Leveraged properties & Market Downturn

[Account Closed]

As the housing market is climbing and has been for some time, people are getting skeptical about how soon things will change. When looking at ways to build a portfolio with "no & low money down," it's all about leverage. However, the biggest concern I've heard with a highly leveraged business is the impact of the market during a downturn.

I'm wondering what is on people's minds when they think this way. While it may be true that the value of the home will drop, that would only matter if selling during that downturn. Rents should stay the same, mortgage & interest payments would stay the same. Expenses would stay the same. It should continue to cash flow.

Hoping that we can get a few opinions about the details of this market function. Thanks!

[Andy D.]

@Braden Coast Not my experience during the last crash. It's never a "real-estate only" crash. Businesses run into trouble, people lose jobs, get thrown out their houses because they can't pay the mortgage anymore, etc. etc. These people cannot buy houses. They lost theirs. They need to rent. That's exactly what happened 2007/8 (and later still!). While in a tough market it will most likely be more difficult to raise rent, I have not experienced much of a decline in rent in such a market either. But that most likely also depends on the location. Heck, it's real estate! Therefore: location, location... ;-)

I really don't see where this is coming from and why a highly leveraged place would be an issue for an investor (!) in such a downturn. This is, of course, assuming that the cash-flow is good, i.e. DSCR is decent. Maybe someone has some pointers.