Rental Property Opinion

[Sleepy]

I guess the easiest way to explain it is that you have a greater chance of losing what you have invested in the properties if you have a mortgage.

Stolen: 100% of foreclosures happen on houses with a mortgage.

When the market takes a dive, you are putting your financial well being at risk by having taken on debt.


Disclaimer: We own investment properties both ways - with and without debt.

I FEEL differently about the ones that I own outright.

The calculations are also easy....Revenue - TI = Income

I'm always looking for new opportunities, and sometimes it is difficult to pass up purchases when I would have to go in debt to have them. Just this year I had to pass up a cabin for sale on the land next to me.....but it all worked out in the end because we saved the cash, didn't take on the debt and found an even better opportunity.


I'm not trying to re-invent the wheel here, nor am I saying that using debt is wrong (morally or otherwise). Studying people that have "made it" is just the simplest way I know to reach where we're going.

I just know what the numbers say AND what my emotions do when debt is involved.

If you look at the top 400 wealthiest people in the country, they aren't using debt to stay there. This year, it takes about $1.5 billion to make the Forbes 400 list.

There are 150 some odd billionaires that don't even make the list, but for the vast majority of all of them -- they aren't borrowing, they're lending.

I totally get and respect that.

It all boils down to the individual and risk vs reward.

[Atfulldraw]

Several reasons:

1. The less of your own money you have in a property the less your total risk. I don't like having money in a deal for more than two years, if at all.

2. Higher cash on cash returns with leverage. Without leverage Real Estate doesn't favorably compare to stocks and bonds and other zero effort investments. Why would someone work on an asset that makes them no more money than a mutual fund? The math doesn't work.

3. We are in an unprecedented era of low interest rates. This has already begun to change.

This is just my opinion but owning real estate with cash is 'hoarding cash' not investment.

This is wrong on several levels....

How is having debt less risk???

Explain to me what my risk is when I own a property outright.

I buy properties for cash and make most of my money on the front end.

As a seller, you come at me with a cash offer vs. a finance deal, I'm looking a lot harder at the offer. It works exactly the same when I'm a buyer.

I'm at a 15% annual net return on most of my real estate investments, not including appreciation.

I know you want to redefine words, but "hoarding cash" is "hoarding cash" not owning real estate.

[Atfulldraw]

didn't answer the original question....

vacation rental.

I'm slowly moving out and away from single family long term rentals.

[HogHunter34]

didn't answer the original question....

vacation rental.

I'm slowly moving out and away from single family long term rentals.

So what’s the advantage on vacation rental? More bang for the buck with short term stay? Greater appreciation in hot spot vacation areas? However, is there more maintenance & management service or you do your own? Just curious from your experience

[toledo]

How is having debt less risk???

Explain to me what my risk is when I own a property outright.

When you get sued, would a lawyer rather come after the property with the heavy loan or the one that's free and clear?

Ive tried to make the vacation rental thing work in a few different markets and the numbers have just never worked out for me.

[BuckSmasher]

This is wrong on several levels....

How is having debt less risk???

You and I both own 100k houses that are identical and next to each other. The widget factory in town shutters and overnight the properties are worth 50k. You own yours cash, I have 100% financing on mine. How much have you lost? How much have I?

Explain to me what my risk is when I own a property outright.

I buy properties for cash and make most of my money on the front end.

As a seller, you come at me with a cash offer vs. a finance deal, I'm looking a lot harder at the offer. It works exactly the same when I'm a buyer.

I agree. I have bought properties cash as well. I have always refinanced my money out within 24 months.

I'm at a 15% annual net return on most of my real estate investments, not including appreciation.

I am incredulous. It is hard to tell tone on the internet but please don't take this the wrong way, but I don't believe you are calculating correctly. If you are on to something 15% annual net return NOT including appreciation, and without leverage, I want to know what you are doing! Seriously, a kind answer turns away wrath, sometimes people on here get 'bent' when I express incredulity but I am dying of curiousity to see if you can back that up. No offense or sarcasm meant.

I know you want to redefine words, but "hoarding cash" is "hoarding cash" not owning real estate.

I'll own that. It is a bit of an exaggeration.

[mjhaverkamp]

I know a man who has about 20 or so cabins, he is making a killing, he told me the other day he bought two cabins for 150K each, for the past two years those two cabins have grossed 70 K a year, he told me he loves him some mail box money, that is a hell of a return on 300K investment.

[batmaninja]

The risk is simply not worth it, but most inexperienced investors are willing to completely ignore it.

It is a risk reward calculation for sure. Leverage works great when you are making money, since you get to increase your upside, but it also works the other way. When you are losing money, you have more risk exposure and more downside. The most powerful force in the universe is the power of compound interest, or something like that.

I am all about copying people that have been successful as well. I would say that most real estate companies, developers, builders, investors, REITs, they all use debt. Cap rates. etc. Crowd funding has even gotten in to real estate as a new form of debt.

