RANDOM THOUGHT OF THE DAY ABOUT LEVERAGE
Just happen to look at my all my mortgages and wonder what would happen if all my tenants stop paying all at once? the result will be devastating. I have been expanding so fast in the last couples year and did not really think about this fact. Here are some step that i am taking to cover this risk:
- Do not over leverage: My favorite entry ratio is 20% down and 80% mortgage. this will keep your payment low and the cash flow should be more than enough to cover the expense and debt service. Later on, you can either move to a 0% leveraging by paying everything off or 100% leveraging by taking all your money out to further reduce the risk.
- Stay Liquid: The worst time to sell is when you have to sell. I tried not to enter this position ever in my career by carrying a big fat bank account with me all the time. This is easier said than done. However, if you have for example 10 houses and have like 5 bucks in your bank account. you have a real problem. Stay liquid! stay liquid! stay liquid!
- Do not settle for ok deal: I keep telling to myself is that i buy only great deal, not ok deal because during bad time, great deal will do Good and ok deal will do bad! Whenever you buy a deal, think about the worst case scenario and negotiate the price base on that scenario
- keep tap on the market pulse: If you pay attention, you can mostly predict when the market will turn and act accordingly
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