Let's talk Debt

64 Replies

@Brie Schmidt

I couldn't tell by reading but are you through the process of buying the large portfolio?  My wife and I were very close to doing the same thing but worried being relatively new to the real estate world that the 75 unit portfolio we looked at would be too much for us. So we started small from the ground up to develop a good business plan and operating system first. The reason I ask is how did it go buying a large portfolio. It seems we have similar goals and this is something we are still looking into. Thanks for sharing Brie!

@Timothy Riley

You have a solid plan there friend, I like the way that you mitigate your risk and you obviously have multiple exit strategies in place. Good luck in the future and thanks for sharing your investing strategy!

Originally posted by @Jordan B. :

@Brie Schmidt

I couldn't tell by reading but are you through the process of buying the large portfolio?  My wife and I were very close to doing the same thing but worried being relatively new to the real estate world that the 75 unit portfolio we looked at would be too much for us. So we started small from the ground up to develop a good business plan and operating system first. The reason I ask is how did it go buying a large portfolio. It seems we have similar goals and this is something we are still looking into. Thanks for sharing Brie!

 We bought it in chunks over a period of time.  My husband and I currently own 59 units and I have another 21 units with partners

@Jordan B. I just like your way of thinking brother. No, I'm not currently operating debt free but surely I am working on getting there. Thank you for the inspiration but more importantly thank you for bringing that Word!

Not saying you should build your portfolio on no debt, but if you do decide to go this route and pay cash for everything, then make sure you are choosing a REI strategy that takes full advantage of that. There are benefits to buying with all cash, make sure you understand those and take full advantage of those benefits, and obtain leverage in other ways besides debt. For example, you could buy only properties that can't be financed ... then you have a better shot at receiving a big discount for being a cash buyer. You could flip (as mentioned). You could buy and hold in rougher neighborhoods and learn to be hands on property manager that can handle this type of portfolio ... this is a type of leverage that an out of state, hands off investor using debt could not reproduce, in spite of what the turnkey companies my tell you :) For that matter, you could become a turn key company, and/or RE agent, and/or Property Manager. All things that would not require debt and would take full advantage of an all cash strategy. Again, not saying it would be the optimal route, but if that's the route you choose just design your strategies accordingly.

  @David Faulkner

Thanks I much for all of the great ideas on ways to "leverage" a good cash situation. In fact we have used quick cash purchases to make some unbelievable buys on houses that people needed to get out of ASAP. Now the word is spreading about our quick buys and leads are generating themselves for us.

We would love to flip more houses but our market is so limited that house prices are very high and REOs are a rarity anymore. 

And also, funny you mention it, I am in the middle of getting my real estate license to help with our purchases and selling. 

Again, top notch advise David and thank you so much for taking the time to write out the great ideas, some things I hadn't thought of for sure!

@Jordan B. You really stirred the pot here!  Interesting topic.  After reading everything I have a couple of thoughts.

1. As others have said, you would be better off flipping.  I both flip and buy and hold.  The only way I can do as well (and sometimes  better) with buy and holds is by using leverage.  If I were completely cash based flipping would win every time.

2. Regarding banks, there is a really interesting video, Money as Debt, https://www.youtube.com/watch?v=n-fyOgG2RGo, that explains that money lent does not come only from money saved, but is created ex nihilo, out of nothing, much as the world was created.  It's really a brilliant economic device in theory, though I don't completely understand how it works in reality.

3. I used to be debt free, mostly due to an aversion to debt.  I could have gotten along fine that way, but math overcame my aversion.

4. God does not explicitly prohibit debt in His Word.  Nor does He prohibit slavery.  But economics is vastly different now than it was then.  Between Solomon's and Jesus' time banks came into being and we can surmise from a parable Jesus told, that He had no problem with people borrowing as this would have been a necessity in order for the depositor to earn interest.  But I can still people making a personal decision to go debt free.

@Larry T.

It really wasn't my intention to stir the pot I promise, I genuinely wanted to see if anybody was operating in this way. 

(1) I would love to primarily flip, but my more rural market doesn't lend itself to that. We flip every chance we get which isn't often!

(2) You and Joe V. are correct and my understanding was partly in the wrong in the big scheme of how banks loan and operate. We do need people saving money for banks to operate but there are indeed allow to lend a percentage of "monopoly" money that doesn't really exist. I myself should research things a little better before biting off more than I can chew sometimes!

(4) You are absolutely correct that the bible nowhere prohibits debt!  A lot of those verses are found in the book of Proverbs and aren't sin or law issues. I believe that it can lead to a cleaner life style for some that is less complicated and worrisome, at least financially. 

I hope very much that I have not put off an air that this is somehow a higher or better way, leverage is an amazing tool that many of my friends and family use themselves as well as myself in the past. I have learned a great deal in this post. I believe that personally this works for my family, but it's just that, a preference. Thanks Larry, and I will try to not get my stirring spoon out next time!!!

