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Updated over 4 years ago on . Most recent reply

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Jonathan Hasan
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57
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Determining appetite for risk in terms of leverage

Jonathan Hasan
Posted

Hello BP community,

As a new investor,  I feel like a core pillar upon which success is built in real estate from what I have seen from other experts in this forum is being able to determine acceptable risk for a deal. Rushing in to a deal with leverage as a new investor could be disastrous for reasons that could result from lack of due diligence or circumstances out of their control. I basically am trying to compile a plan based on any suggestions given. 

To start the discourse I will use a hypothetical, if I have a W-2 job that is paying 31200 a year gross pay and have a credit score of say 750 with about 2500 in savings, should the focus be on trying to save enough to get an unleveraged property deal which will obviously take a while or should I take a risk and take a Loan (HML, PML etc) for a fixed up buy and hold if I can make the deal work on paper? (Perhaps some experts may argue its not really a risk if you can make it work on paper but I am trying to account for worst case scenarios such as if a tenant doesn't pay rent and affects cash flow of HML, PML etc)

While I am excited about real estate, I want to have a level head in determining whether leverage should be used or not in the situation listed above. I would like the expert opinions of anyone who would be willing to share. 

Thanks in Advance

Most Popular Reply

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Mary M.
  • Rental Property Investor
  • Portland OR
3,370
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2,885
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Mary M.
  • Rental Property Investor
  • Portland OR
Replied

:) 
also leverage is not free. Its costs real money. When you leverage you make money on the difference between the loan and rent. So the more you leverage the less cash flow you will have.  

if you were to buy a house for yourself and get roommates (aka house hack) this can be a great entry into REI. You can get a loan with a low downpayment - but the loan will be large compared to cost of house so your payment will be larger.

Its all a balancing Act. 

There are lots of good books to read (or listen to) that will get you a good foundation for your future investing activities! 




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