How do people here define over leveraged?

[Adam Sporinsky]

In many of the BP podcasts, articles, and blogs, the idea comes up frequently that people who really have major issues during donwturns or in RE investing in general are people who buy wrong (pretty clear I think), or people who are over leveraged.  For instance in the it comes up in the Grant Cardone episode when Brandon Turner points out that if you buy right it's very hard to lose money.  Grant responds that Brandon should meet some of his friends, who Grant says were over-leveraged and that that was what caused their problems.

The discussion I would like to start here is: how do the successful real estate investors here define over-leveraged?  How much leverage do people consider too much, how little reserve do people consider not enough?  What are some ways to become over leveraged or how to determine if you are, either at the time or before a deal.  If someone does become over-leveraged, what are ways people have solved that issue?

What are the best practices on amounts of leverage and reserve cash?

I think this could be very beneficial to people who are starting out, but also to people who have been doing this for a while.

[Michael Seeker]

Hey @Adam Sporinsky - that's a great question and one that doesn't really have one "right" answer as there are a lot of variables to any one individual's situation.  People who are over-leveraged are often hell-bent on finding the next deal or getting to the closing table so that they can keep money coming in the door.  If you can't stop all financing/buying/selling activity and just maintain what you've got, then you probably have too much debt to service.  

I've seen investors offer ridiculous returns for money which reeks of desperation and over-leveraging.  I've also purchased a property through foreclosure that could have easily supported the debt on it but was managed so poorly that the owner couldn't keep it.

I personally would feel comfortable with as much as 60% of my income going to debt service, however that would not be ideal - 50% or less keeps me happy and sleeping well at night.  There are many different ways to look at it and you also have to keep in mind the current interest rate environment.  80% leverage with 4% interest rates is much different than 80% leverage with 18% interest rates.