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Right now I have over 550k in equity in my primary residence which is right on the coast over looking the bay and ocean. I have a fixed interest rate on my mortgage of which is under 2k per month or roughly 8% of my gross monthly salary. If this so called bubble occurs, I could care less because I have no intentions of selling in the next 10 years. Why would I? I consider San Diego to be in the top 10 places to live relative to climate.
Even if prices fall, they won't fall more than 10%-12% and especially not on the coast and if they did, I still have plenty of leverage against my home if I needed it.
As for my other rental properties here all within 4 miles of my residence, the rents I collect are enough to cover my mortgage.
As for this new place I picked up down the street, I have an equity line of credit against my home available to me anytime. I pump 120k into this dump and now my investment is still well below the comps in this area even if the market was to drop here. I could turn around and sell it below the comps and still put an easy 150k-200k in my pocket before capital gains.
Why would I sell it though? I won't. I'll collect 85% of my mortgage thru rents. Sounds like I lost right? Not at all. Remember my personal residence mortgage accounts for only 8% of my gross monthly income and My rents received covers my other mortgages.
There is this thing the lender always factors in when deciding what loan amount you can qualify for. It is called Debt-to-Income Ratios. This ratio usually can't exceed 32% of the front end ratio and 38% on the back end ratio. Simply put. Your payment on a home loan can't exceed 32% of your gross monthly salary and your debts such as auto loans, Credit cards etc...can't exceed 38% of your gross monthly income.
At 8%, I'm well under the standard of 32% therefore meaning I have room to play if I am upside down on a property through rents received. The extra 20-24% of play (disposable income) I have is then used to pay off that equity line of credit I used to improve this new property. Once it is paid off in a short time usually before or within 2 months of or after completion of the improvements, I just have to repeat the cycle.
The problem with most is they exceed their means and leverage everything they have and when a small hicup or crisis occurs, they are screwed.
The key to real estate is to buy smart and know what to buy. The time to buy is anytime. Those who are waiting for the right time are the same people who have always been behind the power curve their entire life.
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We are what we repeatedly do.-Aristotle
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