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Hello Hubbers! 

I hope everyone is safe and well in these weird times.

I wanted to see what people thought about leverage, I know this is a bit of a random topic but I wanted to know where people's 'safe zones' are. 

In my opinion, being able to use the banks money to leverage up on an asset is one of the best things about property as an investment vehicle. 

What % LTV do you think is safe? I appreciate everyone has different risk tolerances, but it would be great to get an overall picture. 

I personally don't see an issue with leveraging up to 75% LTV, but would that make you nervous? Do you think that's leveraged too highly?

Of course having a property unencumbered is risk free but when you're trying to build a portfolio, this, in my opinion is counterproductive. 

You sometimes hear about property horror stories when investors have leverages too highly and it all goes bang because of this, but how does that actually happen? The only way I could see this happening from poor money management, an increase in interest rates or empty properties, or perhaps a mix of all three! If you have a portfolio leveraged up to 75% and it's cash flowing nicely and you've got buffer, how can things go downhill so quickly? If you do all the correct DD on your properties and make sure they stay in positive cashflow even if rates get to 5-6%, where are your risks?

This isn't really a representation of my own portfolio, more a conversation starter. I'd love to hear from someone that has lost it all from property, and if that's the case, how? (Providing you're comfortable sharing). 

Thanks for taking the time to read, I look forward to your replies! 

James

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I think the cash flow should be mitigated by buying in the right areas, getting in the right tenants, perhaps rent insurance etc.  I see the real risk to a highly leveraged portfolio to be a rise in interest rates.  Obviously the banks enforce a degree of protection by ensuring rent is sufficient to cover an increase, but that is the big risk as I see it.  Price falls are less of an issue as you only lose if you need to sell....and you are likely to only need to sell if there is an interest rate increase....

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6 hours ago, richard brown said:

Invest for income/yield/cashflow and not for speculative capital growth

positive cashflow with buffers is super important but also BMV and force appreciation on top of a good area for tenants to be able to pull out your deposit for next purchase.

I agree that CG is hard to predict and it should be considered as the icing on the cake but it's also important to take it into account as it will allow to pull out most of our equity or even all.

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