Teach me how to bankrupt myself using credit

[CK Hwang]

Hi everyone, so this question might come across a little strange, so I thought I would first give some background information. So as things go, my little fix and flip business is starting to grow and I am starting to think about borrowing against my rental property to fund more flips. I have always been a super conservative investor, only borrowing up to 30% of valuation on one property, and my other properties are paid off in cash.

Now I know to grow my business I need to probably be less conservative, at least for a few years, but before I dive into the big big scary world of leverage, I wanted to see if you guys could perhaps tell me how most investors you have heard of or know get into trouble using leverage.

I'm not talking about people who pull out equity to fund vacations, nice boats and cars etc, but rather how do people get themselves in trouble when they reinvest the money in real estate or otherwise.

The reason I'm asking this question phrased this way is because I've heard the success stories of people who leveraged to the hilt and came away winners (i.e. Donald Trump), but I want to learn the lessons of those who failed or almost failed as well. Stories or advice anyone?

[Wendell De Guzman]

One way to be bankrupt using leverage is by buying the wrong properties or negative cashflow properties and you hope the property will appreciate.

Another way that people get into trouble is by buying a turnaround property or repositioning deal. This means the property has negative cashflow in the beginning, and then you used leverage to finance the deal and the repairs...but you can easily run out of cash to pay back the debt (and the repairs) because turnarounds can take twice as long and twice as expensive as one can estimate.