Debt Freedom in my Business? How can I grow without debt?

Question

Hey bigger pockets people! I love listening to the podcasts with Brandon and David! I am a builder in Michigan and I have flipped three homes on the side while also working for another builder￼￼￼. My wife and I are going to be debt-free including the house this summer! So thankful! I have no problem with borrowing on my HELOC to flip houses but my wife would like to own rental properties for cash flow...I can’t wrap my head around going into debt for a small amount of cash flow… I feel like the push here is so focused on growing Large to accumulate cash flow while putting very low emphasis on the risk of the debt that is also accumulating. Any suggestions of how to grow in that area without debt on each rental property? How have you guys done it?￼￼ Thanks so much!!

Sylvia B. · Answer

@Ethan Looy don't fall for the "your tenant pays your mortgage" garbage. It's a lie. The tenant pays you, you pay the mortgage. If you don't pay the mortgage, the bank comes after you, not your tenant. If you don't have a mortgage, the money stays in your pocket. Just because you get the money to pay the mortgage from rents collected doesn't mean the tenant pays your mortgage any more than your boss at work pays the mortgage on your home.

You as a couple need to decide what is right for you. What are your goals? If growing your rental holdings as much as possible as fast as possible is what you want to do, then you will definitely need to max out your leverage. If you have large amounts of cash coming from somewhere else and need a place to put it to work, and aren't concerned with buying more, more, more, then you probably want to buy all cash.

Most people fall somewhere in the middle.

Hubby and I have been debt free for many years and are truly enjoying that freedom. All of our investments are also debt free. We will never have a real estate empire, but we don't want one!

• Figure out what you want. (Goal)
• Figure out what it will cost. (Not just money, other costs too)
• Determine whether the goal is worth the cost.
• If it is, focus on that goal and don't take your eyes off it.

Ethan Looy · Answer

@Sylvia B. I really appreciate your feedback! It’s definitely a goal of my wife and I to be debt free with everything including our investments! we have had a taste of that recently and it tastes sooo good! We know it lines up with our faith, we feel better about life! There is also something about never having to play the game with the banks that really makes me happy after these last 10 years of feeling like a number whenever I talk to them. I don’t mind making other people money while I make money, I think that’s good economics... the more others are winning around me the more I win.

My wife and I do have Big goals but we want to be financially stable when we build up so that we can enjoy life together while working less.. and with less stress.. lots of good advice here but the main theme is to do what feels right to us and I think we know what that is now. Thank you everyone for taking the time out of your day to write a response! I appreciate it more than you know! I also welcome even more response/ testimonies. It is Encouraging me! Thanks again!

Craig Jeppesen · Answer

The only way to grow without debt is to either partner with someone or save your personal funds and funds from current investments and be more patient as it will take a while to save the funds up. You could also keep flipping houses using your heloc and use those funds to save up for a rental.

Nicole Heasley Beitenman · Answer

It's your typical six of one, half-dozen of the other scenario. When you factor in the lack of risk with cash-only, it's probably more advantageous. It's all about your patience level. Most here on BP want to build a 200 unit portfolio yesterday. They take on debt to do that.

Joel Trout · Answer

I personally don't mind debt. That being said,  I wouldn't get a mortgage unless I could afford the payments even if all the units were vacant. My plan is to have only 4 mortgages at a time, with all of my excess cash flow going into paying down the first one. This should allow me to buy one more each year, which is plenty for me.

Ethan Looy · Answer

Thank you both for your input! I appreciate the advice and your different perspectives!

Rick Pozos · Answer

It all starts with a great deal that you find that when rehabbed you are still at about 80% of value. YOU have equity from day one without putting that 20% down. You have to create that equity from the rehab that you did or when you build a house.

When you go to refinance out of the hard money or your friend's money, the tenant is paying for your house. They pay the mortgage and then some. YES it will only be several $100s. It is a long term game. It is hard for most people to wrap their head around the idea of someone else paying for their asset. It blows my mind that people dont see it. The tenant is paying your mortgage!!! They are creating your equity. Every month, your loan balance goes down!!

If you really dont like mortgages, put all the money that you just made from 3 or 4 houses and put it into paying for one house. Then do it again.

Ethan Looy · Answer

I just searched this topic and found some interesting points of view.. I guess what I’m asking is how others have done in owning their investments with Cash vrs with 60-70% LTV debt. Better without? Doing well? Is Higher cash flow better than many homes giving smaller return? Thanks

Debt Freedom in my Business? How can I grow without debt?

Most Popular Reply