How Much Liquidity To Carry In Your Portfolio

[Bryan Hancock]

For those of you with sizable rental portfolios with debt on them I was wondering how much cash you keep as an overall percentage of your long-term debt. We have been targeting 10% liquid for every dollar of long-term debt. With this constraint we have limited our debt burden and kept ourselves from being overleveraged.

Does anyone else use metrics like this or something else to determine how to prudently grow a long-term portfolio? We also use debt to equity ratios, but I find those less reliable than analyzing cash as a percentage of debt.

[Chris Da]

I tend to do things a little different than most people. I own 7 properties, of which I have mortgages on all. I always have enough reserve to cover all the mortgages for 1 year. That is the rule I use. My mortgage guy tells me most people are not in that position, and that my be an error on my part, as I know in order to make money in this business you have to leverage alot, but I have also seen alot of guys think nothing is going to go wrong, or everything will just work out. I am more conservative, and that my be the reason I only own 7 properties verse other friends of mine owning 100+. I also have small children, so that is in the back of my mind always.
I plan on building a single house later thin year or early next year. I got the final approval this week. In a deal like that, most people would borrow the money, but I am going to do the deal 100% cash out of pocket because I am not sure how long it will take to sell, and I don't want to pay the bank all the interest. I figure I will only be losing a small amout if interest having the money in a CD. Just my take on things.