With that said. I have worked for 2 large real estate companies that would pay a higher interest rate to have non recourse loans (a loan you can walk away from) on land. I understand that they did this because they did not want the risk exposure if the market turned.

[Burnadell]

If you look at the top 400 wealthiest people in the country, they aren't using debt to stay there. This year, it takes about $1.5 billion to make the Forbes 400 list.

There are 150 some odd billionaires that don't even make the list, but for the vast majority of all of them -- they aren't borrowing, they're lending.

I have to respectfully disagree here. That statement has no basis in facts. I promise you that the ultra wealty that made their money...not inherited it...used leverage to build their wealth. As a former banker at the Dallas bank that financed Trammell Crow, the Hunts, the Murchisons and many more wealthy folks, and a San Antonio bank that financed real estate deals, as well as a president of several banks, I can assure you they all BORROWED to finance their projects and borrowed heavily. That statement is simply not factual.

I'm at a 15% annual net return on most of my real estate investments, not including appreciation.

Wow! That is hard to imagine. I can see an occasional deal that does that, but MOST? That is amazing, and you have exceeded many suucessful real estate investors' returns. You are truly a tycoon! Care to provide some numbers on your typical property?

[Atfulldraw]

So what’s the advantage on vacation rental? More bang for the buck with short term stay? Greater appreciation in hot spot vacation areas? However, is there more maintenance & management service or you do your own? Just curious from your experience

familiarity breeds contempt.

I like long term rentals, but I the tenants can be a real pain in the ***.

[BuckSmasher]

I have to respectfully disagree here. That statement has no basis in facts. I promise you that the ultra wealty that made their money...not inherited it...used leverage to build their wealth. As a former banker at the Dallas bank that financed Trammell Crow, the Hunts, the Murchisons and many more wealthy folks, and a San Antonio bank that financed real estate deals, as well as a president of several banks, I can assure you they all BORROWED to finance their projects and borrowed heavily. That statement is simply not factual.



Wow! That is hard to imagine. I can see an occasional deal that does that, but MOST? That is amazing, and you have exceeded many suucessful real estate investors' returns. You are truly a tycoon! Care to provide some numbers on your typical property?

I do not believe that it is possible to create wealth without leveraging money, time, or talent.

I am with Burnadell on wanting to see those numbers. What is being described is a property being operated at a 15% Cap Rate.

[Atfulldraw]

You and I both own 100k houses that are identical and next to each other. The widget factory in town shutters and overnight the properties are worth 50k. You own yours cash, I have 100% financing on mine. How much have you lost? How much have I?



I agree. I have bought properties cash as well. I have always refinanced my money out within 24 months.



I am incredulous. It is hard to tell tone on the internet but please don't take this the wrong way, but I don't believe you are calculating correctly. If you are on to something 15% annual net return NOT including appreciation, and without leverage, I want to know what you are doing! Seriously, a kind answer turns away wrath, sometimes people on here get 'bent' when I express incredulity but I am dying of curiousity to see if you can back that up. No offense or sarcasm meant.



I'll own that. It is a bit of an exaggeration.

No offense.

You would have to know how well I bought the property or that I built it myself to see those numbers....

Like I said....I've got taxes and insurance, both of which can be marginally controlled with a proper risk profile (and aggressive disputing.)

[Atfulldraw]

I have to respectfully disagree here. That statement has no basis in facts. I promise you that the ultra wealty that made their money...not inherited it...used leverage to build their wealth. As a former banker at the Dallas bank that financed Trammell Crow, the Hunts, the Murchisons and many more wealthy folks, and a San Antonio bank that financed real estate deals, as well as a president of several banks, I can assure you they all BORROWED to finance their projects and borrowed heavily. That statement is simply not factual.



Wow! That is hard to imagine. I can see an occasional deal that does that, but MOST? That is amazing, and you have exceeded many suucessful real estate investors' returns. You are truly a tycoon! Care to provide some numbers on your typical property?

Yawn.....

Is is that hard for you to believe, or are you just being cantankerous?

Have you never heard of buying a property for the right price?

My financial advisor has all the numbers -- the actual percentage is 14.84.

He runs the calculations, right before he dumps the proceeds into my solo 401k that you say doesn't exist....

[MQ32Shooter]

Man, I'm sure glad I bought my rental properties years ago and let the tenants pay them off, before I saw how complicated buying rental property could be!! Sure enjoy that mailbox rent every month and I never knew it was so difficult to pull it off.

[BuckSmasher]

No offense.

You would have to know how well I bought the property or that I built it myself to see those numbers....

Like I said....I've got taxes and insurance, both of which can be marginally controlled with a proper risk profile (and aggressive disputing.)

Can you give us the scenario? You don't need to list the address or anything. Was it multifamily, single family, vacation rental, hotel?

How much did you pay for it? How did you add value? How much was it worth after you added the value? Is it in a bad area with high rent to value?