Perpetual Equity?
i have been using my equity to buy properties. for example, when i paid off my first property, it was worth double what i paid. i then cahsed out the equity and bought another property (paid cash) for almost half of what it was worth. i then cahsed out that equity and used some of it to buy another property. so far, i only have three. i took me almost 2 years to pay off the first one, and i have acquired the last two within the last 6 months. my current rental income is paying for my equity loans and mortgage, so i'm basically breaking even. i'm not spending any money out of my own pocket for any of this (with exception of paying off first property). it seems to me that this could go on indefinitely. almost too good to be true. . . ? is there anyone out there with any opinions or advice, positive or negative, on using this method? any help would be greatly appreciated!!
Good for you! that is a great way to do things. A word of caution: if you are just breaking even you are at risk because if something bad happens you could get blown over like a house of cards. In my opinion you should always make a profit every month. I try to cashflow $200 per house. And that is very possible. In Rich Dad's Cashflow Quadrant he tells his rich dad about the prime property he bought on waikiki beach that only lost $150 a month. Rich dad said so how many propertys like that can you buy? the answer: well it will be tough with just the one, and a second is out of the question. so they reworked the deal to where he cash flowed positive $80 a month after all expences including managment. then asked how many of these can you buy? obviously you can buy thousands. Incedently he still paid the same price for that property just changed terms of the deal. Hope this helps. Good luck.
Josh
[addsig]
Keep in mind that mortgage companies will stop approving you for mortgages once you reach a certain Debt to Income ratio. Don't let this deter you - keep doing what you are doing and sell some of your properties and buy bigger properties like apartment complexes to get a better return on your investment! Sounds like you are doing very well for yourself! Congrats!
[addsig]
No it is not too good to be true in fact this is the exact reason you get into REI in the first place - to make your money and equity work for you. The only thing I would echo is that you should strive for a little possitive cash flow so that you can save for the improvements that will inevitably need to be made and the problems that might occur.
[addsig]
Am I understanding this correctly?
You bought the first property, and within two years had it paid off? Let me ask you this...How did you pay it off, by using the cash flow generated from the property, or by using other funds?
If you paid it off using the cash generated from the property, then I would simply suggest you utilize your cash differently. Instead of dumping all your cash flow into paying down your debt, use that leverage to increase your rate of return!
If you had enough cash flow to pay off a mortgage, imagine what would have happened if you would have used that cash for down payments on more properties! Assuming a $100,000 in extra debt payments you paid over that two years, above and beyond the required monthly payments, that's five down payments on five $100,000 properties!
I would suggest you let your debt leverage your returns, and use your cash flow to fund more investments.
But this is assuming that you paid off the debt using the cash generated. Was that the case?
i saved up for 2 years before i moved out of mom and dad's house and bought the condo. i had $30k in the bank when i bought it for $50k. i set a goal to pay it off within two years just to see what it felt like to pay off a mortgage. i used money from my regular 9-5 job. my two rentals are both condos and i am actually making a profit on them. on one, i make about $150 profit, and around $300 on the other. i say that i'm breaking even because the mortgage on the house i live in is covered exactly by the condo profits and by the money get from my room mates. i still have equity money in the bank. about $15k. and i plan to use that in addition to my equity in my house ($40k) to buy another house. make sense?
I was thinking in doing more or less the same thing, using equity and other funds to buy properties for rent (or flipping as needed), in order to build a portfolio of rental income in the long term.
I agree that you have to evaluate cash flow very carefully, but it is location an your property the critical factor of that positive cash flow.
Good work!
[addsig]
You need to learn to use other peoples money and credit instead of your own. This is our #1 rule of investing. Why use yours when you don't have to? Use creative financing.