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Why Real Estate Investors Should do Cash Deals
Joe: Why real estate investors should do cash deals. You know, I’ve always talked about no money down, don’t spend any money, and if you don’t have any money that’s the way you’ve got to do it and I think it’s great and I still do no money down deals. I try to put as little money as possible into these deals. But as you do more deals you’re going to make money and you’re going to have capital and you’re going to want to put that money someplace and one of the best places to put your money is into good real estate investments.
Joe: So if you’re going to buy properties buying them for cash makes a lot of sense. Also if you’re buying inside a Roth IRA you can buy them for cash and you can keep that money in there and then you’ll have that money back tax free. It’s just a wonderful way to build a retirement account.
Joe: But when you pay cash for a property your return on the cash invested is less than if you leveraged it. If you leverage it you’re going to make more money but you’re also going to have higher risk. So you’re balancing risk versus income. And I think when I have capital to invest I’d like to own that property free and clear. So the only thing I do that’s different than that is, if I’m going to put cash into a property, is if I’m going to get it with a zero interest loan.
Joe: So I typically don’t put money into properties that I buy subject to. Maybe a little bit. Maybe $5,000, maybe $10,000. But mostly I don’t put much money into those properties. Usually you can buy subject to properties that are in decent enough condition that you can sell them for a lease option.
Joe: On the other hand if I’m buying a property that’s a lower priced property with a zero interest loan and I want to take that, you know, I want to have, make monthly payments on that zero interest loan to a seller, then I’m more willing to put my own capital into it because I’m buying them with equity already in place. So worst case scenario if I need to I can turn around and sell that property and I can actually cash out, get my money back and I’ll do okay. I won’t lose or risk that money.
Joe: The other thing I like about buying properties with cash is you don’t have any debt. That money is just coming in every month and it will be passive income. And eventually you want to get all your properties into a position where they’re all paid off. So you’re just bringing in capital every month and you’ve got something that you can live on.
Joe: There may be a point in my life where I’ll want to live entirely on my investments. At this point I don’t really live on my investments because I’ve got other things that I do, other businesses that I run. My teaching business, my software business, my movie business. I’ve got other things that bring in income so I don’t really need to use any of the money that’s coming from my portfolio. But eventually I may want to do that. I may want to let those businesses, step aside from those businesses and just have the money that’s coming in from those passive investments.
Joe: Or maybe I die. And then my passive investments will support my family and will support my wife and you know, I want that to be there for them when I’m gone. So you want to look at the difference between whether you’re close to retirement or whether you’re a long way from retirement. If you’re a long way from retirement then leveraging your money a little bit more might make sense as long as you get good deals. If you’re closer to retirement you might want to make sure that you’re able to liquidate those properties or have cash flow coming in from those properties because the more properties you have that are paid off the more income that you’re going to get from those properties. So if you’re going to be living on the income that’s coming in from your properties you want to have them paid down as much as possible. Because if you’re paying a mortgage on them not much of that money is going to be coming to you. Ultimately for most people it’s going to make sense to have a mixture of free and clear, cash, paid off properties and financed properties and leveraged properties. That way you have both growth and you have income from your portfolio.
Joe: All right. I hope that helps. If you like this channel hit subscribe, hit the thumbs up button and go to ZeroDownInvesting.com and find out all about my six-month mentor program and go to PushButtonAutomarketer.com find out about my automation system. All right. Good luck to you.