Time to Start Leveraging Up Again?

by Darwin on June 26, 2011

It’s impossible to call a bottom in housing, unless you’re the National Association of Realtors (NAR) of course, who I think have done so monthly about 60 times in the past 5 years.  However, housing obviously can’t go to zero, especially rental real estate with real cash flows.  That begs the question as to whether it’s time for retail real estate investors like you and I to start leveraging up and buying in again.

We’ve been enjoying record low interest rates for some time now, and just like housing, it’s impossible to call an inflection point, but what is for certain is that rates won’t remain this low forever.  Rates must go up eventually, and they will.  That begs the question as to whether it makes sense to start using personal loans and other means of borrowing to lever up and start investing.  We’re seeing corporate America do it, right?  It may seem odd, but US corporations are sitting on record piles of cash at the same time they’re issuing more debt.  The reason is the ROI is too compelling.  They don’t actually need the cash, they’re just leveraging up to take advantage of the current business cycle and low interest rates.

Personally, on a single income, I’m still a bit risk averse and don’t have enough in the bank to plow into a giant real estate project.  But I have been continuing to have some discussions now and then with a potential partner who could share the investment/risk/time commitment on a rental unit.  Part of the problem lies in real estate prices in our area which still appear to be inflated per given rental income.  But a bit further out, there are opportunities.

If something came around that was real compelling, I might consider selling off some stock or perhaps even taking on some low interest debt to fund it.  I’d just have to have some checks and balances in place and be confident we could get by in the event of job loss until my wife gets back to work.  But real estate is definitely a part of my portfolio that’s missing.


Would You Take On New Debt to Invest in Real Estate Now?

{ 2 comments… read them below or add one }

Ken Faulkenberry June 27, 2011 at 3:05 pm

This is a question investors should start to ask themselves, maybe just as a reminder. I think it is too early unless one finds the perfect situation to buy a quality property in the right area. Otherwise it’s not wise to try and catch a falling knife, and real estate prices are falling again. The bottom will come when everyone is giving up. We are not there yet!


Barb Friedberg June 27, 2011 at 5:03 pm

I can’t see prices or mortgage rates get any lower. If you have discretionary income, time to manage rental property, or interest in getting into a single family home, I believe, now is a great time to invest in real estate. We are purchasing a primary residence from a short sale next month.


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