I believe there are lots of us that are suffering from lazy equity. For decades we have strived to get out of debt. Along the way, between appreciation, amortization, sweat equity and inflation, equity has been built. We have trained ourselves that debt is bad and leverage is good but only when you are starting out. In general, we have taught ourselves to be risk obverse especially as we have aged.

The side effect to this - our Equity which was chugging hard for us when we started out, has become outright lazy. I understand that real estate investing is all about balance. How are others overcoming that natural tendency of equity slowing down.

I suffer from general laziness in many areas.

I flip-flop more than a cheap sandal at the beach on this very topic.

Stripping the equity worked out very well for me a few years ago. It allowed me to put 8 roofs on, pay off a couple other loans, and buy at least one other place. (have to check dates to remember)

I love having other people's money work for me. But that is really what the rentals are all about. If done right it is always other people's money doing the work. Tenant's pay the mortgage, taxes, insurance and overall they pay for all the maintenance.

Paid cash for the last place I bought. I planned to pull cash back out of it but never did. So now I have the money sitting there. I have more CF because I only pay T&I, but what could I do with the money I could easily pull out of there?

One side of me says to take the money and buy another place outright. Then I could have a little more CF without touching my slim bank account. I could also use part of the money as the down payment on a place, maybe buy a point or two to make the deal work better.

The other side says let it stay as is for now. If I find another place I can go thru the mortgage procedure with it.

My opinion is how do you feel about being in debt depends on your debt comfort level and at what stage in your LL life you are in debt? I've been debt free for several years due to:

Proverbs 22:7: "The rich rule over the poor, and the borrower is slave to the lender," and Romans 13:8: "Let no debt remain outstanding, except the continuing debt to love one another.."

To me it greatly depends on your stage in life and your personal bandwidth. If you're actively growing your business, wise use of debt is necessary.

Lazy equity could equally apply to financial assets, but does that mean you margin your account and buy more securities or other investments versus selling them? Depending on how much you borrow and what you invest in, that could risk a margin call. It's about your personal perspective and propensity towards risk. I just think clarity of thinking on this comes from not being under pressure to make money. Low leverage eliminates pressure from my perspective. Here's an excerpt from one of Richard Russell's Dow Theory Letters entitled "Rich Man, Poor Man". This has greatly influenced my own thinking. I highly recommend the entire letter as it's excellent:

"RULE 3: RICH MAN, POOR MAN: In the investment world the wealthy investor has one major advantage over the little guy, the stock market amateur and the neophyte trader. The advantage that the wealthy investor enjoys is that HE DOESN’T NEED THE MARKETS. I can’t begin to tell you what a difference that makes, both in one’s mental attitude and in the way one actually handles one’s money. The wealthy investor doesn’t need the markets, because he already has all the income he needs. He has money coming in via bonds, T-bills, money market funds, stocks, and real estate. In other words, the wealthy investor never feels pressured to “make money” in the market. The wealthy investor tends to be an expert on values. When bonds are cheap and bond yields are irresistibly high, he buys bonds. When stocks are on the bargain table and stock yields are attractive, he buys stocks. When real estate is a great value, he buys real estate......The wealthy investor knows what he is looking for, and he doesn’t mind waiting months or even years for his next investment (they call that patience). But what about the little guy? This fellow always feels pressured to “make money.” And in return, he’s always pressuring the market to “do something” for him. But sadly, the market isn’t interested. When the little guy isn’t buying stocks offering 1% or 2% yields, he’s off to Las Vegas or Atlantic City trying to beat the house at roulette......"

I am retired. Cash flow is comfortable, but not enough for extra things. I am guided by the following statement.

I can look at my historical spreadsheet and see it. In the late 90's and early 2000's my returns, fueled by other people's money, soared well above 20% annually. The other side of that equation was I was also at a stage where much higher risk was tolerable.

Fast forward 25-30 years and the returns are significantly lower, but at the same time my risk tolerance is much lower as well. Simply put, I have more than enough, and I don't want to risk losing it and having to start over this late in the game.

The nice things about leveraging RE is that there is no margin call.

My spreadsheet is similar to MikeA, although I didn't get started as early.

Ray, I thought you loved debt and used it for this reason and liability reasons?

I do like some debt. I close on a place of the 30th. Buying it for 182. I am putting only $60,000 on it for 20 years. What is the value of $60,000 worth in 20 years?

If real estate is a hedge against inflation, then debt doubles that impact.

The key is having that balance on debt to the income on the place. That lays the problem. Some people can't sleep at night if they owe someone $20. The way I see it, if I have a plan to pay off the debt, then it isn't even an issue. Along with the house, I also have a $50,000 pay on a small slice of natural gas wells yielding about 10% forecasted over span of the next 25 years. So I will actually be ahead even before inflation on this transaction.

There is a fine line for me. I am all about the cashflow.

That lowers when I have debt, obviously. So I try and use some (most) of that debt to provide more cashflow.

If I can do a cash out refi on a place, pay off another loan or buy another place and the CF stays the same or increases a bit then I am happy.

I would love to just have all the cash I needed to buy more places but that isn't happening. Besides, if I had the cash sitting idle I would always be wondering what I could do with it to make me more of it.

Nicole

Some of us are old fashioned and some of us are just old. There is a time and place for everything and that is also true of debt.

Many of us have enough and make enough. Having some extra wouldn’t change a thing.

JS- Congrats on being there and knowing it.

I am striving for that day.