The house of cards analogy is very apt.
If things go well, extreme leveraging will multiply the gains.
Example, let's say inflation is 3% per year and housing value goes up with inflation. That's all.
If I buy a house for 25% down, I get 3% added to the value but I only paid for 1/4th of that gain. In effect, it magnifies my gains by a factor of 4!
Pretty awesome, eh?
If I have $100,000 and buy 4 properties at 25% down, I'm getting 3% of $400,000 worth of appreciation but I only paid for $100,000 of it. My tenants are paying the cost of the rest of the appreciation. That's awesome.
Same principle applies to rents increasing over time. I'm getting 4 times the rent appreciation for the same money. Good times!
And, of course, if there aren't good times, it's worse.
With a $100,000 paid for house, if it doesn't rent for a goodly while my carrying costs in my area are pretty low. Maybe $2500 a year if I mow it myself. $3000 if I hire someone for the yard work. It's not fun to shell out money for no return but it's certainly doable.
But if I have $400,000 worth of bank loans and those properties aren't renting out, lordy, am I hurting! I have 4 times the property taxes and 4 times the insurance and 4 times the number of yards to mow AND I have 4 mortgages to pay down! If I get laid off those extra expenses will eat into my emergency fund pretty fast.
Had an out of town supervisor who but in 30 bids on $100k properties and got 5 accepted. He bought all 5 at once. Gonna make a mint!
Right after he closed a big factory shut down and people were leaving town instead on clamoring to buy from him. Housing values plumetted so he was underwater on all 5 houses. He had to rent them out for a pittance because that's the best he could do.
My first rental at $45,000 total cost (purchase + renovation) that rented out at $750 was producing more profit than his 5 houses for a tiny smackerel of the risk. Bad stuff happens and it often clusters together with other bad things.
An in-between position is to buy a house for cash, repair it to get a bump in value, then borrow against it to buy another house for cash. This way, you're only ever on the hook for 1 mortgage but you have two potential sources if income to cover it. If only one house is rented you're still treading water instead of sinking in more and more debt. You would have a 1-1 ration of paid for to mortgaged properties.
A slightly more agressive one would be to do the above and do another mortgage with another downpayment. This would give you a ratio of 1 paid for to 2 mortgaged properties. If a cluster of bad things happen the bad effects could be softened somewhat by the paid for house.
The time to leverage is when the market is starting up, not when the market is stalling at the top. Not that anyone knows exactly when that is, of course. But the indicators are easier to monitor in a local real estate market than they are for the global stock market.
