You will find really 2 sides or maybe 2 strategies to this
debate. I low fat one way for sure and can describe why but, I am also open up
concerning this and understand that other people have goals and strategies that
fluctuate from my own.
In this blog post I would like to in short , speak about
both strategies and then give you ideas to expand what you are trying to
attain.
I want to determine a permanent investor as somebody who is
purchasing real estate with the strategy to keep it for at least 5 years but in
most cases much longer. This really is a great way to grow wealth and although
it can be slow-moving, it will guarantee financial freedom if the strategy is
done correctly.
Once we discuss lending the staple in the industry is the 30
yr fixed rate loan. The advantage to this loan is that your primary and
interest payment will remain frequent for 35 years even though rental prices
should increase. This loan also comes with the minimum amount in the market
helping you to maximize cash flow. I put 30 year loans on my properties
whenever feasible. (This becomes more difficult as you get more properties
which can be a topic for a different article). I actually like the cash
circulation as it gives me control and I can pick where to invest it.
Disadvantage to a 30 season loan is that it takes 3 decades
to pay off the house, assuming is made the bare minimum payment. A high level believer in paying off your rentals then a shorter term loan might be an
improved strategy and will give you the discipline to truly do it. Because
interest levels are important to a lot of buyers it is important to learn you
will get a much better rate with a shorter term loan.
The belief is that if you are leveraged your real estate properties
you can buy more properties , which will create more money flow and more
growth. Is it doesn't best of both worlds. This is correct only IF you are
buying quality discounts and have reserves and plans in place for the
unexpected. As many of you know when I started investing with my wife we would
leverage as much as we could and we purchased as many residences as we could.
Unnecessary to say that back again fired and we lost almost everything. I
discuss this because I need you to know that I actually realize that leverage
creates additional risk. However, if you are purchasing properties that cash flow
AFTER vacancies and maintenance there really is not much of a problem.
As you can see I am not really an enthusiast of paying off
your real estate when you are in your development strategy period. I consider
this strongly for a number of reasons and have been offered in major
publications writing my view. I do, however, think you should start paying them
off as you get deeper to retirement or while you are in a position that income
becomes more important than growth. I also understand that many individuals
have a different risk tolerance than me.
Presently there is one thing I have to caution you about. I
would personally not recommend purchasing property on speculation. Again, we
learned this the hard way. If you purchase for earnings, whether you choose to
pay off the house or not, you won't get hurt. In the event that you cash flow
and the house decreases in value, you keep it and enjoy the amount movement. If
it goes up in value... well, you either keep it to enjoy the cash stream or you
can sell it and take the cash. Don't get swept up on any of the hype. In Denver
the big thing right now is the light train expanding North, West, and
Northwest. Several new lines choosing could of course raise the value of real
estate, but that is speculation and if the market turns or maybe the lines get
delayed you might undergo.
In my opinion, if you are trying to grow your money quickly
and are less worried with the income, you should purchase as many properties as
you can, in particular those of you in Minnesota. Inventory is not as tight as
other parts of the local and it is still easy to buy renting without having
down payment. To purchase as many properties as you can you need to leverage as
much as you can.
I would like to close by posting one last opinion. Though I
am a strong believer in leverage and being smart about this, My spouse and i
understand that it is not always the simplest way to go.
In Colorado
specifically, there are not many discounts. Travis, Justin and I actually speak
about this frequently. All of us all want more discounts in Denver but simply
cannot find them. If there are limited deals in the areas you are interested,
you need other investment vehicles to put your money. For some that is
investing outside the house your neighborhood, which is what I am doing and for
some it is paying off your loans, which I are also doing. If you want to buy
more but cannot find the deals, at all cost give attention to paying off the
loans. That is much better than leaving your hard earned money in the bank
doing nothing.
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