The Best Strategy to Invest in Real Estate – Episode 954

Today we’re going to discuss how to approach your investment strategy from a long-term perspective.One question we hear a lot at our company is “should I use my savings and buy a property outright, or make a down payment and use financing?”

We always encourage our investors to keep some of their cash reserves. While I understand the appeal of unloading your savings on one property for quick cash flow, I’d like to encourage you to think about things from a different perspective. Here’s why: if your goal is to reach your Freedom Number and build long-term wealth, you’re going to need some tools to help you get there. And leverage is a great tool.

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Real estate is one of the easiest assets to leverage using the banks’ money. Successful investors understand how to use leverage to their advantage, and that’s exactly what ALL of my mentors have done. Look at investors like Robert Kiyosaki or Robert Shemin… they both use the banks’ money to buy properties, grow their net worth, and build wealth.

If you’ve come from a background or mindset that all debt is bad debt, this is something you’re going to have to unpack. There’s a difference between good debt and bad debt. Bad debt is tied to liabilities like your car, credit card purchases, or the house you live in. Good debt is tied to an asset that brings you monthly cash flow. Ideally, you’re going to want to buy an asset that can cover the monthly payment on your mortgage. But if you’re buying a smart investment, this shouldn’t be hard to do.

Now I’m going to share a few points you may not have considered when it comes to the cash flow vs. leverage debate:

1. IRR is more important than just cash flow on a leveraged property. If you have tunnel vision about getting immediate cash flow, you might be missing out on some other important metrics that matter when it comes to the health of your portfolio. See my full IRR video to get a better understanding of what IRR is and why it matters.
2. Positive cashflow on a leveraged property can be used to pay down the loan faster. Or you can save that cash for protection and future mortgage payoff. So even if you’re one of those people who has a low tolerance for debt, I would encourage you to look at the numbers and see how using leverage could work in your favor. This may allow you to pay down debt quickly AND build your portfolio simultaneously.
3. When your loan is eventually paid off, that’s defined as true cash flow. So while you might be netting less cash flow throughout the life of your mortgage, eventually that loan will be paid down and you’ll have more cash flow and the opportunity to expand your portfolio even further.

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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.

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