Overleveraging yourself in Real Estate
Can someone give me a good example of how someone could overleverage themselves in Real Estate. I just don't understand how this could happen because wouldn't the bank see that and not loan you the money for the deal?
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#5 All Forums Contributor
- Plymouth, MI
Overleveraging could be when you buy a property using a loan, that doesn't have positive CF, and you are forced to sell it because you finally realize one of the many follies of buying a property with negative CF, but nobody will buy the property from you because, well... they don't want your negative CF either.
The overleveraging comes when you try to refi the property to access that magical equity that built up from appreciation,...the reason you said it was OK to buy a property with NCF. When you go to the bank to get that refi, and the lender looks at the property with negative CF, realizing that any cash out refi would increase the mortgage, thus making the NCF even worse, and you are denied the loan.
The overleveraging is the negative CF.