How much debt do you have?

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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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  • Ryan F.
    Investor · Redwood City, CA · Member since 2012 · 26 posts · 20 votes
    10y
    Asking how much debt you are willing to have is like asking what your favorite color is. The answer depends for each person. How much can you live with and sleep well at night? More leverage (in general) implies more risk, so how much risk can you tolerate? My CPA told me a story of when he was much younger and actively acquiring rental properties. He said that at one point he suddenly realized he was a millionaire, because banks had lent him a total of $1 million. He was thrilled. 30 years later he's still buying properties and he still won't do it unless they're leveraged, even though he's got way more than enough cash to buy them outright. Another investor I know buys properties only with cash. She never wants to get a loan because that's what she's comfortable with. To me, these two examples show the two ends of the spectrum. Where are you on that spectrum?
    4Reply
  • Pete Rosen
    pueblo, CO · Member since 2015 · 5 posts · 2 votes
    10y
    Originally posted by @Steve Vaughan:
    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!

     When you say 6's are you saying interest rate?

    also @ everyone. before the crash in 08ish were you allowed to buy investments with less than 25% down? dont these more stringent rules make carrying a lot of debt a bit safer? It would take much more to have a house worth less than you owe. Wouldnt it?

    btw I am 33 and have around 700k in debt 

    I have also wondered lately if paying down or keep buying cash flowing places will get me to my goal of 4k a month faster. 

    1Reply
  • Mark Kelley
    Investor · Raleigh, NC · Member since 2016 · 82 posts · 34 votes
    10y

    Great thread. I'd love to hear from more folks like @Sylvia B. who decided to go debt free. I'm in a similar situation as @Pete Rosen

    $700k in mortgage debt at low rates across four properties worth $1.25M as a part-time investor/landlord. I've been thinking seriously about paying these off over the next 4-5 years with my day job. I have the classic conflict about this though. I'm constantly back and forth about continuing to invest with leverage or becoming debt free.

    Right now, I'm in a middle ground in the spectrum @Ryan F. described above, thinking that I'll maintain my mortgages but acquire properties with cash moving forward to continue building more equity and cash flow without adding debt. 

    1Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Paul Spradling you mention personal and business debt, is that a separation legally? I have to personally sign on all of my purchases.
    0Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Ryan Fong great stories! Probably the most known cash only buyer is dave Ramsey and he's worth around 250 million. He had a few side gigs, but don't we all :)
    0Reply
  • Account Closed
    Real Estate Investor · Rancho Santa Fe , CA · Member since 2016 · 323 posts · 107 votes
    10y

    I meant in partnership, sorry business partnership, I have properties I own by myself in my name or my LLC without partner or the one with my partner that's were I was going sorry. @Perry Ivy

    0Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Pete Rosen I am never required to put a down payment down, but it's because of the improvements and equity position. My interest rate is between 5 and 5 1/2 percent.
    1Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Paul Spradling thanks for clearing that up, I was hoping I was missing something. :)
    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    10y
    Originally posted by @Steve Vaughan:

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

    Steve interesting take, I feel the opposite : ) I'm in the $3M+ range...Used to be in the $1M+ range so I feel like i'm heading in the right direction!

    1Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    10y
    Originally posted by @James Wise:
    Originally posted by @Steve Vaughan:

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

    Steve interesting take, I feel the opposite : ) I'm in the $3M+ range...Used to be in the $1M+ range so I feel like i'm heading in the right direction!

     To each their own I guess.  Did you do that all by yourself or need partners for that, too?

    1Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    10y
    Originally posted by @Steve Vaughan:
    Originally posted by @James Wise:
    Originally posted by @Steve Vaughan:

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

    Steve interesting take, I feel the opposite : ) I'm in the $3M+ range...Used to be in the $1M+ range so I feel like i'm heading in the right direction!

     To each their own I guess.  Did you do that all by yourself or need partners for that, too?

     I don't own any investment property alone. Holton & myself own a lot with just us but some of that includes a few other partners as well. 

