Should You Take Out a Loan?

Question

My soon to be business partner and I are soon to graduate college. I will be graduating with a Masters in Architectural Engineering (focusing on structural engineering) and my partner as a lawyer. Neither of us have any loans to pay off and plan on making a decent combined income. We are unsure if we should simply save our money and invest with cash or take out a loan for our payments (Mortage, Repair Costs, etc.) Maybe a combination of both? Let me know what you think!

Jack Perfett

Jack Perfett

Whitney Hutten · Answer

@Jack Perfett Leverage (used wisely) will help accelerate your scaling and wealth growth.  And the fact you can lock in a low fixed rate loan with long-amortization schedule right now is just amazing.  Also, using leverage is a form of asset protection.  Who do you think is more of a target legally?  The person who owns a $100K home with $100K of equity in it, or $20K of equity in it?  Unless you are approaching retirement, I vote leverage!

Cameron Tope · Answer

Leverage is definitely your friend in rental real estate.

Evan Polaski · Answer

@Jack Perfett I think it also slightly depends on the business plan.  A cash offer will always be more attractive to a seller than a financed offer, so in a hot market, having cash is definitely an advantage.

Beyond that, if you have the cash, I like using cash to BRRRR since you won't have the financing costs of two loans.  However, if saving the cash means you get started 1-2 years later, than I think going in with a loan is smart.

At the end of the day, smart application of leverage is the most efficient way to scale and achieve the highest returns.  There is risk with leverage, and your cash flow will be less, BUT from an return perspective, the less money you have in a deal, the higher your return will be.

Cameron Tope · Answer

Hey Jack,

What are you planning on investing the money in - rentals, flips, etc?

If you buy solid cash-flowing rentals then I would definitely take advantage of the low interest rates.

Theresa Harris · Answer

@Jack Perfett  Unless the houses are really cheap and you can't get a mortgage, you are usually better off taking out mortgages.  There was a good example in another thread that showed the break down.  Especially if you are getting started and want to build a portfolio, spread your money around.  Joe's post in that other thread shows this nicely.

Jack Perfett · Answer

@Cameron Tope

I plan on starting with a rental. Nothing crazy just a good starter to get the ball rolling.

Should You Take Out a Loan?

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