Debt to equity ratio


#1

At what point do you feel overleveraged? I hear anything less than 1:1 is conservative. I feel like 4X equity is OK long as they’re good cash long properties.

How do y’all mitigate risk? Do you look at worst case scenario, in the case of economic downturn? If things depreciate 50% can we still pay the note? Do I have enough cash to pay the note for 6 months till I can liquidate something?

What’s great about mobile homes, is that in the case of bad times, someone has to live there, and will always be worth the price of rent.


#2

I think you answered your own question.

When properties become overpriced, rents don’t fall in line with the underlying assets value.

As a matter of fact, as a landlord, I’d like to see double-digit interest rates.

Ask me why.

Mike


#3

Why? Don’t you need to refi at some point? I’d like to see higher interest rate to shake out all the insane valuations so I can add more parks to my portfolio.


#4

Is it because it means that owning a home is harder, and that drives rent prices up?


#5

Yes on the first part and not quite on the second. Let me 'splain.

Loans from banks will be difficult to qualify for because the higher interest rates cause the payments to be higher. Debt to income (DTI) ratios will disqualify most borrowers.

If you were around when rates were in the high teens, you know what I’m talking about.

Second part - rents don’t go up automatically, but when tenants have no option to purchase a home of their own, landlords can raise rents knowing their tenants have no choice.

Last time we had loans available to anyone who could fog a mirror, the banks seized on the opportunity to lend all they could and package and dump those toxic assets on unsuspecting investors.

We’ve learned our lesson.

As a country, we’re all smarter now, right?