Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
I currently owe $265k and was curious to see how much other investors owe. This is spread out between six properties.
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Account Closed
Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
10y

The absolute debt doesnt matter. What matters is debt/equity ratio, debt/income ratio and reserves. If you have a high income and lots of reserve with properties that have a lot of equity, the absolute number of the debt is irrelevant

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  • George P.
    Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
    10y

    32 properties...  Lots of debt.  But  i look at it as good debt. 

    7Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Do you ever worry about it becoming unattainable? I understand good vs bad, but I've wondered lately if I might need to tap the brakes for a bit.
    0Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    10y

    The absolute debt doesnt matter. What matters is debt/equity ratio, debt/income ratio and reserves. If you have a high income and lots of reserve with properties that have a lot of equity, the absolute number of the debt is irrelevant

    16Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Anish Tolia so you have no concern about to much debt? What happens when the market turns? My wife and I are in a great financial condition and can maintain everything at 100% vacancy, but as we grow our business I can see where that would no longer be possible. I'm just trying to look before I leap.
    1Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    10y

    About $865k. RE debt only. Used to be $2M, so heading in the right direction!

    13Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Steve Vaughan thanks for the info and congrats. Did you plan to go that far, or did you decide that somewhere along the way?
    0Reply
  • Marcus Johnson
    Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes
    10y

    How much debt you have does matter and you can call it whatever you'd like, good or bad, but it's debt.   @Account Closed, debt doesn't move unless you pay it down, equity moves up and down like the Stock Market.   You could have 1 million dollars in equity and 500k in debt in 2007 and then the housing market bubble crashes and suddenly your equity is only sitting at 500k, but your debt is still 500k.   Debt to income ratios matter also, because again your debt stands still when your not paying it down, but rents and capital gains fluctuate based on the ever changing markets.  What rented for $1,500 in 2009 may only rent for $1,100 in 2016.   So IMO, it's wise to be careful how much your borrowing and as Luke 14:28 says:

    "For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it?"

    13Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Good thoughts Marcus Johnson. I've been pondering the 2008 crash lately and wondering about my position.
    0Reply
  • Raj Tirur
    Rental Property Investor · MA · Member since 2013 · 46 posts · 7 votes
    10y

    Have a plan of action.  I am currently in full acquisition mode and plan to take on debt as I grow my business.  In 3-4 years I will use my cash flow to chip away at debt and fully put the breaks on using leverage to acquire new properties.  

    2Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    10y
    Originally posted by @Perry Ivy:

    Steve Vaughan thanks for the info and congrats. Did you plan to go that far, or did you decide that somewhere along the way?

     Thanks for asking, Perry.

    I have to admit, when I crossed the $1M threshold in '05, my risk meter started going a little crazy. Then the opportunity to buy with good long-term seller financing below FMV presented itself and my debt load doubled to $2M in a relatively short period of time. Without the larger equity increase I would have been extremely uncomfortable.

    What helps me manage the risk of 'a lot' of debt, is that my commercial apt bldgs which I hold in LLCs are leveraged very little, while my houses that I own personally are leveraged much higher.  Kind of a built-in asset protection strategy.  I will swoop in to pay the houses off in massive chunks and transfer them to entities one by one (most are older and in the 6% range) in the next 7 years, especially at these RE prices.  

    Better to get a risk-free, tax-free return in the 6's than basically nada or paying too much in my area and getting a negative ROI. Good discussion!

    5Reply
  • Derrick W.
    Investor · Bryan, TX · Member since 2016 · 165 posts · 82 votes
    10y

    can someone please define leverage. 

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    10y
    Originally posted by @Derrick W.:

    can someone please define leverage. 

     Google says:

    Leverage is the use of various financial instruments or borrowed capital to increase the potential return of an investment – and it is an extremely common term on both Wall Street and in the Main Street real estate market.

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    10y

    @Perry Ivy some investors look at equity and try to tap every dime they can, ignoring the fact that as market prices go up and down, so does their equity. This is what lead to most of the foreclosures in the last real estate crash. Everyone banked on increasing home values and thought their equity position gave them security.

