Debt to Equity Ratio... Am I Crazy

[Brad M.]

I know this is more a personal preference that is dictated by your goals and current financial situation, not a right or wrong answer. I would like to hear why you choose whatever debt to equity ratio you use. I mainly ask to see if anyone is in a similar situation as me and sees things differently or the same. I've got 2 potential deals in the works and before I finalize anything I wanted some input to assess my thought process.

This is my situation. For me, real estate is a safety net for my business, not a way to quit a 9-5. My 1st goal is to get enough cash flow to cover my monthly business loan should I lose a major contract and need time to react and adjust. Long term, real estate is my retirement back up plan should the business ultimately fail. I also went through the 2008 crash in SW Florida. My county was 2nd worst hit in the US, and it has admittedly influenced my thinking. I'm banking on a market correction to occur in the next 2-5 years. I would not expect it to be as extreme, but its a significant factor in my thinking all the same. All that being said, I don't currently use debt to purchase my properties because I want max cash flow. I like the flexibility and security, plus I can always pull it out if I need it via HELOC or a cash out refinance. This method allows me to add 10-20k a year in cash flow. I understand that I'm missing out on the appreciation of several properties versus one, but that pendulum can swing both ways. Right now, I'm working on buying properties for cash and waiting on a correction. I should have an extremely solid base at that point, an have the flexibility to scale quickly using my current assets as leverage and go with something close to an 60-70% debt ratio at that point (cause I'm still conservative). Am I crazy? Should I change my way of thinking? Don't hold back on me. I want constructive criticism on my thought process.