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How much debt is too much?


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Hey - I’m just starting out investing in property.   I understand that the accepted way of financing a BTL is to borrow around 75% and that this debt is so called ‘good debt’.  But I wonder as people start to grow their portfolios how much total debt feels comfortable?  I guess it’s different for everyone.  But would welcome some insight.  

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Its all relative. Its only considered good debt because its assumed its secured on something with an appreciating or stable value. Thats not always the case in property so i'd argue there no such thing as good debt. The debt stays fixed, but your asset can rise or fall in value. Its all about risk, thats the metric you should be balancing against reward.

043_logo_final_03.png.0cdf828351f81e6097208048ac2d018d.pngStuart Phillips

Independent, Whole of Market Mortgage Broker

AALTO Mortgages Ltd

Web  www.aaltomortgages.com

Email  sales@aaltomortgages.com

Call  020 7183 1101

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21 hours ago, r macer said:

Hey - I’m just starting out investing in property.   I understand that the accepted way of financing a BTL is to borrow around 75% and that this debt is so called ‘good debt’.  But I wonder as people start to grow their portfolios how much total debt feels comfortable?  I guess it’s different for everyone.  But would welcome some insight.  

When you begin, you're in the growth phase of your portfolio. At this time, you're normally looking to have as much debt as possible in order to grow your portfolio. Also, you might still have a job at this point. Generally, people won't be taking profits out of their properties at this point. They'll be reinvesting profits in the new properties

As you get old, you probably want to reduce your debt and reduce your risk. At this point, you're more likely to be taking income from your properties

In terms of an actual debt level, I don't think this is the most important figure. What matters is how much profit your portfolio is earning. If your portfolio is earning profits, then your debt load is sustainable. 

 

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I was going to say around 60% so the guys above saying 50% is roughly in the same ball park.

It's a good point raised by Julia about your stage of investment, at the start you'll probably be around 75 ish, slowly move down as long as you arent over ambitious and constantly remortgage the full money available. Of course you can be aggressive and do this but it runs more of a risk.

As I go further along I'll be happy to see myself at the 50% mark too, under this and you arent gaining as quickly and safely as poss, and over this you always have a risk of ruin. IMO.

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