    I will give a real world example of what happened less than ten years ago. I had a tenant who shared this story with me. He lived in Michigan and owned a primary home and two rental homes. He did the rehab on both rental homes himself and had high equity. Both homes were rented. Then came the auto industry crash. Both of his tenants lost their jobs, stopped paying, moved out. He lost his job and with no source of income, stopped paying his mortgages. All three of his properties were under water because housing prices crashed. He let all three properties go into foreclosure. He found a job out of state and started renting. 

    Arguably with less debt and larger cash reserves, my tenant could have weathered this storm. Ultimately his worst mistake was being invested in a bad market. What I mean is a market driven mostly by auto-industry jobs at a time when the industry had major problems with an un-sustainable pay model. It was common knowledge that there were major problems even before the crash. You need to watch warning signs wherever you are invested.

    I would say that dollar value of debt is not the only relevant question. For example you have $265K of debt spread over six properties. If those six properties were 16 unit apartment buildings, it would be very different than if they were all two bedroom single family homes. 

    4Reply
  • Sylvia B.
    Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes
    10y

    My debt is $0.

    9 SFRs, (#10 closing soon) commercial building that houses our other business, and personal home. Debt-free doesn't work for everyone, but it's how we operate.

    10Reply
  • David Zheng
    Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    10y

    I started investing this year and I'm around 600k in debt and I plan on leveraging as much as possible. Equity isn't my main goal...Cashflow is. So I expect in a downturn, I will be protected. As long as the top ranking schools and hospitals around my area don't suddenly go up in flames, I think I will be good :)

    1Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Joe Splitrock thanks for the response. Most of my properties are three bedroom two bath SFH, with lots of equity. I'm pretty secure now, but am concerned about taking it to the next level and I cringe when I hear about the brrrr strategy. Sylvia B. Thanks for sharing. Did you start with no debt and maintain that, or did you at some point use opm?
    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    10y
    Originally posted by @Perry Ivy:

    Joe Splitrock thanks for the response. Most of my properties are three bedroom two bath SFH, with lots of equity. I'm pretty secure now, but am concerned about taking it to the next level and I cringe when I hear about the brrrr strategy.

    Sylvia B. Thanks for sharing. Did you start with no debt and maintain that, or did you at some point use opm?

    I invested in the same types of properties and they are great because they can be rented or sold pretty easily. Like you, I am not crazy about brrrr which is really a strategy aimed at leveraging yourself as far as you can. 

    1Reply
  • Sylvia B.
    Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes
    10y

    @Perry Ivy

    We started with mortgages on our home and commercial building. Once those were paid off we started thinking seriously about retirement and started buying houses with cash. We are not opposed to debt completely, but at this stage in our life this is what makes us most comfortable.

    4Reply
  • Ryan Cameron
    Investor · Philadelphia, PA · Member since 2014 · 351 posts · 80 votes
    10y

    @Perry Ivy

    There are two figures I think are more important than debt.

    1-Debt/Income Ratio

    2-Cash Reserves

    I am taking a page out of my personal finance book. Striving to keep a cash reserve equal to 4-6 months of investment expenses.

    5Reply
  • Luka Milicevic
    Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
    10y

    I think the actual number doesn't matter as much as what it's for, how much cash flow it's generating etc.

    I look at RE as a high $ investment game where you are always dealing with a lot of money. That's why I only want good deals. Buying bad deals when a lot of money is involved is bad news.

    That's just how I look at it. With a good deal I don't consider the $ amount of debt to be too relevant, I just see it as a tool for leverage. I can remain conservative even by taking on leverage. I do this by understanding the numbers.

    Just my opinion.....

    1Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Good thoughts and I appreciate the dialogue :)
    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    10y

    I have about $2 million in debt, and Im actively trying to double that.

    [email protected]301-893-4635Podcast Guest on Show #192
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    6Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Russell Brazil kudos to you, your very brave and I hope it turns out good for you. I personally don't have the risk tolerance :)
    1Reply
  • Tanya Smith
    Real Estate Agent · Saint George, UT · Member since 2016 · 33 posts · 14 votes
    10y
    Originally posted by @Sylvia B.:

    @Perry Ivy

    We started with mortgages on our home and commercial building. Once those were paid off we started thinking seriously about retirement and started buying houses with cash. We are not opposed to debt completely, but at this stage in our life this is what makes us most comfortable.

     If you don't mind.. Do you and your Spouse have high-income jobs aside from investing?

    2Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Tanya Smith our household income outside of investments is around 100k.
    0Reply
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