{"id":110004,"date":"2020-12-06T08:00:53","date_gmt":"2020-12-06T15:00:53","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=110004"},"modified":"2021-03-16T14:53:31","modified_gmt":"2021-03-16T20:53:31","slug":"bad-debt-real-estate","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/bad-debt-real-estate","title":{"rendered":"Point-Counterpoint: Debt Is Bad When It Comes to Real Estate"},"content":{"rendered":"<blockquote>\n<p class=\"p1\"><em>\u201cPoint-Counterpoint\u201d focuses on one real estate investing issue at a time from two different investors\u2019 perspectives. The first topic we\u2019re addressing is debt. Is it good or is it bad? <\/em><\/p>\n<p class=\"p1\"><em>In this post, Engelo Rumora argues why it&#8217;s bad. Weigh-in with your opinion below the article in the comment section, and be sure to read the entirely opposite stance in <a href=\"https:\/\/www.biggerpockets.com\/blog\/good-debt-real-estate\/\" target=\"_blank\" rel=\"noopener noreferrer\">Andrew Syrios&#8217; counterpoint article<\/a>.\u00a0<\/em><\/p>\n<\/blockquote>\n<p class=\"p1\">Contrary to <a href=\"https:\/\/www.biggerpockets.com\/blog\/good-debt-real-estate\/\" target=\"_blank\" rel=\"noopener noreferrer\">Andrew Syrios<\/a>, I&#8217;m here to talk about why all debt is bad.<\/p>\n<p class=\"p1\">Before I get started, I want to tell you I\u2019m not looking to garner any friends. I don\u2019t want your friendship, I don\u2019t need your friendship, and I know I\u2019m going to catch a lot of criticism for this blog.<\/p>\n<p class=\"p1\">But, hey, whatever. Comment below, and I\u2019ll respond to you as soon as possible!<\/p>\n<p class=\"p1\">For those of you who have been following me for a while, you know that I\u2019m a bit rough around the edges, and I like to use blanket statements\u2014why you should never do this and why you should never do that.<\/p>\n<p class=\"p1\">So here I am today with another blanket statement: all debt is bad. Period.<\/p>\n<p class=\"p1\">For those of you who are going to criticize me, I have something to tell you: I think all of you guys are lazy. That\u2019s my opinion. I think that you want something for nothing.<\/p>\n<p><iframe loading=\"lazy\" src=\"https:\/\/www.youtube.com\/embed\/wzuW8bI2keY\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<h2>Why I Think Debt Is Bad<\/h2>\n<p class=\"p1\">Look, I have done over 500 real estate deals, and I still consider myself to be an unsophisticated real estate investor. I\u2019m a rookie and a baby when compared to more experienced, older investors, who have done more deals and been in the market longer than I have.<\/p>\n<p class=\"p1\">But to this day, I still only buy with cash, and I\u2019m a big believer in only doing cash deals.<\/p>\n<p class=\"p1\">So for those of you who have bought one or two properties (or haven\u2019t even bought yet) and say that <a href=\"https:\/\/www.biggerpockets.com\/blog\/no-money-down-well-kept-secret-lendable-equity\" target=\"_blank\" rel=\"noopener noreferrer\">leverage is the way to go<\/a>\u2014debt is good\u2014how can you say that? If you haven&#8217;t done many deals, you can&#8217;t know that.<\/p>\n<p class=\"p1\">As someone who&#8217;s done many deals, I think I&#8217;ve earned at least some credibility. And I strongly believe that you shouldn\u2019t borrow money. I believe that you should do all-cash deals, and I believe that debt is bad\u2014especially when you\u2019re starting out.<\/p>\n<p><em><strong>Related: <\/strong><\/em><em><a href=\"\/renewsblog\/eliminate-mortgage-debt\/\" target=\"_blank\" rel=\"noopener noreferrer\">3 Ways to Eliminate Mortgage Debt<\/a><\/em><\/p>\n<h2>Why Real Estate Investors Should Do All-Cash Deals<\/h2>\n<p class=\"p1\">Here&#8217;s why I think you should do all-cash deals. First of all, it gives you more control of that particular transaction and your circumstances.<\/p>\n<p class=\"p1\">Something beginner investors (and even some seasoned investors) don\u2019t know is a lender can call on that loan whenever they want. It\u2019s in the fine print of the mortgage documents!<\/p>\n<p class=\"p1\">Now the likelihood of that happening is not high, but it did happen during the global financial crisis. And I can tell you that a lot of folks went bankrupt because of it. So why expose yourself to that risk? I just think it\u2019s unnecessary.<\/p>\n<p><strong><em>Related:<\/em><\/strong><em>\u00a0<a href=\"https:\/\/www.biggerpockets.com\/blog\/real-estate-investors-stop-skinny-dipping\" rel=\"noopener noreferrer\" target=\"_blank\">Warren Buffett\u2019s Advice to Real Estate Investors: \u201cStop Skinny Dipping!\u201d<\/a><\/em><\/p>\n<p class=\"p1\">All good things take time. I think you shouldn&#8217;t leverage when you\u2019re looking to invest in real estate either. I think you should build the foundation of your portfolio with cash.<\/p>\n<p class=\"p1\">I think that 50% of your entire portfolio should be cash-owned\u2014if not higher. I\u2019m very conservative when it comes to these things.<\/p>\n<p class=\"p1\">There is no such thing as overnight success. It\u2019s going to take you five, 10, or 15 years to build a large and sustainable real estate portfolio. So forget what you\u2019re seeing online! Forget about these unique strategies, and remember it takes hard work.<\/p>\n<p class=\"p1\">What I wish for you is to prove to yourself that you can go out and work hard. Work two jobs if you have to, and save $50,000 to $100,000 in cash before you start your investment journey.<\/p>\n<p class=\"p1\">If you can\u2019t do that, in my opinion, you shouldn\u2019t even invest in real estate. Why? Because you don\u2019t deserve to. You don\u2019t know what it\u2019s going to take to get to where you need to be.