How much is to much leverage?

Question

Hi all, As the title says, how much is too much leverage at one time. I currently own 3 homes and used my heloc to front the down payments. I still have half of my heloc left. Is it better to keep adding equity by doing work on the houses while I'm renting them then refinance to recover the initial down-payment to reinvest into another property or to pay down the heloc? Or should I just exhaust the heloc and keep buying houses?  My market area is Medicine Hat AB. Any constructive criticism is appreciated. Thanks everyone.

Huong Luu · Answer

@Jordyn Ohs Suggest you run a financial model and assume 100% vacancy. How much would you need to have in cash to cover expenses on your portfolio for 6 months. Yes, leverage but do it smart. Include in your model rates going up by 2%, and just make sure you enough cash to cover.

John Morgan · Answer

@Jordyn Ohs

I’d exhaust your HELOC. That’s how I got started. Leverage your way to wealth with as little of your own money into it. That’s how I scaled up to 28 SFR without using hardly any of my own money to get the deals. Then refi til you die! Good luck.

Nicholas L. · Answer

@Jordyn Ohs

not enough info to help

but if you're using a HELOC for the down payment AND getting a loan, then you're probably negative cash flow given that's 100% leverage

i would never do that unless i were going to refinance in the short term

Chris Seveney · Answer

@Jordyn Ohs

This is a loaded question as it really depends. For example do you have a great w2 and can you afford to cover costs of a major repair or 3 months of vacancy?

I have had 3 people email me this weekend who are over leveraged and also cash strapped in that they have repairs of $5k or more,  o cash to repair and without repairing cannot release unit.

From a personal standpoint I target 70% LTV for any investment I have that way gives me ability to sell it if I need too