Not very many people take the time to think about the positives and negatives about financing. The generation that grew up in the shadow of the depression learned that living on credit can have terrible consequences, but people today are more in debt than ever. Which one is right?
The answer is somewhere in the middle. Using credit can be a good thing, but it can also be a bad thing if it’s used improperly.
When I first heard of hard money loans, I thought they were highway robbery but after speaking to another investor I realized that hard money loans have their place, you just have to know where and when they make sense. Hard money loans are meant for the short term and when used right, can generate more profit than the cost of the loan. When used right they can be a wonderful tool, but only if they are applied properly.
Lots of very successful entrepreneurs have built their empires on credit, that is to say debt. Debt allows them to buy skyscrapers and factories, things that they never would have been able to buy if they were just saving up their money. Robert Kiyosaki, the author of Rich Dad, Poor Dad, said that wealth is built on good debt and I have to agree. But you have to be careful when it comes to debt, bad decisions in businesses that are leveraged with debt can lead to losing everything that you worked to build.
There are a lot of different options for financing, but understanding the pros and cons of each is critical. Traditional financing has its place, but come with a lot of conditions. Hard money loans and private money are good in certain situations but not in others. One of the most important types of financing you can understand is owner financing. The best piece of real estate in the world can become the worst piece of real estate in the world if you have bad financing.
Understanding the financing you can use makes a massive difference in the profit you can make in your business. If you don’t have to use credit cards for lifestyle money, don’t. Wait until you have the cash flowing properties to pay for the lifestyle you want. If you can master owner financing, you’ll find that the profit margins are so much greater because you can come up with a deal where both parties get what they want.
The biggest take away is you have to know what you’re doing with financing if you want to get the best deals and create the lifestyle you want for yourself and your family. So master seller financing and start building a business that does just that.