Good news!
Bigger Pockets, the leading site for real estate entrepreneurs, asked me to elaborate on some comments I made on their site last week. The next thing I know, I’m being asked to write an article.
Here is the article Dave Ramsey is Wrong: You DON’T Need to Be Debt-Free to Hit Financial Freedom
Bottom line, Dave Ramsey is good at getting you out of financial trouble. Just don’t let him persuade you into paying cash for real estate. I never would have hit my goal of ten properties in ten years or less if I had followed his advice.
Still not convinced you should NOT have a mortgage, consider the 11 reasons why you should carry a big fat one
https://youtu.be/zP0rP3X-nMg
Now go buy a cash flowing property. All ya need is one to start you on your journey to becoming a 10 to millionaire.
Happy 2017!
I would imagine buying property as a stream of income would be different than buying a home in cash.
I’m still a fan of a mortgage on a primary residence since a home is not an investment. For example, I just purchased a 11 unit. I put $110,000 down and it provides $2,000 per month in tax free cash flow after all expenses. Assuming you had a paid off home for the same amount, your money would be tied up in the house.
By taking the equity, you can build an income stream to service the mortgage on the home plus control more assets for higher returns. Bottom line, a home doesn’t put money in my pocket.
Yes, you need a place to live, but the cost of a home is more than renting if you do the math and factor in all the frictional costs.
How much is mortgage debt to cash can be considered too much? How to calculate risk to know when you should gather more cash?
Alex,
This is a tricky question since it depends on how comfortable you are with leverage and how you plan on servicing the debt. The ideal scenario is you have enough cash flow to easily cover the debt service.
Once you determine both cash flow and debt service, you can run different scenarios to see what the ideal amount of debt becomes.
For example, I’m working on a deal right now where I’m putting 10% down and leveraging 90% of the purchase. I’m comfortable doing this since I have other units that can make up for any short fall when I have a bad month on the property.
A good rule of thumb is to use loans at 75% of the property value as long as it cash flows. The key is to make sure the cash flow is solid and can easily service the loan after all expenses like maintenance, vacancy, etc.