    1Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    James Wise wow! Amazing! Thanks for sharing!
    0Reply
  • Julie L.
    Investor · Everett, WA · Member since 2016 · 38 posts · 9 votes
    10y
    Originally posted by @Perry Ivy:

     I live in a 600sq foot burned out shed that I remodeled and added on to, it is on some of my rental property. I can turn of the water and electric and travel. The mortgage is paid by my tenant and my money goes toward investments :)

    Perry Ivy - you are my hero :)  From a fellow frugal zealot.  I'm doing my first deal with 100% cash (my cash).  Debt free isn't risk free though.  It's simply how we are comfortable doing business today.  We may choose to use leverage in the future.

    3Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Julie L. Thanks for the compliment:). I was fortunate to live with my grandmother during college and she taught me a lot. I don't borrow more tan I can pay for I have 100% vacancy. Kudos to you for being debt free!
    1Reply
  • Atul Mohlajee
    Oak Park, IL · Member since 2014 · 285 posts · 114 votes
    10y

    Mine is at 917000.  Includes 4 mortgages with 9 total properties that means 5 properties are fully paid and cash flow is decent due to paid off properties.  Trying o buy a few more by leverage but always try to have a safety factor with some paid off properties plus W2 jobs with a decent income to deal with economic downturns as happened in Detroit but not in Chicago, not yet. 

    2Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Atul Mohlajee thanks for sharing and the advice is great!
    0Reply
  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    10y

    $1.75 million on properties my husband and I own!

    Podcast Guest on Show #132
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    1Reply
  • Frank Jiang
    Investor · San Diego, CA · Member since 2014 · 592 posts · 765 votes
    10y

    Just shy of 1M.  It'll go down soon though since I'll be liquidating some assets.

    2Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Brie Schmidt Frank Jiang thanks for sharing, I feel better ha
    0Reply
  • Sylvia B.
    Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes
    10y

    @Mark Kelley

    What do you want to know?

    1Reply
  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    10y

    @Perry Ivy, very interesting thread.  I used to be very private about my investing but finally began talking about it.  Debt is another thing I find hard to talk about.  I currently owe over 1 million.  About 5 years ago I had joint debt in a corporation I was in, of about $300K +.  I decided to accelerate my investing and bought the other partners out.  Some properties were sold to help finance this, but the amount of debt still grew rapidly.  About $220K of the debt is on a commercial property and is non recourse.  About $170K is on real estate investment properties I own in my own name.  About $50K is money owed on notes I invested in with my brother,  About $110K is in a joint venture property in another state, I have about $700K to $800K in a corporation I own that is real estate properties.  When I bought out the other investors I decided I wanted to accelerate my investing.  My goal was to get to 50 units.  About a year and a half ago the oil prices crashed and a huge number of folks in my state lost jobs and even tenants of mine have lost oil field jobs or had wages drop pretty hard.  I have gone into caution mode.  After adding 7 doors in one year I decided it was time to get ready for a bad storm.  I still added 5 units this year because I couldn't say no to owner financing.  Five years ago I could have made all the payments on my rental property out of my salary.  Now I could not pay half of the payments due.  I do not have 6 months of reserves large enough to pay the payments at 0% occupancy.  With over 30 doors now I cannot imagine no renters.  I have invested for over 20 years and never had a vacancy for over 2 months on a property ready to be rented.  I am concentrating on fixing up all the high cost maintenance items like roofs and windows.  it is my hope that I can drop my operating expenses by as much as 40% if needed if things get bad.

    I also have some other safety nets.  I almost always only use 15 year mortgages.  While my payments are higher this way, they also pay the loans of quickly.  Several properties will paid off over the next 5 years.  Since I am in my late 50s  I would like to see the net income come up greatly in the next 5 to 10 years.  I have seen two pretty bad recessions in my state and I want to be ready if they hit again.  I also want to be ready to buy up cheap properties if prices drop.  I gain over $3K per month in equity just by principle pay down.  I can deduct the interest and depreciation from my taxes.  I plan to have all my properties paid off in about 10 years, unless I give in to temptation and  buy more properties.

