There are some who will try to argue that all debt is not bad. That is not what is about to take place here. While no one is ever going to allow themselves to believe that all debt is good, there are many who find themselves confused when it comes to the concept of “good” debt and “bad” debt in the world of real estate investment.
“All debt is bad” might sound like an inflammatory blanket statement to many and understandably so. Many real estate investors like to live in that grey area, where some debt can actually be considered as a net positive. In order to learn more about why debt is bad, it is important to keep reading…..
So Why Is Real Estate Debt So Bad?
Those who have already conducted hundreds of deals of this nature are already well aware of the pitfalls associated with debt. So why do newbie investors find themselves making the same real estate mistakes? For starters, even those who are truly experienced in this regard will still consider themselves to be in the learning process.
Since real estate investment is a field that constantly experiences shifts and changes, there is never going to be a moment where the investor truly knows it all. The top investors all have one simple rule that they choose to live by, though. They make all of their deals with the cash that they have on hand.
This keeps investors from being forced to endure all of the complications that are typically associated with loans of this nature. The people who tend to claim that all debt is not bad have yet to pull off very many real estate deals. Cash deals are the way to go. When investors are getting started out, taking on more debt is never a good idea.
Debt is also a credibility destroyer in most instances. After all, who wants to work with an investor that is already up to their eyeballs in debt?
Why All Cash Deals Are The Way To Go
Real estate investors who make all cash deals have a far greater amount of control over what has taken place. A real estate investor who is new to the process may not realize that any lender is able to call in the loan whenever they are ready. This removes all of the control from the process and places the investor in a far more precarious position.
To be perfectly honest, the likelihood of this sort of event occurring is not exactly sky high. On the other hand, this is the same sort of logic that landed real estate investors in hot water when the last recession took place. Plenty of investors went bankrupt as a result of this mindset and that is what makes all cash deals so crucial.
There are no overnight successes in the world of real estate investment. It is going to take several years to build a quality portfolio. Those who try to take shortcuts by asking for loans are only making things much harder on themselves over the long haul. Investing in real estate is not for the faint of heart.
What If a Cash Deal Isn’t In The Cards?
Of course, there are going to be investors who cannot make a cash deal who wish to get involved. These investors may not be aware of the best areas to invest in. For example, there is very little that can be done for those who reside in areas where even a $50,000 loan gets them next to nothing. A $100,000 loan might garner a parking space in a place like Los Angeles or New York.
This is why the Midwest is ripe for investment opportunities. Moving to markets where the numbers are more sensible is the best decision for any home flipper. Gone are the days where investors need to reside in the same home for the entirety of the mortgage. Purchasing a home to reside in before moving to another (and flipping the old property) is now a common investment strategy.
In the vast majority of instances, it is in the best interests of the real estate investor’s best interests to simply wait and save their capital. While there are strategies that allow the investor to make a name for themselves with the help of a loan, debt is bad and needs to be avoided whenever possible.