Buying duplex at 100% LTV! Over-Leveraging or Good Deal?

[Nick Wilkinson]

Hello all,

I am currently the owner of 2 duplexes, 1 conversion and 1 side-by-side. The conversion was purchased using a down payment of 20% and cash flows $525/m. The side-by-side was purchased 100% LTV (zero percent down) and cash flows about $400/m. Obviously, this means my cash-on-cash return is infinity but I started with zero equity in the property and have to build it over the long term. The bank was willing to loan me 100% of the property value because my dad has built a very good relationship with them over the last 20 years through his construction business. I recently spoke to the loan officer and he said he would be willing to do this again.

Should I keep taking advantage of the 100% LTV and low-interest rates or is this "over-leveraging" too risky? Any advice would be appreciated.

[Brian G.]

@Nick Wilkinson it's not the LTV that poses the greatest risk in RE, it is a lack of liquidity. By example, if I owned 5 properties at 100%LTV worth $1M but had $1M cash in the bank then my risk is extremely low. This example is an exaggeration to make a point: being well capitalized is more important than your %LTV.