Balancing liabilities and leveraging debt

[Kale Stephens]

Hi! I am sure this discussion has been brought up before, but I hoping to gain some wisdom from seasoned investors. I have heard several investors talk about "losing it all" during the 2008 crash. Is there a formula or rule of thumb that would help me decide if I should slowly build and try to pay properties off so that I can weather a changing economy, or should I try to reach my goal (outlined below) and focus on paying the properties off once I have my portfolio where I want it?

Currently my goal is to own 10 rental units that cash flow $500 per month in the next 2 years.  This would allow me to quit my 9-5 job and focus on Investing while still providing for my family and feeling secure.  I work for a tract home builder as a construction manager and really enjoy what I do and like my company, but prior to that I was an independent contractor and miss being self employed.  I like my job and can see myself staying with the company for many more years, but would prefer to be independent. 

Currently I own one rental with an inherited tenant.  Once the lease agreement expires the house should cash flow about $600 per month.  Should I try to pay the house down and reduce liability, or use the money to buy another house, or should I get to 5 houses and then start trying to pay one of them off? 

I know the answer is different for every person and changes with each persons goal, but I would like to hear from someone who went through the crash.  How would they have done it differently?  I respect Dave Ramsey's "Snow Ball" plan, but I don't want it to take 10 years before I can be independent.

BP Community what do you think? Thanks for your help!

[Brent Coombs]

First, let's talk about that ONE rental. Was it sourced BELOW market value? Have you got ANY equity in it other than your deposit? How much is $5-600/m cash flow as a PERCENTAGE of its purchase and rehab price? And has that cash flow taken ALL possible expenses into account?

Is your independent income sufficient to support Banks lending to you again, and again, and again, every 2-3 months for the next two years? That's enough questions, for now. 

You may be able to tell by now that my answer to your question will revolve around how WISELY you leveraged in the first place, which could greatly affect your "balancing" act! Congrats, so far...