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Originally Posted by Travis  So let’s say you buy 10 rent houses using all debt. What will you do if all of the tenants move out?
That’s right; all 10 houses that you have a mortgage on are empty. Now you are stuck paying the mortgage payment.
What if you had paid cash for all the house, and then they emptied out? The loss on the bottom line would not be as bad.
At some point in our lives, something bad is going to happen. We all need to be prepared. Having no debt what so ever is a great way to prepare. Having extra cash at the end of the month will help most people deal with problems.
Please understand that I am not trying to be a downer. I actually am an optimist. But I also know that something bad could happen at any time. I want to be prepared for that in the best way possible.
Hope everyone is enjoying this debate. |
1. Typically if you plan on making money by renting out properties, you figure out in the rent not just your mortgage but also your extra costs like repairs, taxes and, yes, vacancies. If for this neighborhood and this price the typical vacancy is 2 months a year, then you make the rent 15% higher than the sum of your costs. By the time your property is vacant you have put enough aside to cover the mortage when you don't have tenants. You'd need really bad luck (or poor planning) to have your first 2 months be vacancies.
2. Having 10 properties mitigates your risk, as it's really, really unlikely that they all empty out at the same time without warning signs. If one of them empties out you can sponge off the costs with the profit generated by the 9 others.
3. The big problem with paying cash for 10 properties is the loss of income on that cash for the years it took you to gather it. Did it sit in the bank earning 2 meager percents a year until you had your 10 times $100,000 to buy these properties? Then you certainly lost money - through inflation first, and through all the profit you failed to make over the years with your capital.