Loan or liquid money?

Question

For beginners, is it recommended to use liquid money or to use loan? I would be worried to take a loan out and end up screwing the deal up and become in debt. But real estate isn't exactly cheap.

Justin Owens · Answer

Hey Joseph,

Different Strokes for Different Folks. Most will encourage leverage or debt. BUT you have to make the numbers work. Rent should cover the mortgage payment, taxes, insurance, maintenance, capita expenses etc. And ideally you would have SOME flow at the end if it. If you haven't tried the calculators try the rental calculator. Look at all the annual and monthly costs that go in. Plug in rents in the area. If you cash flow with a mortgage it should be worth a look. If you put some into a reserve account for unexpected items until your cash flow can build reserves.

Kyle Scofield · Answer

@Joseph Fernandez In my opinion, I would say using a loan is better because you can get more with less (if that makes sense) by using leverage. For example, if houses cost 100k and you had 100k then that could only get you one house. BUT if you use loans, @ 20% down, that could get you up to 5 houses! It all comes down to yourself.. What are your goals and what level of risk are you comfortable with?

Hope this helps a little Joseph! Let me know if there's anything else I could help you with

Joseph Fernandez · Answer

@Justin Owens I will definitely check out the rental calculator. Thanks for the response!

Joseph Fernandez · Answer

@Kyle Scofield THANKS! The idea of using debt as a tool can be a frighting idea. (For me of course) I guess I have to do more planning before doing any deals.