I have a rental property that is paid off, I want to use the equity to get another one. However I don't understand the concept of buying bunch of properties with equity, isn't that creating more debt? Your cash flow is going towards paying of the loan, how is that positive cash flow? Or how is that building wealth, when you are in debt up to your neck? Can someone please explain leverage before I make a huge financial mistake?
@Dave Mills The principle is that you make use of the margin between the income and the costs (including debt service), which, adding multiple properties, will exceed the return you would get from a single property with no debt. This allows you to scale your business faster than if you were acquiring properties without debt.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
7y
How is it not cash flow? Cash flow is a simple formula.:
Rent (income) - Expenses = Cash flow. If the Rent is more than the Expenses, you have positive Cash flow. If the Rent is less than the expenses you have negative cash flow.