Debt Management ? How do you handle Debt ?

7 Replies

If you're going to acquire "lots and lots" of income producing properties it can still be done without (or with very little) debt.

From what I see there are not "lots of lots" of income producing properties in most markets. I'm a big believer in saving for what you want, cutting expenses to the bone, living cheap and buying for cash. In those rare cases where you have to borrow money plan on paying it off in less than FIVE YEARS.

As far as I'm concerned debt is just an unnecessary expense that keeps you from reaching your financial goals.

all cash

On an income producing property that I purchased 18 months ago the lender got almost 9000.00 in interest over the past year. That is at a 6% fixed rate. Yes my wife sent in 3 additional full payments instead of just additional to the principal which we always send in. But my thought on the matter is now that another property is paid for is to pay off that property as soon as possible it should be 4 years. 122,000 loan balance 2 properties with positive cash flow. Once you get to a certain point you can self finance. It takes longer to get running but you own it when you buy it and the debt service is zero.

On an income producing property that I purchased 18 months ago the lender got almost 9000.00 in interest over the past year. That is at a 6% fixed rate. Yes my wife sent in 3 additional full payments instead of just additional to the principal which we always send in. But my thought on the matter is now that another property is paid for is to pay off that property as soon as possible it should be 4 years. 122,000 loan balance 2 properties with positive cash flow. Once you get to a certain point you can self finance. It takes longer to get running but you own it when you buy it and the debt service is zero.

How can you do all of that when properties are 300k ?

Another question of mine is this, how do these "major" landlords acquire thousands of units within a short amount of time ? There is a guy in Boston, who in 1991 bought a 3 family now 16 years later he owns approx. 5000 units and 1 square feet of commercial space ? Do you think he takes on debt ? or does he still his properties ? ( prob. both ) ?

There are people that work for the bank and people that work for themselves. Realise that 8 paid for units will generate the income to pay cash for 1 more unit in about 11 months. 25 paid for units buys one every 4 months. IF you leverage everything and run into trouble you lose everything. Once you hit a certain critical mass (undoubtably where all cash is) you no longer worry about getting the money, just does the property meet your requirements. You need the banks to get started but be your own lender at some point. Plan your future do you need to own the most property and have all the income go to the banks or are you comfortable with a smaller amount and not have to worry and generate a larger net income?

Realise that 8 paid for units will generate the income to pay cash for 1 more unit in about 11 months. 25 paid for units buys one every 4 months.

Could you please explain this a little bit further ? How do you come up with that figure ?

You need the banks to get started but be your own lender at some point. Plan your future do you need to own the most property and have all the income go to the banks or are you comfortable with a smaller amount and not have to worry and generate a larger net income?

I would rather own less property and have zero debt verses owning more and having lots of debt. ( I think most people would agree with me )