We believe it is important for most investors to hold the “core” portion of their real estate holdings in all-cash properties with no permanent mortgage debt. Owning properties all-cash virtually eliminates the risk of foreclosure, reduces the risk associated with tenant vacancies during uncertain economic times and essentially eliminates the risk of rising interest rates. Rising interest rates can cause a reduction or elimination of cash flows generated by real estate owned with debt and can also lead to property foreclosures resulting from an inability to refinance or pay off loans when due.

While increasing leverage increases some risks, the potential returns can be increased as the amount of real estate which can be purchased with a given dollar amount can be substantially increased. While additional expenses are incurred in the form of interest payments, the amount of potential income generated can often boost the cash flow to a higher level.