Risk Mitigation in a Good Economy

[Phillip Denny]

Lately, I've been thinking a lot about risk as the economy keeps on rolling.  My biggest fear as an investor (and father of 3), is that I'll overextend myself and end up in the same position that a lot of people were in during the crash. 

I purchased my first property at age 23 right before the crash in 2008 with 100% financing and its just in the last year come back to what I paid.  Luckily, I had a good job through the recession and rented out a room to a friend, but I've often thought, if I had lost my job for some reason, I may have ended up losing the house because I had no equity and no real savings.  Of course at age 23 with no wife and no kids, optimism abounds and it worked out.  However, my outlook and risk tolerance has certainly changed!

I'm curious though, what strategies are people using to mitigate risks associated with some of the different financing options (HELOC's, refinancing, etc)? I personally have decided that I don't want to own rental properties without 30% equity and 6 months of cash reserves for each unit. On the flip side, I don't believe in timing the market and I love real estate, so I don't want to miss opportunities to grow my real estate business.

Anybody that was heavily hit by the last recession that could offer thoughts on the right balance between leverage and risk during good times?

Looking forward to hearing some thoughts.

[Russell Brazil]

The people who got hurt during the housing collapse were the people who were forced to sell.  If you plan on holding onto the property, dont over leverage yourself, and have cash reserves....that is how you mitigate the risk.  You seem to have a grasp on that, and it really is that simple.  Dont sell in down markets. You held onto your property, and even though it took 10 years for the value to come back for you...you also have 10 years of debt reduction during that time.