Week 23: Avoiding Bankruptcy
Week 23 – Avoiding Bankruptcy
Financing to term is the ONLY financing that makes sense. This means your lender holds the note for the entire amortization period. Many loans are amortized over a number of years (20), with a balloon payment due much sooner (10). When that day arrives, you have to either pay off the balance, extend the loan or refinance it. I do not want have to count on being able to do that.
A mortgage resulting in negative cash flow is a sure path to bankruptcy. Lots of people will teach you how to borrow money, but not how to pay it back. Real estate is not a liquid investment. Even selling at a fire sale price takes a few days to close. Debt can ruin you if you don’t control it and yourself.
And One More Thing – Get a Good Accountant
The tax benefits of investing in real estate are many. Personal tax strategy is well beyond the scope of this book and my personal expertise. What I can tell you is that you must find an accountant that understands real estate investing. Best case—they should own investment property themselves, or at a minimum have an extensive client base of investors.
I am on my fourth accountant in 16 years. I can tell you from personal experience that you can ask four different accountants the same question and get four different answers. I hate to think of the tax I overpaid in various years, but I am grateful to have finally found a professional that understands my situation. Ask your business associates, friends and advisors for referrals. Take your time and do your homework. Your accountant can be major resource and aid to your profitability, or they can cost you a lot of money.
Conclusion
My main goal for this section of the book is to help you avoid falling into the Magical Thinking trap. I want you to buy your house right and plan for all of the eventualities that can affect your profitability both good and bad. It is far easier to lose money investing in real estate than it is to make it. I know this from personal experience. I hope this chapter helps you avoid the same mistakes I made.
