Why You Shouldn't Leverage When Investing In Turnkey Rentals

[Engelo Rumora]

CASH IS KING!!!

G'Day everyone,

I'm going out on a limb here so before you condemn my thoughts at least have a read and try to understand them.

Why does modern day society always want more more and more? GREED that is why. 

Human behavior always traps us in vicious cycles, where cash is only used as a stepping stone for more leverage. In all reality is turnkey real estate that good of an investment when you borrow at 5% and try to make 8-10%? I’d say not so much and that's why I have turned down millions in profit over the years from investors looking to finance.

Does everyone forget that we just hit the 10 year anniversary of the financial crisis that led to people buying so many homes with so much leverage forgetting that if their income changes one blip it all goes to S@#%?

Maybe we should revert back to patience and discipline when purchasing a home. Realizing that we should start with one and not 17.

Learn what it is like to be a landlord, and have a property manager manage the day to day.

Being conservative is never going to make you the next Bill Gates, but remember the majority of ones wealth is created by their occupation as opposed to a levered portfolio of homes.

Think of your next property as a conservative investment, one that is entirely paid off, so if for some reason the economy takes a turn or you have a month or two with no tenant you will sleep just fine.

All good things take time so where is the rush anyway?

I see the market getting stupid again and many don't have any pants on.

It won't be a pretty site when the tied goes out again.

Your truly favorite Aussie,

Engelo Rumora - The Dingo

[Caleb Heimsoth]

@Engelo Rumora

I'm going to disagree with almost the entirely of your post. The key to leverage is moderate leverage. Don't buy everything at 95 LTV. Do 25-40 percent down payments.

The chances we see another GFC in our lifetime is unlikely. Keep in mind the events leading up to that recession took 30-40 years to materialize. (Thanks big short). So if history repeats itself we have another 20-30 years.

As far buying turnkey properties in cash, I think that’s also a bad idea. You likely won’t get an appraisal and you’ll likely overpay by a lot. When you finance the bank (with all that pesky paperwork) has a lot of build in things (like an appraisal) that limits your/their risk. Use high downpayments and your risk is even less.

Almost any turnkey company that only accepts cash purchases, throws off huge red flags in my mind as it likely means you’ll be overpaying by a lot. I know there are arguments to both sides of every coin but with the whole Morris invest debacle (who only accepted cash buys) it’s gonna be hard to override my opinion on this, especially if you’re dealing in sub 50k purchases