How do you calculate "leverage"?

2 Replies

Hello BP members!

One thing I use a lot in my field is leverage, and I've noticed that it's used a lot in REI as well. So how do you calculate your leverage and know when you are over leveraged? For example, how do you calculate whether or not you would survive if the market took a big hit and instead of paying cash for your properties, you used conventional mortgages, HELOC, etc. After a certain point I know it's common to use a portfolio lender, so is there less risk or greater leverage with a portfolio lender?

Thanks,

    Jason E.

Good question.  Portfolio lenders are harder to come by these days.  Usually the terms are not as good as your typical 30yr mortgage but if it allows you to buy more property it might be worth the sacrifice. 

My partner is doing a portfolio loan right now putting 4 homes under one loan at 4.5% rate on a 15yr loan.

Originally posted by @Curt Davis:

Good question.  Portfolio lenders are harder to come by these days.  Usually the terms are not as good as your typical 30yr mortgage but if it allows you to buy more property it might be worth the sacrifice. 

My partner is doing a portfolio loan right now putting 4 homes under one loan at 4.5% rate on a 15yr loan.

 Does this mean he is making payments to pay off all 4 homes in 15 years with 4.5% interest? That sounds like it would leave very little cash flow, or like a vacancy would put a much bigger dent in your cash flow, provided you don't have vacancy insurance.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.