To leverage or not to leverage?

Question

Hello everyone! I am finally at the time when I feel ready to purchase my first investment property. I have a couple of houses picked out that look great when I run the numbers.  I am pre-approved to make the purchase and have money for the 20% down payment. However, I'm leery of leveraging debt to purchase a property. I don't have a problem with one purchase, but  my goal is to continually add to my real estate portfolio. As I'm new to this, I'm having issues with the vision of how this winding road turns out. I know I'm not the first person to pause at the thought of leveraging debt. I don't need help making the plunge, but perhaps a nudge in the right direction would be better. What are your thoughts about this? Thank you for your time!

Chris S. · Answer

I like to justify leveraging by reflecting on good debt, vs bad debt. I currently have a 40k truck that I bought before I started in real estate and pay 668/month on. This was done before I started self educating, and before I realized the difference between assets and liabilities.

I also currently have 8 units, totaling about 1 million in debt, but cashflowing monthly. The 40k for my truck, although I owe about 27k now, feels like a crushing debt to me. I absolutely hate paying for my truck every month, and have been trying to sell it for the last couple months, preferably without losing at least 4k in the sale.

However, my properties are the light of life. I absolutely love tracking income/expenses, and chuckling to myself whenever I see rent checks show up in my accounts.

The million owed is nothing to me, because it dosnt feel like a debt. 30 yrs from now, assuming no movement in the market whatsoever, (unrealistic I know and inflation of course) I would have 1 million dollars in equity, for something that I spent 20k to get. (VA then FHA house hacks)

I realize that the idea of owing so much can be daunting, but it can also be extremely rewarding. some people can't handle the feeling of owning someone else money, and if you can't that's okay, just save up and buy with cash or invest in dividend stocks etc.... But if you view the debt as a means to an end, a path towards early retirement, it will hopefully help you to not feel the weight on your shoulders.

If you owe money on it, but it pays you monthly, it's an asset. if you owe money on it, and it drains your bank account, it's a liability. Buy assets, not liabilities. That's how I justify it at least.

Or just ignore my late night babbling and read Rich Dad Poor Dad. Kiyosaki is a lot more eloquent than I am in his book than I am typing this on my phone at 1am.