    I hope this helps you.

    5Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    10y
    Originally posted by @Jerry W.:

    @Perry Ivy, very interesting thread.  I used to be very private about my investing but finally began talking about it.  Debt is another thing I find hard to talk about.  I currently owe over 1 million.  About 5 years ago I had joint debt in a corporation I was in, of about $300K +.  I decided to accelerate my investing and bought the other partners out.  Some properties were sold to help finance this, but the amount of debt still grew rapidly.  About $220K of the debt is on a commercial property and is non recourse.  About $170K is on real estate investment properties I own in my own name.  About $50K is money owed on notes I invested in with my brother,  About $110K is in a joint venture property in another state, I have about $700K to $800K in a corporation I own that is real estate properties.  When I bought out the other investors I decided I wanted to accelerate my investing.  My goal was to get to 50 units.  About a year and a half ago the oil prices crashed and a huge number of folks in my state lost jobs and even tenants of mine have lost oil field jobs or had wages drop pretty hard.  I have gone into caution mode.  After adding 7 doors in one year I decided it was time to get ready for a bad storm.  I still added 5 units this year because I couldn't say no to owner financing.  Five years ago I could have made all the payments on my rental property out of my salary.  Now I could not pay half of the payments due.  I do not have 6 months of reserves large enough to pay the payments at 0% occupancy.  With over 30 doors now I cannot imagine no renters.  I have invested for over 20 years and never had a vacancy for over 2 months on a property ready to be rented.  I am concentrating on fixing up all the high cost maintenance items like roofs and windows.  it is my hope that I can drop my operating expenses by as much as 40% if needed if things get bad.

    I also have some other safety nets.  I almost always only use 15 year mortgages.  While my payments are higher this way, they also pay the loans of quickly.  Several properties will paid off over the next 5 years.  Since I am in my late 50s  I would like to see the net income come up greatly in the next 5 to 10 years.  I have seen two pretty bad recessions in my state and I want to be ready if they hit again.  I also want to be ready to buy up cheap properties if prices drop.  I gain over $3K per month in equity just by principle pay down.  I can deduct the interest and depreciation from my taxes.  I plan to have all my properties paid off in about 10 years, unless I give in to temptation and  buy more properties.

    I hope this helps you.

     Jerry, thank you for sharing. It's hard for me to get into all this personal financial business with others as well.

    I think you've been a great help. A lot of folks have only been in since 2011 or so and have only seen the upside potential of RE. I went through the GRC, of course, but not multiple cycles like you have.  

    I hope people heed your message. More debt is not necessarily better, and can certainly be the opposite. It and it's payment demands do not care about cycles, employment stats, vacancy or repair requirements.  It is just sitting there needing to be fed.

    I also get to experience paying off mortgages in the next few years. We can celebrate together my friend! Best wishes as you get through the oil price dip I'm your area. You've been here before.

    3Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Jerry W. Thank you do much for providing such insight. I know your transparency will help many, including myself. I am only 37 and havnt seen the ups and downs like you have, but in 2001 I had to have massive brain surgery and it gave me a new perspective on risk management. Even though my debt is obtainable I still can't escape the thought of lying on my back for months without income. I have also watched the market and have seen the prices soar way past actual value. All of that may be off the subject with my original question, but it's a concern and I was curious about how other investors are treating debt. Once again thanks for such great insight.
    2Reply
  • Peter TverdovBusiness Member
    Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
    10y

    All I know is I will borrow money at 4% (+/- .5%) over 30 years for as long as banks let me and as long as it fits my COC goals and equity goals (while being very cautious). Different people have different risk levels. To me, there is no difference between buying a $50k home that rents $500 a month vs a $500,000 building that rents $5,000 a month or a $5,000,000 building that rents $50,000 a month.

    [email protected]732-289-3823
    1Reply
  • Perry Ivy
    OP
    Investor · Jonesboro, AR · Member since 2015 · 241 posts · 132 votes
    10y
    Peter T. Itvis all about the numbers. Thanks for sharing!
    0Reply
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