Earning 100k vs borrowing 100k?

Question

I'd like to propose a simple question.  If you have the ability to source investment capital regularly at a realistic interest rate, let's say 7% APR.  Is it wiser to borrow the money rather than 'earn' the money traditionally in which you pay 30% income, federal, state, etc. tax on? I realize this is a loaded question and want to keep it fairly surface level to invite as many opinions on this as possible!

Anthony Cole · Answer

Hey @David Garner thanks for the advice, appreciate you weighing in. So you're actually supporting the borrow rather than earn model.

You're right about the assets providing enough profit to repay the debts along with the need to cover your day to day expenses.

We currently have 6 doors, they pay for the borrowed money along with generating about 1/8 of our day to day expenses. At this rate we'll need about 48 doors to cover the debt and our personal lifestyle.

Thanks and congrats on all your success!

Brian Garlington · Answer

Why not do BOTH, but start with OPM.

Mike Dymski · Answer

$100k that we own is better than $100k that we have to pay back.  And using OPM allows us to drive up the $100k that we don't have to pay back.

Most of us pay little to no tax on real estate income due to depreciation offsets.

David Garner · Answer

That's the to do it, for me at least. Everyone's different of course, but it definitely sounds ds like you guys have a plan that's working for you.

For me... when I got me model right, I started looking at how I could improve profitability by identifying pain points and bottlenecks I.e. fi D cheaper or more accessible money, find cheap properties, make rehab more efficient and cost effective, vet tenants better, I prove record and bookkeeping.All that stuff adds a few dollars to your bottom line here and there, amd before you know it you only need 40 deals not 48.

Good luck man, keep train rolling, amd dont be afraid to pivot with the market.

DG

Anthony Cole · Answer

@Jeremy Kitchen Thanks for the quick response! The inflation component is another plus to borrowing it vs earning it.  In the case it takes you 3 yrs to earn the investment capital it naturally loses value per year, when on the other hand you borrow it and invest it immediately the investment (if made wisely) earns money.

This is only based on the success of the investment of course, which is the risk we take.

Jeremy Kitchen · Answer

Try to do both!  Usually, I try to leverage Other People's Money before I dip into my own personal nest egg.  When you borrow, you're locking in inflation rates.  Say you borrow $100k and pay it back in 5 years.  When you borrowed it, hypothetically, it will be worth more than when you pay it back, which makes you more money in the long haul.