Debt as leverage or debt as slavery?

8 Replies

Howdy everyone,

I’m new to the forum so please forgive any mistakes I am making here.

My goal is financial freedom to travel and teach yoga and meditation to as many people and places as possible. I am a mortgage advisor/loan officer in the fresno CA area. My wife and I just bought our first home and we are excited to buy our first rental within the next 12-24 months.

The question: How do you know which strategy is good for you? Dave Ramsey style, “pay cash for rentals” or the “refi till ya’ die” Hartman style?

Thank you for sharing your wisdom🙏🏼

Per Joe, Ramsey is only a personal finance guy.

When rent is >> the mortage by at least $300, or $400, then that rental mortgage is "good debt".

Gary Johnston's seminars, Financial Freedom, is geared toward investors;  https://garyjohnston.com/semin...

We've been to Gary's seminars 2x. Its what helped my wife move from low debt to max (rental) debt as long as each house cash flows well. Google DSCR. We like min dscr at purcase to be 1.5 or better, after a few years 1.7 and mature rentals 2.0... Look up what these numbers mean. It means both safety and huge income and even greater wealth building via appreciation.

Wealth accumulation is maximized via max # of doors. The debt-less advocation crowd does not mention; you are minimizing wealth accumulation since you have very few doors (debt free). But BRRRR will have you the max number of doors, all with OPM debt, and all appreciating and debt paydown. We "quit" early due to BRRRR and max mortgages and max doors.

Thankyou OPM and mortgages!!!  :>

Hi Har, 

Welcome to the forum! Excited to see another local joining the real estate investing world. Houses are expensive to be buying presumably using your own cash so it'll take forever to scale and eventually become financially free (assuming you're an 8-5 working class like me). For a rental house in Fresno, let's say $300k, and you can save $30k a year, it'll take 10+ years (price of a home will probably be higher in 10 years so you'll have to have more cash saved up), while not receiving any rental income, or being able to deduct your rental expenses. But if you purchase using mortgage assume 25% down ($75k), it only takes less than 3 years and you can buy a rental house, start receiving rent, start deducting rental expenses and so forth. There are so many other factors not mentioned here that other more experienced investors talk about like the experience you get from buying a rental, managing one (or finding a good manager), or running a rehab if you need to. The sooner you gain these experience, the better investor you will be and that'll take you so much closer to financial freedom. 

Hope this helps! 

My guess is doing rentals Ramsey style you will be 90 before you are traveling and teaching yoga all over the world 


To me the faster way is flips til you have a million plus then get the rental properties 

@Har Dev Singh Khalsa I'm a firm believer in not having debt other than my rentals. And then I am careful with them. I make sure I have used the calculators wisely to plan thoroughly for not only the mortgage payment but also a generous amount of CapEx. Then because my market doesn't command premium rents like say the California market does I am sure that each door cash flows at least $150 per month.

Usually they cash flow more than $150 but I buy nice properties often that have already been renovated or that are in good locations, B+ properties so they don’t have as much wiggle room for cash flow as a C property might. (I live in Northern New England so a true A property that is new construction is rare as most of the buildings are old here!)

I’d recommend no personal debt and a wise, not over leveraged amount on your rentals.

@Har Dev Singh Khalsa

Debt in real estate is very powerful. Use it to grow your wealth while having it being paid by your tenants.

Like others have said for you to save up and buy property with cash will just take forever. The other piece to consider is that debt allows you to buy and control better asset classes. If you only have 100k you can either buy a 100k house or lever up and buy 2 200k houses. You cashflow will be similar but your cash on cash return will be higher.

There is a happy medium and while I agree there is a lot of bad debt, mortgages are a bit different.  I don't keep refinancing my properties and pulling out the money.  Everyone is different and do what works for you.  Over time, the tenants are paying down your mortgage and when you want that money 10-20 years down the road, you can sell the rental and then use that money to do whatever you want.  In addition to cash flow each month and paying down your mortgage, the house price (and rent) will increase over time adding to your initial investment (ie the down payment). 

If you bought a lower end property and in a few years, you save up more, then sell it and buy a slightly better one.