Debt free investors

9 Replies

I am looking to get advice from any one that started in the rental business debt free. I am saving up to buy property with cash and no partners or investors. 

My questions are:

Was there a benefit to going debt free?

How much money did you start your venture with?

How much should I be prepared to save for costs other than the property itself, such as maintenance and insurance?

Thank you for taking your time to answer. 

Hey David, 

One of the huge advantages to RE is it's the only investment out there you can get 100% control of the asset by putting up 25% (investment loan down payment) of the asset. 

Is there a particular reason you're looking to buy for cash and keep the cash tied up in the property? 

You might want to check out threads on BRRR.

@David Avila , I started out all cash (and actually am just looking at getting to loan for leverage).

The reason I started out with cash is because I wanted to start slow, not leverage myself while I had the largest learning curve and if I made mistakes, I would be able to absorb them. 

I would advise someone just starting out to partner with an experienced flipper or contractor who is willing to put some skin in the game (they can pay for the rehab cost or defer their payment until the property is sold or completed in exchange for some equity). This pay lower your overall profit, but will be a huge benefit in the long run.

Once you feel comfortable, you can then buy a few properties yourself, rehab, rent, renovate and repeat - the BRRRR method mentioned above.

You can start with cash now, get better cash flow and refinance in a year when the property is seasoned.

As for how much money you should allocate - that really depends on your neighborhood, your financial situation, goals, etc. 

Personally, I would stay away from very low income rentals when you are starting out - minimize your headaches while still learning.

Good luck.

@Percy N. I imagine the way you would analyze this type of deal would be a little different since you are taking out the cost of borrowed funds and replacing it with opportunity cost. With an all cash purchase it will always cash flow, what metrics do you use to determine whether or not its a great deal?

Originally posted by @Joe Villeneuve :

I'm with @Scott Lewis on this one.  Why in the world would you want to pay for all your properties, when someone else is perfectly willing to do it for you?

How much you leverage if at all is a product of many factors including risk tolerance, tax implications, personal preference, and investment goals. I don't think there is a one size fits all though many people may see it that way. Just my two cents.

Originally posted by @Patricio P. :

I'm with @Scott Lewis on this one.  Why in the world would you want to pay for all your properties, when someone else is perfectly willing to do it for you?

How much you leverage if at all is a product of many factors including risk tolerance, tax implications, personal preference, and investment goals. I don't think there is a one size fits all though many people may see it that way. Just my two cents.

OK, one by one:

risk tolerance,

In order to asses risk you have to look at what is at risk, and who IS the risk.  The answer here is simple, and the source for that answer is from the one place that understands how money works, and the risks the follow, more than anyone else...the BANKS.  When you ask them to give you 100% of the money you need, they say no.  Why is that? 

tax implications, 

This is one of the most misunderstood "benefits" of REI...and it comes down to not understanding the difference between a tax break, tax deduction, and a tax credit.

personal preference, 

When you introduce the word "personal" into investing, you are drifting into an area of influence that does not belong...which leads to the next statement,... 

and investment goals.  

Goals are where you start...not finish. Goals are based on needs, not wants, and thus are monetary in nature. REI is a numbers game, and the important numbers are NOT the ones with street names behind them...they are the ones with $$$$$ in front of them....Positive $$$$ signs.

When the smoke clears...leverage wins.  It provides the means for Risk control, tax control, and achieving your investment goals...as long as you truly understand how money works. 

Originally posted by @Percy N. :

@David Avila, I started out all cash (and actually am just looking at getting to loan for leverage).

The reason I started out with cash is because I wanted to start slow, not leverage myself while I had the largest learning curve and if I made mistakes, I would be able to absorb them. 

I would advise someone just starting out to partner with an experienced flipper or contractor who is willing to put some skin in the game (they can pay for the rehab cost or defer their payment until the property is sold or completed in exchange for some equity). This pay lower your overall profit, but will be a huge benefit in the long run.

Once you feel comfortable, you can then buy a few properties yourself, rehab, rent, renovate and repeat - the BRRRR method mentioned above.

You can start with cash now, get better cash flow and refinance in a year when the property is seasoned.

As for how much money you should allocate - that really depends on your neighborhood, your financial situation, goals, etc. 

Personally, I would stay away from very low income rentals when you are starting out - minimize your headaches while still learning.

Good luck.

What has changed that you now feel the need to take out a loan? 

Shouldn't your capitol cover any future investments? 

@Patricio P. , the reason I am looking for loans now is because I am more comfortable with the REI space and the markets I focus in. Plus I have a seven figure RE portfolio now and can only buy so many more properties cash - I guess I need biggerpockets (or is it deeper pockets)? ;-)