On Debt: Doubts, Questions

[Ralph Noyes]

Getting ready to liquidate a former primary residence in another state and will likely clear around 100k, then looking to reinvest into a much more affordable market (st louis) where I now live. Talking to other investors here for guidance, the conversation usually leads to:

"oh, well, you can get put a 5% 10k downpayment on this 200k duplex, and then a 5% 15k downpayment on this 300k fourplex, and then..., and...."

...while I'm listening thinking "190K mortgage, plus 285K mortgage, plus...". My networth is around 250k and I have had to bust MY *** to get to that point. I just can't imagine feeling comfortable leveraging myself that heavily, going into the negative to acquire expensive, highly concentrated, physical assets. 

How do you all conceptualize mortgage debt? What ratio are you comfortable with compared to your equity and/or networth? How do you ease the anxiety of being highly leveraged? Do you just feel that as long as you have a tenant in there paying it down, it doesn't matter? Considering that I want to house hack, would you recommend starting with a small deal, maybe a small top-bottom duplex, or jumping straight into a larger 4-plex situation?

Just for some context, up until recently, I've shoveled everything into tax-advantaged low-cost index funds, so pretty new to this real estate thing and am trying to get my mind right. Any advice or thoughts are much appreciated!

[Kathy Henley]

Welcome to St. Louis @Ralph Noyes

Do nothing until you understand real estate. The asset should pay for itself through its income. The rents should cover the principle and interest payment, insurance and taxes (PITI). My lender guided/required us to have 25% down payment. This works in St.Louis. I doubt if a lender would let you leverage 75% of the cost of purchasing index funds. That is the beauty of Real Estate. I suggest that you read an intro book called duplexes triplexes and quads. It helped me understand the purchasing of 1 asset at a time and the velocity of equity.

I caution you about St Louis though. The houses in the city are a hundred years old and made of brick. The Brick and age can reveal neglected maintenance. You must have reserves to take care of your asset. I consider 10% of rents going towards reserves for repair expenses. A desk job, W-2 income, helps or is required during the early acquisition period.

The Bigger Pockets calculator is a help to analyze perspective purchases. Give it some practice.