For fix-up investors, like me, newly created equity (after fix-up) is a prime source for quick cash. Every investor I’ve ever met needs cash. House fixers are aware that fixin’ houses for yourself don’t provide a pay check Friday night like traditional W-2 Jobs. Quite often, house fix-up investors must rely on their newly created equity for grocery store money.
After fix-up – it’s fairly easy to obtain a new loan or another loan to pullout all your cash, which includes the down payment and fix-up funds. In the strict sense, borrowing has little to do with profit-making. It has more to do with increasing your debt. However, it facilitates your forward movement to make profits! Without cash you cannot move forward; therefore, your investing would be stopped. Also, your overloaded credit cards will likely need relief.
Many start-out investors must rely on their current fix-up job profits in order to acquire their next project. This is very common! Borrowing for a down payment or to payoff rehab debt makes good sense however you must be very stingy. Some investors will borrow the maximum, amount they can. All the funds don’t get used for business. But even worse, the payment on the new borrowing turns the property into an alligator. That’s very bad, don’t do it!
I know many different ways and techniques to make money with my real estate. Over my 50 years or so I’ve done just about everything with houses and apartments even building from scratch. But I must tell you some of my most rewarding (that means profitable) deals have come my way because I know how to be a good landlord. I can handle tenants and I know how to arrange my business affairs to protect myself and stay away from problems.
To enjoy long term wealth you must hold onto your rent-producing properties. Flip-flopping and selling off assets might sound a little more sexy, but its short lived at best. Selling works in direct opposition to retaining income, depreciation credits and avoiding the tax collector. Combined with appreciation, these are the main ingredients for wealth. Obviously, keeping properties requires handling the tenants, who pay you their money every month, but as your collections grow, landlording becomes much more tolerable, and eventually, more fun!
In his excellent book, “Rich Dad Poor Dad,” Robert T. Kiyosaki uses a term “buy, hold and pray” describing what some investors do. He says: “Most people who invest are speculators and gamblers, at least mentally! True investors make money in bad markets and good times alike. Because they keep their income producing properties, earning income around the clock is the secret to financial security and wealth.