Originally posted by @Jordan B. :

@Larry T.

It really wasn't my intention to stir the pot I promise, I genuinely wanted to see if anybody was operating in this way. 

(1) I would love to primarily flip, but my more rural market doesn't lend itself to that. We flip every chance we get which isn't often!

(2) You and Joe V. are correct and my understanding was partly in the wrong in the big scheme of how banks loan and operate. We do need people saving money for banks to operate but there are indeed allow to lend a percentage of "monopoly" money that doesn't really exist. I myself should research things a little better before biting off more than I can chew sometimes!

(4) You are absolutely correct that the bible nowhere prohibits debt!  A lot of those verses are found in the book of Proverbs and aren't sin or law issues. I believe that it can lead to a cleaner life style for some that is less complicated and worrisome, at least financially. 

I hope very much that I have not put off an air that this is somehow a higher or better way, leverage is an amazing tool that many of my friends and family use themselves as well as myself in the past. I have learned a great deal in this post. I believe that personally this works for my family, but it's just that, a preference. Thanks Larry, and I will try to not get my stirring spoon out next time!!!

 I like you Jordan.  You have convictions, but still flexible.  You will, and probably already have gone, very far in life.

Early on in this thread the OP mentioned buying stocks in the market.  I just want to make a comment about this.

Absolutely never will I leave money sitting in an investment if I don't have to, ever again.  I've lost 10s of thousands in the stock market, because I'm a buy and hold type of person.  I don't like to trade, and I don't like to speculate.  Times are different today than they were even 20 years ago.  It seems like cycles move much faster.  You only need one "talking head" to come out on TV and say something to make a stock move significantly.  To me this is ridiculous, but it is what it is.

Real estate is unique in that it offers the opportunity to cash out all of your money and let you keep the asset and have that asset keep paying you.  

Joe saved me from a bad investment. I didn't know what the heck i was doing. I wanted to get a rental so bad initially and so I found a fully updated, very nice house. I got the owners down a few thousand, so I was paying about 95% of ARV, and I was planning to start with a conventional loan. The house needed paint and carpet, that was it, and even at that it was only because I like to over-rehab. Could have just put the for rent sign out in the front. I would have started with 20k down, plus 3k rehab, and would have generated about 300 a month without a PM and after all bills. Assuming I never had to pay for a city inspection, and nothing broke, it would have taken me 6.4 years to just get back my cash. Since I wasn't going to ever sell it, or at least not for 20 years, what a bad idea.

It's also a lot more fun buying very distressed houses and restoring them.  It is fulfilling.  I still have to get over the idea of never selling anything, but at least my cash is out or very close to out, and ready to go on to another investment, whatever that may be.  

It's so wonderful to talk to experienced investors, especially ones that have been in the game and have filed bankruptcy, and still got back into the game.  ALL of the investors I've talked with that have major credentials like this do not use their own money, and if they do, it's for a very short period.  Gee, I wonder why that is.  I think the sooner investors grasp this, the stronger/safer they become.  Just my opinion.

Now, paying off a rental with your own money is different than leveraging 5 rentals and then using the tenant cash flow to pay down those rentals over time.  I don't think there's anything wrong with that if that is your goal.  That is not your money, that is tenant money.  You still have all your money in a bank account safe and sound.  

If you're going to pay houses off, pay your own house off, then open a HELOC (preferably an interest only one) so you can always access that equity.

To each their own. I love RE because of its leverage. I understand your thought process though. I have family members who have their houses paid off in full and would never touch the equity because they don't feel comfortable with debt. I would have to say I was the exact same way until I read the books,listened to podcast,even did mentor programs and finally... I have the backbone to deal with "positive debt". I just feel if real estate is allowing us to purchase a property for 20%-0% why not take it. Best of luck on your journey Jordan.

 @Joe Villeneuve

Thanks Joe, you are the exact kind of person who pushes me to the next level. You had me really hitting the books and challenging me in the best way. I look forward to many more conversations!

It can definitely be done. When I first started out, I took on debt investing in single-family homes. At one point, it caught up with me. So I sold my entire portfolio and moved into mobile home investing. Now I only buy properties free and clear. Not having debt can definitely take a load off. There are many opinions and philosophies on the subject here. This is just my experience. Hope that helps! 

great topic and I will be following it.  I find it hard to believe that the OP search has gone larger unresolved in that few if any have admitted to a debt free rental porfolio.  My experience was buying rentals using leverage and having no personal debt.   After a few deals I tried to buy a rental all cash and the emotional different was certainly worth something.  I am not sure if I will ever go completely debt free but it is nice to have a portion of my portfolio debt free that should things go wrong they have a heavy hand in balancing the debt out.   I am still fairly young and the time element has a big impact on my views

@Dustan Marshall

I still believe that completely debt free must be a very personal journey because mathematically leverage will always have the upper hand. Once you find the space you are comfortable operating in you will see your confidence and efficiency follow. Good luck with your endeavors!

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