Help From Experienced Investors
I would like some opinions from experienced rental property investors. By experienced I mean at least 10 years. During the past few years of my life I have followed the teachings of a financial guru named Dave Ramsey. He has a radio talk show about managing debt and using cash as a position of power in life. Basically he does not belive in debt or using leverage to aquire real estate. According to him anyone who uses leverage to purchase properties will eventually end up bankrupt. This makes sense to me. By reading the archived posts on this site it seems as though most people use debt or leverage. Since I am just starting out in investing in real estate I would like to know what some of the experienced people think. I understand the whole concept of not using any of your own money in order to make money but does it really work in the long run. I have read posts on here where people give advice to someone who has no money, in debt, and poor credit. They actually tell them how to start investing. I figure these are the same ones who end up bankrupt. Am I wrong about all this?
Alexlev - Right on Brother!
I have to agree with Alex, he brings a great point to the table. Very well said!
[addsig]
Sounds good to me. Its just a whole new way of thinking for me. I guess it would be a good idea to have a few or several thousand dollars set aside for security. That way when life happens and something needs repaired or replaced you can just pay for it with cash and be done with it.
Well, I have been landlording over 20 years and I have tried and abandoned the free and clear approach to investing.
There was a time in my early landlord life when I thought everything would be fine, I could be financially independent, if only I had all four of my rental properties free and clear of debt.
I made additional payement against principal to payoff the mortgages as soon as possible. I had even gotten two of my properties free and clear. Cash flow was good with no debt service.
But, one day I realized that my net worth was not increasing at a faster with free and clear property as my leveraged properties. A 5% rate of appreciation affects all my properties the same way regardless of my debt load. Free and clear properties limited my ability to continue investing.
When the lights really went on, I realized that I can get the same cash flow from 10 free and clear properties as I could get from 25 leveraged properties. Furthermore, if I had the cash to buy 10 free and clear properties, I also had the cash to buy 25 financed properties. I could control 2.5 times the real estate, and my net worth increases 2.5 times faster with leveraged properties.
In the end, I decided that my investing goal of being financially independent so I could "retire" from the daily 9 to 5 whenever I wanted, would be achieved a lot faster with leveraged properties.