tracking investment progress

[Troy Forney]

I know this has been discussed in the form of how much debt should I carry and other similar topics. So I am applying for a cash out refi with a local bank (commercial dept) and they had me fill out a financial statement. This is a little bit of an eye opener and gives mixed feelings. So my total assets are $768,157. / liabilities $411,054. / Net worth $357,103. Real Estate portion is: $643,000. assets and $374,000 liability.

This raises questions. How am I doing? Is this a good ratio or should I flip my 4th property, intended buy and hold to obtain more cash to pay down debt? I have been doing the BRRRstrategy, but by the fourth my cash is starting to dwindle and my debt, well I am not sure. I have nothing to compare to. On one hand I say keep the property as a buy and hold (cash flow will be comparable to all my other 3 about $250 month each after all is paid and reserves with held). On the other, I want to sell and have an additional $35,000. So $90,000. +/- for the next one if I flip it. Or $55,000. to work with if I refi the 4th property at 65%. Can I get some comparisons and opinions? I always appreciate any input.

[Mike Dymski]

To mitigate risk, you want acceptable leverage and liquidity.  58% leverage looks fine (add the new property and recalculate).  Whether you are in cyclical or linear markets/properties is part of the leverage equation as well.  Higher leverage in stable linear markets/properties can have reasonable risk...and you do not necessarily need higher leverage in cyclical markets to achieve outpaced returns.  High leverage in cyclical markets in peak cycles can be problematic.

You situation appears to revolve more around adequate liquidity.  Calculate your monthly burn rate and maintain 6-12 months liquidity plus reserves for the real estate.  Then you add the art to the science and consider things like your job stability, property locations/demand, commission/salary, children/spouse or not...plus just your ability to sleep at night and add those to the equation.

Good question and a good exercise to monitor your personal balance sheet regularly.  Keep us posted.