Walking the Tightrope between Debt and Leverage

Nice Job! Its nice that you got after it and took care of business. By the way you explain it I know it wasn't easy,,but nothing in life worth having is.

Thanks for sharing!!!

1 Reply

Clifford Paul

Rental Property Investor · Member since 2018 · 483 posts · 956 votes

7y

Originally posted by @Anthony Gayden:

What is a good balance between debt and leverage?

The biggest mistakes I have made were when I assumed I was strong enough to overcome the psychological effects of dealing with debt.

Last year (just after I was on the Money Podcast) I found myself with two vacant rentals where I was paying both mortgages and utilities, not only that but I had yet to refinance the one that was a BRRRR and I had used credit cards to pay the $25,000 in renovations. I was getting eaten alive in interest.

But it gets worse, I was self funding my wedding and honeymoon so I put that on credit as well.

Finally I made the dumb move of buying a new personal residence in the middle of it all. So I was paying 3 mortgages and 3 sets of utilities.

After the wedding I also took on my wife’s $30,000+ in miscellaneous debts.

Here I was, a guy who was on the Money Podcast and I was drowning in debt.......

Needless to say I decided to get back to basics. I thought I was smarter than that and I screwed up, but I knew I could fix this mess. I quickly got both of my rentals rented. Next up I completed the refinance and used the money to pay off all of the credit card debt.

Next things got really interesting. I re-read Dave Ramsey’s Total Money Makeover and started listening to his podcast daily again. I realized the debt trap I had fallen into had nearly drowned me.

My wife and I put all of our debts on paper and decided that we were no longer using debt for our personal finances.

We got married last August and since then we paid off all our debts:

$17,000 Wife’s Student loan

$25,000 Credit card debt on one card

$3509 credit card #2

$500 credit card #3

$3000 HELOC

$12,000 car loan

$8000 another car loan

$4000 funeral expenses

I did it the old fashioned way, lots of hard work and sacrifice. I worked 60-70 hours a week and spent months out of town. We stuck to a budget and did the debt snowball as written.

Embarrassing lesson learned, and I really had to swallow my pride to post this here.

Congratulations!

Getting back to the basics is something we all should plan into our investing strategy. Sometimes just taking a step back will make things a lot better going forward. We are still buying but we keep 30% of our portfolio debt free.

1 Reply

Kerry BairdPro Member

Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes

7y

I have done this, too. Used Dave Ramsey as a younger person, and fell back into the debt trap later. Thanks for posting, as it encourages so many of us. Complacency is not my friend.

1 Reply

Mike Dymski

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

7y

Nice work...that's a lot of debt pay down in a short time period.

Next up...the sugar-daddy podcast.

4 Reply

Chris Sukala

Rockford, IL · Member since 2015 · 343 posts · 95 votes

7y

@Anthony Gayden awesome job. I am in the same place. Actually probably have more debt.

I screwed up a couple here ago and took some money out of my 401k. So we have to pay the IRA back 37k. We had to put it on a zero percent card. We are still paying to this day.

Things could have been different if I had my LLC set up before hand but unfortunately the assistant to my accountant quit and left a lot of things in limbo.

We have been rehabbing our rentals but now we are completely rented and starting to pay down more and more.

One day we will get there like you. Good job.

2 Reply

John Teachout

Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes

7y

Yikes, that's a scary scenario but with a successful outcome. Many would not have had the required discipline and sunk even deeper.

My wife and I have a very low tolerance for debt and though we have utilized some borrowed funds to grow our portfolio it's very small compared to what some think it should be. We are paying our principle down $1000 a month and hope it's all gone in less than 3 years. (unless we buy another property....)

4 Reply

Fernando E.

Rental Property Investor · SF Bay Area · Member since 2016 · 234 posts · 103 votes

7y

@Anthony Gayden man, nothing to be embarrassed about, you got gutz to owe up to your mistake, dig out of the hole you put yourself into and became wiser and stronger after all said and done, great job bro! We all find ourselves making mistake in money but what’s important is the lesson learned and the action taken thereafter to fix the problem. Cheers!!

4 Reply

Daniel Kong

Rental Property Investor · Honolulu, HI · Member since 2018 · 335 posts · 251 votes

7y

Great comeback! It's definitely a tightrope to walk. I meet people who are WAY to cautious, and others who are WAY too reckless lol. I guess at the end of the day it comes down to your goals and risk tolerance. Nothing like grinding to get out of a bad situation though. Much props to you for that!

1 Reply

Jim K.

Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes

7y

@Anthony Gayden

I like the phrase you used: "the psychological effects of dealing with debt."

I think we come from similar backgrounds, and I think people who raised differently don't have quite the grasp of what debt does to people who were raised in poverty in the USA. I'm glad you pulled yourself out of it, and of course, you used the debt snowball.

Thank you for posting about this here. It's an example for me.

3 Reply

Dennis M.

Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes

7y

Dave Ramsey gets a lot of flack on here but you gotta admit his philosophy works .I'm not too keen on his investing strategies but Dave is right that the Bible has proven sound concepts on dealing with finances .There is a reason Jewish people ,although a very small percentage of the country ,have a great portion of the nations wealth and I say that in a very respectful way .

Debt is a two edged sword and can only be handled correctly by those with the utmost respect for it . It’s astounding when you think about it that little pieces of dirty green paper contain the power to catapult a man to great heights in virtually every aspect of his life or sink a man to point so low he’s suffering in a preverbal hell on earth .

4 Reply

Anthony GaydenPro Member

OP

Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes

7y

Thanks to everyone who replied. My wife and I have resolved to only have mortgage debt (rentals and personal residence) and no longer use credit cards, lines of credit, etc.

