QUOTE (housingrental @ Feb 13 2010, 03:37 PM)
Hi James,
Isn't your situation a problem?
Your building a large leverage portfolio without a sufficient margin of safety for when things go wrong.
If 10% down and 25 year amortizations would have hampered your growth, than maybe your growing with significant risks of being wiped if things go wrong?
No one knows the future, and please don't misread this. I'm not pretending to. However reasonable scenario's exist where a few years out your current 2% interest rate 35 year amortization mortgage with 5% down is renewing with a 6.5% interest rate and a lender requiring additional funds from you or pulling your loan. If:
Rents don't move much
Your other expenses balloon or your hit with unexpected major issues to address
You don't have sufficient other assets to prop up your rental properties
You might be stuck with having your legs pulled out from you and being foreclosed - potential when asset values are lower - or forced to obtain financing for portions above 15% interest rates.
No, I don't think I have a problem, (Well, I work too much, and drive too fast, but I don't think your talking about that)
I do agree with your inference that it would not be smart for someone's entire portfolio to be a 5% down buying bonanza. I have PLENTY of equity in my portfolio, but like you (I'm sure) I don't want the value of assets I own to go down.
A 25 year AMORT loan vs. a 35 year AMORT loan will ALWAYS yield less cash flow. (No matter how much equity is in a property) Banks like me because of my high cash flow which would be reduced if I had to do 25 year loans. I am in no rush to pay down the mortgage balance on my rental properties. (For very obvious reasons) a 35 year loan makes a big difference.
Now your point on foreclosures is interesting. Imagine what would happen to an investor's portfolio if more of the houses around you/in your area went into foreclosure. (It would affect the value of your house and your portfolio) Remember, it's not just investors who buy properties, but the average person next door that stretched the heck out of themselves to get into the biggest home the could afford.
Cheers
Hi James,
Isn't your situation a problem?
Your building a large leverage portfolio without a sufficient margin of safety for when things go wrong.
If 10% down and 25 year amortizations would have hampered your growth, than maybe your growing with significant risks of being wiped if things go wrong?
No one knows the future, and please don't misread this. I'm not pretending to. However reasonable scenario's exist where a few years out your current 2% interest rate 35 year amortization mortgage with 5% down is renewing with a 6.5% interest rate and a lender requiring additional funds from you or pulling your loan. If:
Rents don't move much
Your other expenses balloon or your hit with unexpected major issues to address
You don't have sufficient other assets to prop up your rental properties
You might be stuck with having your legs pulled out from you and being foreclosed - potential when asset values are lower - or forced to obtain financing for portions above 15% interest rates.
No, I don't think I have a problem, (Well, I work too much, and drive too fast, but I don't think your talking about that)
I do agree with your inference that it would not be smart for someone's entire portfolio to be a 5% down buying bonanza. I have PLENTY of equity in my portfolio, but like you (I'm sure) I don't want the value of assets I own to go down.
A 25 year AMORT loan vs. a 35 year AMORT loan will ALWAYS yield less cash flow. (No matter how much equity is in a property) Banks like me because of my high cash flow which would be reduced if I had to do 25 year loans. I am in no rush to pay down the mortgage balance on my rental properties. (For very obvious reasons) a 35 year loan makes a big difference.
Now your point on foreclosures is interesting. Imagine what would happen to an investor's portfolio if more of the houses around you/in your area went into foreclosure. (It would affect the value of your house and your portfolio) Remember, it's not just investors who buy properties, but the average person next door that stretched the heck out of themselves to get into the biggest home the could afford.
Cheers