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I don use hard money, but what about the deficiency statements when you take out a loan on an investment property. Aren there typically deficiency statements that state the lender can come back after you for any difference in the amount owed?
Good question. On the one hand, you have more cash flow coming from your property and less risk to you if you don have a tenant or run into other financial issues without that mortgage payment you can go without rent for a while before you are truly in trouble. Also, there are some properties you might not be able to get conventional loans for around me I can mortgage a property less than $50k, so if I find a gem for less than that I have to get a bit creative.
Rich Dad, Poor Dad, yes. Always use other people money when you can help it. Your cash on Air Max Sneakers 2014
"the house goes completely bunk, you only lose your credit score, not a huge lump of cash. The place you got the money from loses the money"
On the other hand, when you borrow you are using someone else money to leverage and you can buy and control more property. Interest rates are CHEAP, so I rather put that money towards another downpayment that will earn me more cashflow than pay down or flat out pay for a property. It isn too difficult now for a property to perform much better than the interest you save.
I personally value my time a lot, and so I would rather take a slightly lower return (and risk) Air Max Blue 2016
in order to save myself a lot of time.
Yes if everything goes well your cash flow will be higher with 5 leveraged properties vs 1 paid off property, but you will also have 5 times the work for that additional return. The more hands on your are, the better your return is going to be because you arn paying someone else for the work.
I bought my first two home cash. Quickly realized my folly and refinanced them with cash out. All future purchases were leveraged. The govt and the federal reserve has decided that saving is bad (forced low interest rates) and borrowing is good. Its very hard to fight the Fed. So why Nike Air Max Women Grey not use it to your advantage. Borrow as much as you can at long term fixed low rates and invest it in high yielding rental property. Once the Fed bond buying party stops, interest rates will rise. The opportunity is now to capitalize on the cheapest money in a generation. The other factor is inflation. All the money printing will eventually be inflationary. Debt allows you to pay back principal with cheaper dollars. You win both ways.
Advantages of cash buys is that there is Air Max Nike 2014 Blue
At the same time rents have remained high. The lowest rent rate we have is $700/mo. and we average $750/mo. accross the portfolio. So we have good positive cash flow.
Why not have it both ways. Buy multiple properties with cash and then set up a Line of credit with the properties as collateral.
I sleep much better at night knowing that if the market crashes I will not be tied down/trapped. The US economy is crap, built on more crap and lies. The banks are screwing people by paying less in interest than inflation, so for me a house with rental income is a safer bet at this time. Still plenty of risk though.
Calculate the difference on the returns for your money with an all cash buy versus leveraging.
One thing I would say is that landlording has expensive, unforeseen issues. I been in real estate for 20 years but new to dealing with tenants and ownership demands. Having plenty of money coming in has allowed me to easily handle problems that I don think I would have dealt with as well only eeking by with minor positive cash flow.
I been purchasing in SE Michigan for the past 3 years. Our market has not been a favored market for lending due to the discounts banks have had to take to sell off their inventory. Bad for borrowing money, but good for acquisitions.
cash returns are higher, you can buy more properties with the same amount of money, and worst case scenario (unlikely scenario, or should be unlikely) the house goes completely bunk, you only lose your credit score, not a huge lump of cash. The place you got the money from loses the money. So while most think its riskier to be in debt, I disagree. My credit score is the only thing I could lose.
It is an individual decision, only you will know what is best for you. Your strategy may change over time when interest rates change or you are done buying properties and want more cashflow during retirement. Personally, we financing everything we can while rates are low, but plan to pay our own house off sooner than our 15 yr mortgage. The house I live in isn making me any money :)
That way you have the funds available whenever needed, but are not paying interest when the money is not required.
Feel free anyone else that wants to chime in. I don like debt but sometimes debt is necessary. I bought my first two with cash. I borrowed money on the next two. My mortgage is at a fairly good rate and for only a five year term. That eats up all of the cash flow but in five years they will all be debt free and I am planning on retirement at that time. I would answer you question by telling you to do what is most comfortable for you. If you lose a lot of sleep over debt you have to factor that in. Sure you are giving up some leverage opportunities, but you are also give up headaches with additional debt. That might be well worth the trade off.
Debt free rental properties
no debt service, so better cashflow overall.
As such, purchases have been cash to date. Our properties are in solid neighborhoods outside of Detroit where nice 2 3 bedrooms pre were selling between $100k $150k. The past couple of years we been able to pick these houses up between $10k $20k. Including improvements we don have more than $25k into any one house.
Disadvantage is say you buy a property in $50,000 for cash, well you buy 1 property for that. With debt with $50,000 cash you can buy a $250,000 property or 5 properties at $50,000 each. If the bigger, or more properties are cashflow positive, they will still pay themselves without additional cash invested. However, each month will be less profit to you from each individual property. However, collectively (5 properties with less cash, vs 1 with more cash) they may return a similar amount, it varies on property. Additionally, using loans is "more risk" since you must pay that expense, so if you fall on hardship there are consequences.
I personally am trying to acquire 1 house per year paying cash for them. Just closed on 4!
Best of luck!Naples, FL
(all that said, I never plan to let things go that sour or have someone who lent me money lose it all, but just saying that to make my point).
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