That was a hard sell for me but I realize that I was making too many justifications for poor spending habits.

Right now we are in the process of saving a large emergency fund.

Podcast Guest on Show #21

6 Reply

Brian Olencki

Rental Property Investor · RI · Member since 2018 · 24 posts · 9 votes

7y

@Anthony Gayden wow, great job paying it off. I'm in a similar boat with a rehab right now, a bit over leveraged having used credit cards. Interesting read, back to basics sounds like a good idea.

2 Reply

Brian Ploszay

Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes

7y

Real estate and debt are married. But use modest debt.

You clearly became over-leveraged. In any kind of a downturn, the result will be giving properties back to the bank. Learn from this, even if it means slowing down your ventures in the future.

1 Reply

Khatera Osman

Member since 2019 · 1 post · 1 vote

7y

@Anthony Gayden thats amazing!

1 Reply

Gary L Wallman

Rental Property Investor · Beavercreek OH · Member since 2018 · 422 posts · 970 votes

7y

Anthony,

While I admire your hard work and commitment to pay off your debts, it seems with the refinancing of your BRRR you simply traded short term debt for more long term debt. Also from non collateralized debt to collateralized debt. While I can appreciate the difference in interest rates, it appears to me you are likely still over leveraged. Your debt didn't disappear. You are just paying for it over a longer period of time. Leverage can be a great thing in real estate investing. It magnifies profit, particularly if the market is rising. If the market is falling though, it can be disastrous.

2 Reply

Ryan Proffit

Saint Joseph, MO · Member since 2018 · 401 posts · 244 votes

7y

@Anthony Gayden

We all fall off of that high horse from time to time. Way to get back on it. Thanks for sharing.

1 Reply

Anthony Wick

Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes

7y

I followed the Dave Ramsey method for about 75% of the journey. Then we had to part ways. He is 100% correct when it comes to credit cards (although some have been able to get away with their use to remodel and turn a nice profit). But Dave loses his mind when he states never use credit for anything. My 3.75-4% mortgages on rental properties that are turning at least 15% profit not a good idea? Well, I guess that's my "mistake" to live with. So is my 2.5% car loan that I refuse to pay off because my Vanguard account is making 14%. As a matter of fact, at 2.5-4%, I believe I'll take on much more debt if I can. And I still feel I'm pretty conservative when it comes to my investments.

6 Reply

Denise Banks-Wilson

Rental Property Investor · St. Louis, MO · Member since 2019 · 1 post · 1 vote

7y

@Anthony Gayden. After my divorce, I used the snowball method to eliminate my debt. Basically, I learned how important it was to track my spending, etc.

Two years later, We win the lottery.... LITERALLY. We immediately paid off what little debt we had including 230k in student loans. SIDENOTE: the first student loan payment was due 30 days after we received the lottery payoff. (Insert God’s Power here).

We paid off the student loan, credit card, car & other miscellaneous debt.

Monthly cash flow was no longer a problem... (we both continued working with comfortable salaries) but, after a year or so we were beginning to feel COMPLETELY lost.... we were in financial (but not debt) chaos. We’d stopped everything learned about managing spending and debt.... Although there was ALWAYS enough income coming in - we had no idea what was going out. I told my hubby we needed to get back to the basics... tracking and goal setting was the key.

Moral of the Story: no matter what you have or don’t have, minimize the chaos by knowing what you have or don’t have.... that’s true financial peace.

1 Reply

Manmath D.Pro Member

Investor · Spokane, WA · Member since 2016 · 73 posts · 37 votes

7y

@Anthony Gayden congratulations! Glad you were able to pull out of this. I’ve lost close to $600k so far in last 10 yrs due to lifestyle issues. I personally didn’t know much about finances. It’s only after I came across BP in last 2 yrs and BP Money podacast and Mr Money mustache 2 weeks ago I’ve started to scrutinize my personal finances.

With all the money I wasted, I could have bought decent size apartment and living financially independent life by now. 😭

1 Reply

Treavor Clune

Joplin, MO · Member since 2019 · 7 posts · 1 vote

7y

The important part is that you learned your lesson and took care of it! Awesome job!

1 Reply

Anthony GaydenPro Member

OP

Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes

7y

Originally posted by @Gary L Wallman:

Anthony,

While I admire your hard work and commitment to pay off your debts, it seems with the refinancing of your BRRR you simply traded short term debt for more long term debt. Also from non collateralized debt to collateralized debt. While I can appreciate the difference in interest rates, it appears to me you are likely still over leveraged. Your debt didn't disappear. You are just paying for it over a longer period of time. Leverage can be a great thing in real estate investing. It magnifies profit, particularly if the market is rising. If the market is falling though, it can be disastrous.

I agree with you. The refinance did pay off the rehab costs of that particular property. However I should mention that merely refinancing did not pay off all of the debt we had accrued. I also cleared out my personal savings (except $1000), and spent 6+ months pouring every extra penny that I earned and that my wife earned paying off a large chunk ($30,000+) of the debt.

The refinance did pay off the rehab costs of that particular property and that helped a great deal. Also getting those two properties rented helped as well. What I really got caught up on was the spending on my wedding and buying a new personal residence and the related costs. It was a lesson that I learned quickly. Weddings aren't cheap and I shouldn't have tried to deliver on promises too big to keep for my wife's dream wedding.

While some see me to still be over leveraged, I believe that I am at a much better level now. I do not believe in owning investment properties without leverage or paying them off quickly. I believe that the absolute best way to make money in real estate is utilizing debt, but that there is a tight rope that has to be walked between investment debt and personal debt.

Podcast Guest on Show #21

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Walking the Tightrope between Debt and Leverage

Walking the Tightrope between Debt and Leverage

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