AskBP

#AskBP 027: Should I Pay Cash or Leverage My Real Estate Investments?

Expertise: Landlording & Rental Properties, Personal Development, Real Estate News & Commentary, Real Estate Investing Basics, Business Management, Flipping Houses, Mortgages & Creative Financing, Real Estate Deal Analysis & Advice, Real Estate Wholesaling, Personal Finance, Real Estate Marketing, AskBP
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Should I Pay Cash or Leverage My Real Estate Investments?

Ah… the classic debate. Cash vs. leverage. Which is better? In this episode of the BiggerPockets #AskBP Podcast, Brandon shares his thoughts on the debate and provides some interesting commentary that will help you decide the best path for your investing. Stay tuned!

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Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He began buying rental properties and flipping houses at age 21, discovering he didn’t need to work 40 years at a corporate job to have “the good life.” Today, with nearly 100 rental units and dozens of rehabs under his belt, he continues to invest in real estate while also showing others the power, and impact, of financial freedom. His writings have been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media. He is the author of The Book on Investing in Real Estate with No (and Low) Money Down, The Book on Rental Property Investing, and co-author of The Book on Managing Rental Properties, which he wrote alongside his wife, Heather, and How to Invest in Real Estate, which he wrote alongside Joshua Dorkin. A life-long adventurer, Brandon (along with Heather and daughter Rosie) splits his time between his home in Washington State and various destinations around the globe.

    Wilson Churchill from Madison Heights, Michigan
    Replied over 4 years ago
    I vote for buy one property with cash, then refinance and get all of the cash back. What is the cash on cash return then?
    Kent Harris Real Estate Investor from Katy, Texas
    Replied over 4 years ago
    Typically when I pay cash for a house and do a cash out Refi. I leave 25% for the down payment. If your net rent is $500 per month your cash return would be 24%. This is based on $25,000 down payment on a $100,000 home and a $6,000 profit per year. Excel =6000/25000. Kent,
    Kent Harris Real Estate Investor from Katy, Texas
    Replied over 4 years ago
    I have been into Real Estate since September of last year and currently own 9 houses which 7 our occupied 1 is currently on the market as a rental and 1 is still under renovations. What I did was pay cash for the houses and then rolled them into a conventional mortgage getting me the best deal. After my tenth house I plan to do fix and flip and pay down on the current mortgages. Starting with the ones that have the highest interest rate. After the tenth house the Mortgage rates are from predatory lenders. Currently I am paying $492 per month per $100,000. After the tenth house that rate goes up to $844 per $100,000 borrowed. Leaving a very thin margin for rent houses. If you do it right you should be making at least $500 net per month per rental. Leaving $60,000 per year. If you don’t have a Mortgage the $60,000 a year goes up $119,040 per year based on 10 houses. Since I am in my 50s this is an excellent strategy. If you are younger this would also be a good strategy since you would have a base income every month.
    Chau Cao Investor from Richmond, Virginia
    Replied about 4 years ago
    I actually just bought another rental last year at 25% down, so I basically did what you did minus one step. I am curious as to why buy cash then refinancing later, leaving you with 2 closing costs as opposed to my 1? Great job on your portfolio.
    Colleen Pelliccia lavin Rental Property Investor from Pasadena, CA
    Replied over 4 years ago
    Great stuff! This is the kind of detail I’ve been looking for as a newbie.