The buy and hold model, in my opinion, is not built on appreciation (although, in the long-term, we hope appreciation is a happy bi-product).
While a down cycling market will have an impact, it's more likely to put stress on house flippers, for example, rather than buy and hold investors.
If you *must* sell in a down market, you will likely lose money. But a decline in a home's value does not mean you (the buy and hold investor) will be unable to rent the property to a tenant. In fact, I would say that such an inability is unlikely unless there is a noteworthy and sudden drop off in the local population, or something along those lines.
If you buy toward the middle of your market (i.e., B and C areas), and you consider all reasonable factors and expenses when calculating cash flow (rent, loan payments, interest rate adjustments if applicable, routine repairs, capital expenditures, insurance, utilities, vacancies, turnover costs, etc.), you are in a good position to weather the storm when the going gets rough.
To the question about when its time to acquire another property with leverage: I would suggest that you take action when your other property or other properties is/are stabilized--that is, your property or properties is/are occupied and up-to-date with maintenance, and you have cash reserves in place. (And I mean cash reserves in place *in addition* to the down payment for the next property.)
The above might be a little simplistic; and even very conservative hold investors can take hard hits. Regardless, I think, for the most part, budgeting and cash reserves are important considerations for hedging your bets.
