Investor · Charlotte, NC · Member since 2017 · 321 posts · 157 votes
I always hear people conversing about leveraging thier entire portfolio which is a great way to go. But is there power in NO leverage ? I was just concern of what people thought of dumping staright cash into rental properties. Does anyone believe in NO leverage ?
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
Leverage is great, until it is not. Today it is fantastic. In 2009 there sure as heck was value in all cash. My method and philosophy has always been use conservative leverage to grow, and all cash for wealth preservation. Put into action, this means use leverage to grow the portfolio sufficient such that the income it generates if all the units were free and clear could sustain your lifestyle plus some reasonable margin (2x for me). Once you get to that point, the leverage has done its job for you, you have control of all the assets you need, it is then time to "flip the switch" from growth mode into wealth preservation mode ... that means plowing all the profits and excess funds into paying off those mortgages in a snowball manner. When you are done paying them off, then you are done, you can do as you like after that, but I don't believe in cash out refinancing the properties after that because I don't believe in risking something you have and need in order to buy something that you don't have and don't need. I may be a bit unusual in this regard, but this has been my operational philosophy and it has worked out quite well for me.
Rental Property Investor · Klamath Falls, OR · Member since 2016 · 146 posts · 213 votes
9y
I understand your reservations about using debt. We're balancing the debt/leverage scenario by working towards living our personal lives debt free. We will have a small house payment as our only personal debt within the next 6 months. That being said, we just got an amazing deal on a moldy 4-plex using all cash and are also renovating with cash. Once renovated and seasoned we will leverage the 4-plex to pay cash for another project or to scale up to a small apartment complex. We will have a 4-plex that essentially has zero money down and has a cash flow of $1500/month when we're finished. Plus, if something catastrophic were to happen and we lost all of our investments, we would have the security of a paid for home and cars. It makes us sleep better at night knowing that our kids won't ever be out on the streets.....my suggestion is to buy with cash and hold with leverage and take only calculated risks!
Investor · in, MI · Member since 2013 · 226 posts · 102 votes
9y
Holding properties free and clear will lower your returns on investment but raise your ability to withstand problems.
The general rule of thumb I see is to leverage while you are acquiring properties, keeping maximum cash for down payments. Once you have "enough" to pay them off to raise cash flow for your retirement needs.
Investor · Charlotte, NC · Member since 2017 · 321 posts · 157 votes
9y
@Kurt K.@Mary White Thanks for the feedback. I appreciate you guys prospectives. I just want to scale my buisness up the faster and safest way possible. Also I'm 26 yrs and I would to be financially free at lease by 30. I will keep digging and figure it out.
Investor · in, MI · Member since 2013 · 226 posts · 102 votes
9y
Originally posted by :
I just want to scale my buisness up the faster and safest way possible.
I'd suggest not buying in all cash if that is the case. But you'd probably want to put down a nice down payment for "safety" (at least 20%, but likely more). That way you are using a "middle ground" strategy that you just implied you'd prefer.
You're going to want enough cash flow in your properties to have a large margin of safety over the expenses. A smaller loan payment really helps with that cash flow risk.