How do you feel about debt?

Question

I'm curious about how other RE investors feel about debt?

This is a broad subject depending on where you are in life and investing.

Do you want to be free and clear or are you comfortable with holding a large amount of debt?

Dean Mitchell · Answer

Mary- Thanks for your reply. I agree that debt is a tool to be used in business. My personality is such  that I do not like being beholding to the bank. I would prefer to be the bank.

That being said , I understand that some investors have no issues with high amounts of leverage.there are many ways to run a business.

I believe Warren buffet and Bill Gates both have the philosophy that they wanted enough 12 months of cash on the boos in order to run there respective companies for one year without any income.

Mary M. · Answer

Having a cash reserve is critical to weathering the bad times. Conservative debt loads (as opposed to max loads) also help in those times as well.

One year reserves is a great goal. Save 10% always. You will come thru rough ecomonic times looking like a genius :)

Mary M. · Answer

it is possible to do this without debt, but that needs cash, buying in high appreciation areas and then selling and doing it again

I have also worked for businesses that have no long term debt. It just all depends on how you start and where you buy.

However that said, debt is just a tool and should be used like all tools - as needed but not for everything.

I personally feel that it is safer to go slower and use less debt with more conservative debt levels which allows more cash flow and more room in case of economic changes

Dean Mitchell · Answer

Michael- Thanks for your thoughts. I really have been trying to find the right balance. But my ultimate goal is to be debt free by the time I retire.

Michael S. · Answer

as a general rule of thumb with 90% of all businesses (real estate or otherwise):

no debt = no growth