Cash or Finance Investment Properties?

Question

Just recently joined and am really enjoying the site! My question has been eating at me for a couple of months now. I own 10 rentals. They are all paid for and so is my personal residence. I would like to purchase 40 or more units (multifamily) but I am conflicted with going into debt again after working so hard to be debt-free for almost two years.  I know though that it will be almost impossible though for me not to finance the units if I want to get to that number. Sure would appreciate any insight. I love real estate investing and could quit my 8-5 job if I could make this work. Thanks.

Alina Trigub · Answer

@Scott Schultz

You should look at a bigger picture: with the larger investment (important - this is not just a purchase, rather you're planning to buy an asset!) what will you gain and lose! Speak with your tax accountant about the pro's and con's of buying a larger property. There's  maybe a potential as you said to quit your 9 to 5, which will translate in more time and potentially tax savings as you might be able to claim "active real estate professional" status. Your CPA should give you guidance on the topic. Overall, weight all pro's and con's and decide which one outweighs the other.

Justin R. · Answer

The first thing to understand is that debt is not just "good" or "bad", debt is a tool. Like any tool in the shed, it can hurt you badly or help conquer your goals.

One easy comparison is comparing your Cap rate with your Cash/Cash returns. Obviously interest rates have a correlation with your Cash/Cash returns, but not your Cap rate.

If you are investing for appreciation, what other investment can you borrow money at only 20 percent, and pocket 100 percent of the profit (appreciation)?

James Ma · Answer

Hi Scott, I would recommend doing research on how you can leverage money to generate returns and learn the difference between good debt and bad debt. Typically mortgage & refinance rates are lower than investment vehicles yielding you a greater positive return. Rather than leaving your money sitting idle in a property or a savings account, its highly recommended to make your money work harder for you and generating more income through leverage