No Debt Is Freedom

General Real Estate Investing
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No Debt Is Freedom

Tom Goans
Real Estate Investor · Englewood, CO · Member since 2013 · 988 posts · 258 votes

No Debt Is Freedom

Consider this:

Your money working for You when you own a residential rental property investment. The tenant goes to work each day to pay you to live at your real estate investment.

However, You are working for someone else when you have debt. You work each day to accumulate money to pay off the debt. You pay extra for the use of the borrowed money. In effect, you are working for those who provided you with credit. You are paying for their new auto, fancy office, and gold watch.

Being debt is freedom.

It is fascinating how many ways having debt can be justified by some.

Do you own the real estate investment if there is a loan secured by the real estate? No. Stop making the payments to the lender and find out who really owns the real estate.

If you have credit card debt, some of your money is paid to the credit card company instead of going to family enjoyment, education, or retirement. You are working for the credit card company. The same applies to all credit. No philosophy, just a fact.

Some argue the recent recession was caused by excessive debt of all types at all levels. The root of many recent real estate foreclosures was excessive debt.

Being debt is freedom. It allows more freedom for your family and future. Add up the interest paid on all the debt each year. How much education will this buy? How much will this fund a retirement account?

Your comments and thoughts are welcomed and encouraged.

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Bryan Hancock
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
13y

Do we really need to have this debate again? This has been discussed ad nauseum on the forums. Do a simple search and you'll find proponents on both sides of the argument.

You can be a "slave" (non-free) by NOT using debt too. Not everyone starts off having a developer family with loads of money to get them started. If you don't have much capital you NEED to make it work much harder to gain the freedom espoused in the post. Thus NOT using debt would make one more of a "slave" if one is equity-constrained.

I find if fascinating how folks that start with a different set of initial conditions than most choose to preach to others about how they choose to live their lives too. Remember that everyone starts in a different place. Those that are truly dedicated and hard-working can prudently use debt to grow their capital stack and become "successful" using wealth as the sole measuring stick.

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  • James Vermillion
    Lexington, KY · Member since 2009 · 2k+ posts · 1k+ votes
    13y
    Originally posted by Robert Steele:

    I'm not sure anyone can ever be free. There are always taxes. You can never truly own your properties. If you don't pay taxes you'll find out who really owns them. So even if not having debt gives you more freedom you will never truly be free.

    Some people seem to have very different views of freedom than I do. I can pretty much do whatever I want, whenever I want. I have never woken up in the morning and thought, damn, the bank owns me (or the government for that matter...and I was in the military). Do you guys actually sit around and think about how shackled you are?

    I loved Ali Boone's point about not not caring about the bank...well said!

    0Reply
  • David Krulac
    Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    13y

    James Vermillion

    In Caymen there is no real estate taxes, and no capital gains taxes.

    0Reply
  • James Vermillion
    Lexington, KY · Member since 2009 · 2k+ posts · 1k+ votes
    13y
    Originally posted by David Krulac:
    Annette Hibbler

    I thought it was John D. Rockefeller who said that?

    It was Rockefeller and I believe the quote is "Own nothing, control everything" not "owe nothing".

    0Reply
  • James Vermillion
    Lexington, KY · Member since 2009 · 2k+ posts · 1k+ votes
    13y
    Originally posted by David Krulac:
    James Vermillion

    In Caymen there is no real estate taxes, and no capital gains taxes.

    And?

    0Reply
  • Robert Steele
    Investor · Lucas, TX · Member since 2010 · 620 posts · 352 votes
    13y
    Originally posted by Ali Boone:
    Well first of all Robert Steele, I'm not doing much work on anything or for anybody.
    .
    .
    The only time I hear arguments like yours is when someone is pissed off they aren't making as much money as someone else and being bitter and petty about it.
    .
    .
    If I spent my life focused on what everyone else was doing or getting, I'd be wasting a hell of a lot of time not having my own fun and making my own success. But if that's what floats your boat, rock on.

    OK I am just going to try to extricate myself from this conversation because;

    a) I am not bitter and petty - I make plenty of dough.
    b) I have used millions of debt effectively.
    c) I feel like I am talking past most of you.
    d) There is too much vitriol in a lot of the comments here.

    0Reply
  • Mike McKinzie
    Investor · Westminster, CO · Member since 2009 · 1k+ posts · 1k+ votes
    13y

    I have not read every post on here, but let's try to make this AS simple as possible.

    If I can BORROW at 5% and make 10% on my investment, who of us would NOT do that? I just borrowed another $40,000 on my HELOC, paying 3.99%, paid cash for a house that rents for $650 a month. So I pay $133 a month in interest and get $650 in rent, FOR NOTHING OUT OF MY POCKET. My cash on cash return is INFINITE because I have NO CASH in the deal. Most of my properties are Free and Clear, but a handful have mortgages, and my return is much greater on the ones with a mortgage.

    I believe Rich Weese, one of the more successful investors who contribute to BP said he has around 200 investment properties, half are Free and Clear, and half are mortgaged to the maximum. That answers that question on which is better.

    Another way to look at interest on debt is just the "mark up" on the money your borrow. Just as any item you purchase retail has a "mark up," money also has a "mark up." Just as a hammer and a saw are tools for the carpenter, money is a tool for the Real Estate Investor. The carpenter pays a mark up on his tools to The Home Depot so that they can buy more wholesale tools and supplies to sell to the carpenter. The Real Estate Investor pays a mark up on his tool, money, so that the bank can keep running, paying it's customers and investors, and provide more money for the future investing of the REI.

    Debt is good and Debt is bad.

    0Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    13y
    Originally posted by Tom Goans:

    Justifying debt or a loan does not make them the best idea or method. Consider the limitless alternatives.

    Tom -

    We'd still love to hear more about the many alternative to debt. In my experience the one alternative is equity.

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
    0Reply
  • Aaron Mazzrillo
    Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
    13y

    When I die, I hope to be $100M+ in debt. I know a few homeless people that have no debt and I guess you could say they are 'free'. Not the type of freedom I'd choose though.

    3Reply
  • Annette Hibbler
    Real Estate Consultant · Brighton, MI · Member since 2013 · 607 posts · 251 votes
    13y

    David Krulac
    Lol, David, you're probably right. I wasn't sure (thus the question mark). Thanks :)

    0Reply
  • Scott W.
    Real Estate Investor · chicago, IL · Member since 2012 · 1k+ posts · 231 votes
    13y

    I will take it one step further, if I can take my 1% interest $ & make a cash-on-cash return of 220%, why wouldn't I use leverage?

    I'm sure there are few companies out there who can start without using any of their own $ so, with your logic, there'd be no companies out there and therefore no jobs for people & no economy.

    This is such a stupid argument it's not even funny. Companies/investors/rentals/flips, it doesn't matter. Some fail, some succeed; some are so-so. With risk comes reward but I'd rather take the risk than retire & live off of social security (if there's any left by then).

    0Reply
  • Ed L.
    Residential Real Estate Agent · Hattiesburg, MS · Member since 2011 · 475 posts · 141 votes
    13y

    I think it was previously mentioned but if you equate financial obligations with slavery then stay away from REal estate. We are all just renting from Uncle sam. If you think otherwise just quit paying property taxes and see what happens.

    I think the concept of being forcibly robbed for eternity due to owning something is morally and ethically reprehensible, but apparently some do gooders just can't help but be suckered into the notion that children will not be educated unless uncle sam has the ability to steal private property....

    Enough with the rant. Long term fixed rate financing at todays rates is extremely hard to refuse especially when tax benefits are taken into consideration.

    0Reply
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