Debt free or leverage with cash flow - Posted by Les

Posted by Les (IN) on March 05, 2006 at 04:44:56:

Thanks, Tony

I just saw your response to my question.
Good points, I ordered you course a couple a days ago.
I am really looking forward to getting into it!
Even though I maybe older and closer to retirement,
that doesn’t mean I don’t still have energy if I can see a goal!


Debt free or leverage with cash flow - Posted by Les

Posted by Les on February 21, 2006 at 11:32:22:

I would like to here thoughts on this subject.
Debt free with smaller cash flow or leverage assets with more cash flow?
I like cash as much as anybody! I like being debt free also!
I am nearing retirement and would like to have enough cashflow
to not even have to be concerned about Social Security.
What is the majority thinking on this? Do you leverage yourself and not worry about debt? Just making smart investments that cover all the debt.
I know this is an open end topic!

Thanks for what ever info I get.

Re: Debt free or leverage with cash flow - Posted by jpfl

Posted by jpfl on February 25, 2006 at 09:33:19:

To paraphrase a quote from Ben Franklin:
“If you know the value of money, then borrow all you can.”
Enough said.

Re: Debt free or leverage with cash flow - Posted by Ryan (NC)

Posted by Ryan (NC) on February 21, 2006 at 22:55:10:

This is the only point I will disagree with Lonnie’s advice in DOW, I tried borrowing money one note at a time and had to come outa pocket several times to cover payments to my investors. A safety reserve is an absolute must if you borrow money against notes so that you have plenty of time to recover from any problems. (My comfort zone is 2.5x my payment + lot rent)

Leverage with mobiles is a double edge sword, there is a great deal of money to be made but the buyers aren’t always the best paying folks in the world.

As has already been pointed out it falls back to where you are comfortable. I’m 29 and have a long time to pay back any money that I borrow on an investment, to someone that’s looking to retire on a pension in the next few years their position to leverage long term is limited in my opinion.

Lonnie deals can be safely leveraged short term with proper risk management but it falls back to a personal choice. If you choose to leverage a LD portfolio do so at a low rate! I personally like 50/50 splits on the notes created with the risk being shared. (i.e. I do the work, they put up the cash and if I don’t get paid they don’t get paid but will only do this with other investor’s that know the game) Or my favorite right now is a full recourse loan / note partial with chunks of 10-12k borrowed at 48-60 months and I will pay a higher rate for these terms. This allows you buy 4-5 units and use one of them to repay the most if not all of the debt and from past experiences I’m comfortable that at least one of these homes will come back to cover the debt payments if the notes don’t run for the full 60 months.

To each their own, slow and steady builds a rock solid foundation… or leverage can build empires with proper risk management and a little self discipline. As long as you reach your goals you win!

Best wishes,
Ryan Needler

Re: Debt free or leverage with cash flow - Posted by h

Posted by h on February 21, 2006 at 20:27:33:

>>>Do you leverage yourself and not worry about debt?
NO, you leverage your cash, your assets and yourself and MANAGE your debt.
You can do two things with your money. You can use it as a tool or you can squander it.
The problems with debt in this country are caused by those who carelessly spend money they don’t have by going in debt buying play things.
Like S-WA says, there is good debt and bad.

Re: Debt free or leverage with cash flow - Posted by Joe C. (AR)

Posted by Joe C. (AR) on February 21, 2006 at 16:45:16:

I tend to agree with Tony. It is subjective based on an individual’s goals, objectives, circumstances and opportunities etc.

It also depends on ‘how much positive cashflow, for how long vs. how much debt’. For instance, I am currently trying to refi a property to free up funds to purchase another MH park and do several more Lonnie deals. The impact to my monthly “out go” is about $500 more per month for an additional 10 years. The impact to my income is about $6k per month for 5 years and $3500+ per month, thereafter. Truely a no brainer. Even though I’m only 10 years or so away from retirement, it’s hard to beat.

Risk management is an essential element of this business. You should feel secure about what you’re doing. If you’ve done your due diligence, and covered all the bases, some debt can be very beneficial.

Joe C. (AR)

Re: Debt free or leverage with cash flow - Posted by Sailor

Posted by Sailor on February 21, 2006 at 15:32:54:

I w/disagree w/some of our younger folks, & advocate those of us past early middle age be wary of leverage. It’s my belief leverage is for the young, & that in later life ca$h rules. It isn’t a matter of being “debt free w/smaller cash flow” vs. attempting to “leverage assets w/more cash flow.” Leveraging means mortgage payments, so less goes in your pocket. I haven’t made a mortgage payment in 15 years, so my income needs are much reduced. One of the neat things about Lonnie Deals is that the ca$h outlay is small enough that you can put $$$ in your pocket w/out having to take on debt.

That said, I’d like to acknowledge that in past decades, in times of inflation & when I had a regular paycheck, I did avail myself of leverage opportunities. I always worked w/early retirement as a primary long-term goal, & that included eventually not having a mortgage. I think it is important to understand that strategies change both w/economic times & life situations (as well as w/administrations). For the next few years I see L/Ds as being perfect investments, but as I become less active & perhaps w/economic developments I w/probably need to adapt a different investment strategy. Flexibility, in both body & mind, is just as important as we age as it is @ any other time in life.

I think this is a good thread to continue, & I’m interested in the input of others–


Re: Debt free or leverage with cash flow - Posted by Tony Colella

Posted by Tony Colella on February 21, 2006 at 15:05:38:

Great question Les.

Scott and I have this discussion quite often. What we have decided upon is that during the acquisition phase of investing, leverage is essential for us to achieve our goals.

Once we reach those goals we will begin to “cull the herd” of higher maintenance, lower return deals. We may sell of some assets to free up others. We may owner finance some free and clear to free up our time.

The point is that by having more assets at the retirement time (from active acquisition) we have many exits by which we can create our passive retirement income streams.

As you wrote that you are near retirement, your perspective will differ from ours but I suggest it is important to first decide on what your income goal is, then work backwards to determine how many deals that would take.

If you have a lot of cash sitting idly by, then a few deals may be all you need or want. But if your cash is a bit more limited, and you have less time to create more cash before retiring, then leveraging real estate related investments is likely to be the fastest and most easily financed use of leverage.

There is no right or wrong which makes for good conversation. Some folks can do 10 free and clear deals and be financially free forever with little managment headaches. Others want 100 homes so that at some point they have others managing the daily activities while they manage the managers and their own personal wealth.

The 3 most important deciding factors will be: One, the amount of time you have to obtain your goal. Two, the cash you have to begin with and Three, how much management you can tolerate.


Re: Debt free or leverage with cash flow - Posted by Jerry-WA

Posted by Jerry-WA on February 22, 2006 at 10:43:02:

You mentioned that you are currently borrowing chunks of $10k-$12k at 48-60 months with a full recourse loan or note partial agreement. I have a person who I’d like to approach about this type of arrangement and I was wondering if you could elaborate on your approach and the specific terms? Feel free to email me if you prefer as I don’t mean to hi-jack this thread. Thanks, Jerry

Re: Debt free or leverage with cash flow - Posted by Sailor

Posted by Sailor on February 21, 2006 at 22:26:49:

The best way to $ave is to avoid $pending. One way I do that is by not renting money from other folks. However, I will say that Tony & Scott have presented a good case for @ least one situation in which I would consider renting $$$. I’ll keep my options open, & maybe the next Boot Camp w/convince me to alter strategy for one type of investment. In the meantime, I’ll continue being the one to whom rent is paid–