What Leverage ratio does a property investor uses for a stable portfolio

[Tibo]

Hello!

I'm looking to find a good balance for financing between the mortgage value and the building appraisal value to hold on investment property to minimize the risk. (Even to take equity out). I'm trying to see if Real Estate Investors have a "RULE OF THUMB" on the right leverage ratio. Because at the beginning of my investing career I got loans at 80% LTV 30yrs Amorts. Now I'm trying to reduce my risk and set up for long term stability. Can you help me



Thanks in advance.

 

[Thomas Beyer]

REITs use around 50% and are able to deliver cash flows of between 3% by apartment building REITs to 7% by industrial REITs . That is a decent rule of thumb, but it really depends whether you wish to maximize cash-flow, i.e. minimize the mortgage all the way to 0 potentially, or if you wish to maximize ROI by being highly levered. It is up to you really.



The lowest risk are debt free assets in world class cities, in good condition in great locations, but they are of course also the most expensive.



You cannot maximize ROI and minimize risk at the same time.



More cash flow and ROI on a hypothetical $1M investment analysis here

http://myreinspace.com/forums/p/26733/131894.aspx?#131894

 

[Tibo]

Thank you Thomas, makes sense. I think I will go with 50% in let's say Sudbury and 80% in booming towns! Like Calgary.

 

[Thomas Beyer]

[quote user=Tibo]Thank you Thomas, makes sense. I think I will go with 50% in let's say Sudbury and 80% in booming towns! Like Calgary.




yup up that makes sense. We are doing the same right now, as we also own in Sudbury ( roughly 60% LTV) and in Alberta we go as high as banks allow, up to 75% incl refi or mortgage top-ups on assets that are now cash-flowing like crazy compared to purchase price a few years back.

 

[Tibo]

Ok! Perfect! Thanks again!