<\/p>\n<p class=\"p1\">I do. Trust me, I\u2019ve been there and done it. I\u2019m still doing it, and it\u2019s not easy. It&#8217;s a lot of blood, sweat, and tears. It can also mean a lot of sacrifices and maybe even health issues.<\/p>\n<p class=\"p1\">It\u2019s not going to be easy. However, if you cannot be patient and work hard\u2014two jobs if you have to\u2014and save $50,000 to $100,000 in cash before you start, I don\u2019t think you should invest in real estate.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-68481\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2014\/12\/no_minimum_wage_increase.jpg\" alt=\"no_minimum_wage_increase\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2014\/12\/no_minimum_wage_increase.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2014\/12\/no_minimum_wage_increase-300x143.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<h2>What to Do If You Can&#8217;t Afford to Buy With Cash in Your Market<\/h2>\n<p class=\"p1\">You\u2019re probably thinking, well, what does $50,000 to $100,000 buy me? I live in California or New York.<\/p>\n<p class=\"p1\">Great question, and to be honest, I don\u2019t think you should invest in those markets, because it really doesn\u2019t buy you anything. (Or it might buy you half a parking spot.)<\/p>\n<p class=\"p1\">This is why I think you should invest in the Midwest. I also think that you should take things to extreme lengths. If you want <a href=\"\/renewsblog\/2016\/03\/28\/financial-freedom\/\" target=\"_blank\">financial freedom and success in real estate<\/a>, move to the Midwest (or to another market where the numbers make sense).<\/p>\n<p><em><strong>Related: <\/strong><\/em><a href=\"https:\/\/www.biggerpockets.com\/blog\/invest-real-estate-low-cost-properties\" target=\"_blank\" rel=\"noopener noreferrer\"><em>Why You Should Only Invest in $50,000 Properties or Less<\/em><\/a><\/p>\n<p class=\"p1\">You can make a profit flipping and make a great return on investment with a buy and hold in a better area. It\u2019s a sacrifice, guys, but you have to go to a market where the numbers make sense.<\/p>\n<p class=\"p1\">We live in the 21st century. Things change. There is <a href=\"https:\/\/www.biggerpockets.com\/blog\/surprising-advantages-property-management-apps\" target=\"_blank\" rel=\"noopener noreferrer\">a lot of technology<\/a>; everything is virtual. We can be more mobile, and you don\u2019t need to live in the same house for 30 years.<\/p>\n<p class=\"p1\">Make a sacrifice now so you can live the life that you want in the long term\u2014or don\u2019t. Live in California and borrow a ton of money and someday you can retire.<\/p>\n<p class=\"p1\">Regardless, I\u2019m a big believer in cash because it gives you more control. That way the lender is not in charge of your destiny.<\/p>\n<p class=\"p1\">I\u2019m a big believer in the Midwest because the numbers make sense from a profit standpoint and from a cash flow standpoint.<\/p>\n<p class=\"p1\">I\u2019m a big believer in cash because you get to buy the best properties. You can quickly close with cash in seven days. That\u2019s how you get the best deals.<\/p>\n<p class=\"p1\">Leverage is too risky. It\u2019s an easy way out, and let&#8217;s face it, many of you guys are just being lazy. That\u2019s why you want to use leverage. You want something for nothing and think it\u2019s going to happen overnight.<\/p>\n<p class=\"p1\">Real estate does not work that way\u2014period. The only time when you should use leverage is when you are an experienced real estate investor.<\/p>\n<p class=\"p1\">If I don\u2019t consider myself an experienced real estate investor despite 500 deals under my belt, I think that should speak volumes to you.<\/p>\n<p class=\"p1\">I have started using leverage because I think I know what I\u2019m doing at this point. But I\u2019ve definitely gotten burned using leverage in the past. I don\u2019t want you to make the same mistakes that I have!<\/p>\n<p class=\"p1\">Take your time, be patient, work hard, save the capital. Then invest in your real estate journey. And remember, debt is bad.<\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/webinars\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-91217\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-01.jpg\" alt=\"\" width=\"700\" height=\"85\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-01.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-01-300x36.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em>How do you feel about debt? Have you used it? Did you regret it? What do you think about doing deals in all cash?<\/em><\/p>\n<p class=\"p1\"><strong>I\u2019d love to hear from you in a comment below.\u00a0<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>All debt is bad. Period. I know I&#8217;m going to be criticized by other real estate investors for my opinion, but I think debt and leverage are a bad idea. They&#8217;re risky, and buying property this way seems lazy. This is what I think you should be doing instead. <\/p>\n","protected":false},"author":1672,"featured_media":117297,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5524],"tags":[],"class_list":["post-110004","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-investing-for-beginners"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/110004","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/1672"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=110004"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/110004\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/117297"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=110004"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=110004"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=110004"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}