To Debt Or Not To Debt

This year, we finished out a development we’ve been working on for about 3 years.

We bought a house that was sitting on just over 3 acres, renovated the home, sold it and in the process, subdivided 2 1 acre lots and added 2 new rental properties.

This house was a total dog when we bought it but with a good amount of cash investment, sweat equity and persistence – we turned it into a beautiful home and I’m really proud of how it turned out for the family we sold it to.

Subdividing the 2 lots was an education in and of itself as many of the neighbors were against it and showed up to the P & Z meetings with signed petitions and angry speeches. Thankfully, the law was on our side and prevailed.

So then we took the 2 bare lots and prepared them for brand new single wide manufactured homes to be used as rentals.

We had to install driveways, wells, septic systems, power, sprinkler systems and lawns.

When all was said and done we added 2 new rental properties which have been a really great addition to our families freedom journey.

Here are just a few more pics…

All throughout this project we used a combination of mostly our own cash mixed with a small bit of debt from interest free credit cards that we paid off.

As I was planning the 2nd home project and looking at our cash reserves, I decided to get a small loan on the first home just to make sure we had plenty of liquidity to carry us through the project.

This last week I went into the bank and my loan officer said..

“What are you doing?”

I said, “I’m paying off that loan.”

He said, “WHY!”

I said, ‘because I don’t like being in debt.”

We had a good chuckle and some fun conversation about the local economy and I went on my merry way.

Yesterday I was talking to my friend and business partner about debt and investing and the topic turned to how conventional wisdom teaches to leverage with debt so you can get the max ROI on your money and how we all have the choice as to whether to follow that conventional wisdom or do something different instead.

Lots of arguments for using debt to maximize return and profitability and even some good arguments for the asset protection benefits of using debt.

I don’t think there is any right way or wrong way to go about building your financial future – at the end of the day we all have to make the choices that are best for us.

That being said I will tell you from my own experience that being out of debt has and does provide me with an incredible sense of peace.

The cash flow we receive from our rentals is 100% ours as we have no payments to make the bank which is nice.

One of my best friends just lost one of his best friends and early mentors to suicide.

As I sat there on the phone the other night, listening to my friend relate the details around this tragic situation, I literally broke down in tears on the phone thinking about the extreme sadness this man must have been in.

Of course, no one can know for sure all the causes that led up to this horrible event – one thing we do know is that this investor had leveraged himself with debt in an aggressive manner, even borrowing money from friends and family to grow his portfolio.

Things took a turn for the worse and the crushing financial burden this man felt was at least part of what contributed to the massive stress and depression he felt leading up to the last day of his life.

For my part, I would prefer to go slower with my investing activities.

It’s amazing what you can do when you work hard, save money, give yourself time and invest as you go along.

I know my story is not the conventional approach.

There are some who poke fun at frugality.

I choose to champion it.

I’ve never been much of a Dave Ramsey follower and I certainly don’t love everything he teaches but i will tell you there is one piece of his advice that has been solid gold to helping us get to where we are today and that is this…

“Live like no one else now, so you can live like no one else later.”

If nothing else, I like for our families story to be an example that you can grow into a life of freedom by following a few common sense principles – and not have to accumulate massive amounts of debt along the way, if you don’t want to.

There are many ways up the mountain.

This is one that’s worked for us.