How Paying All Cash for a Property Affects Your Ability to Build Wealth

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Many investors choose to pay all cash for an investment property. Back in 2012, BiggerPockets and Memphis Invest conducted a nationwide survey of American citizens and discovered a number of interesting facts, including that 24% of U.S. real estate investors were using 100% cash to finance their investments.

To be clear, even when investors use terms like “all cash,” the truth is, no “cash” is actually traded. In most cases, the buyer brings a check (usually certified funds, such as a bank cashier’s check) to the title company, and the title company writes a check to the seller. Other times, the money is sent via a wire transfer from the bank.

This is the easiest form of financing, because there are typically no complications, but for most investors (and probably the vast majority of new investors), all cash is not an option. However, let’s talk about this for a moment longer.

There exists a debate in the investment world about using cash for a property versus getting a loan. In one camp, you have the “no debt” people, who say a person should only invest in rental properties if they can pay all cash for the deal. The “leverage” camp responds with the math that shows that a person using leverage can obtain a much better ROI by using a loan.

The “no debt” camp fires back, “But 100% of foreclosures happen to people with debt.” And the debate rages. Who is right? If you had $100,000, would it be better to buy one house for $100,000 or five houses with a $20,000 down payment on each?

Once again, I don’t believe there is a right answer, but rather a right answer for you. In other words, what works for me might not work for you. Your decision to use debt will depend heavily on your personal finances, your goals, your age, and other key factors.

Related: What Newbies Should Know About Financing Investment Properties (Versus Homes)

Using all cash is safer in some regards, of course. If you owned a piece of property worth $100,000 without a mortgage, you could easily sell the property if you needed to. If the property was tough to rent out, you could afford making the tax and insurance payment to keep the property floating until a renter began to pay. For simplicity, let’s say that the house rented for $1,200 per month, taxes and insurance were $200 per month, and all other expenses, over time, averaged $400 per month (repairs, vacancy, CapEx, maintenance, etc.). This means your total expenses on the property, not including the mortgage, would be $600 per month, and your cash flow would be $600 per month, or $7,200 per year. While this isn’t a bad amount of cash flow, it represents just a 7.2% cash-on-cash ROI.

On the other hand, let’s say you bought this same property but used a 20% down payment loan, meaning you took out an $80,000 mortgage. Eighty thousand dollars at 4.5% interest for 30 years is about $400 per month. So, add that $400 to the $600 in expenses we already assumed, and you are at $1,000 per month in total expenses with the mortgage in place, leaving you with $200 per month in cash flow, or just $2,400 per year—far less, of course, than the $7,200 per year we saw with the all cash purchase.

However, $2,400 in cash flow on a $20,000 investment represents a 12.0% cash-on-cash ROI—a pretty drastic difference.

Maybe the difference between 7.2% and 12.0% doesn’t seem that drastic, but check out this chart in figure 13 that shows what a $100,000 investment, over 30 years, looks like at 7.2% and 12.0%.

Clearly, leverage can increase the ROI with the property. But is the increase worth the increased risk you are also taking? That’s a question for you to decide. So let me mention a few more possible concerns with paying all cash for a property.

How Paying All Cash Affects the 4 Basic Wealth Generators of Rentals

There are four basic wealth generators of rental properties. Those are:

  1. Appreciation
  2. Cash Flow
  3. Tax Savings
  4. Loan Paydown

So we’ve already seen that paying all cash can help you get a higher cash flow dollar amount but potentially a lower cash-on-cash ROI. But let’s look at how it affects the other three wealth generators.


The property will appreciate at the same amount whether you have a loan or not. But, again, what actually changes is the ROI. If you paid $100,000 for the property with all cash, and in one year, the property value climbs to $110,000, you have effectively increased your wealth by 10% and made $10,000 in equity. If you used that 20% down payment and only spent $20,000 on the property, and the value then climbed to $110,000, you’d have also made $10,000 in equity. But you’ve made $10,000 in equity but only invested $20,000, which means you’ve increased your wealth by 50%!

Of course, the leverage game works both ways: if the property were to decrease in value, you could be looking at a catastrophic loss in value. However, if you are following the rest of the guidelines in this book and are buying great rental property deals, and if the appreciation is only the icing on the cake, you could continue holding until the value rose again.

Tax Savings

Although you will still get the depreciation benefit if you own a property free and clear, you will no longer be able to deduct the mortgage interest payment from your taxes, so you will likely end up paying the IRS each year on the money you make from your rental property.

In the example of the $100,000 house, with the all cash offer, the owner was clearing around $7,200 per year but can only deduct approximately $3,000 from depreciation, leaving them with a tax bill at the end of the year on their profit. However, when using leverage, the cash flow comes to only $2,400 per year after all expenses. At this point, the $3,000 deduction for depreciation would show a paper loss on the property, and no taxes would likely be due (depending on numerous factors, such as the percentage of the mortgage payment that was interest compared to principal.). Again, keep in mind that this is a very simplistic discussion on depreciation, and you should consult with a CPA for more information.

Loan Paydown

Of course, if you have no loan on the property, you have no loan paydown. You have essentially killed one of the four wealth generators. In the example of the $100,000 property, the tenant is paying off that $80,000 mortgage little by little, which increases your total return. Although you started with a mortgage of $80,000, after 10 years, you might owe only $65,000 on the property, increasing your net worth by $15,000 because your tenant paid the mortgage each month. After 30 years (or whatever loan length you used), the property is 100% paid off, and you never (hopefully) had to make that payment yourself. (Of course, you are still physically making the payment, but it’s your tenant’s rent that is covering that payment.)

Liability with Cash Offers

Finally, let’s talk about one more reason you may or may not want to use cash: liability.

When investing in real estate, there is a very good chance that someday, someone will try to sue you. When you own a property free and clear, this is typically evident on the public record, because there is no bank lien on the property. Therefore, you are essentially holding up a sign that says, “I have lots of money that you can try to take!!” If a disgruntled tenant approaches a lawyer to try to sue you, which scenario do you think will make the lawyer more excited to go after you: you have $100,000 of equity in a property or $20,000 of equity in a property? If the latter, the lawyer would understand that even if he did win the lawsuit, the most they could do is force the sale of the property, probably at a discount. After all the closing costs, there would be little or no meat left on the bone.

Therefore, lawyers (especially those paid on the outcome of a lawsuit, as most lawyers of this type are) are reluctant
to pursue rental owners who have a lot of leverage.

It may seem to you that I’m trying to influence you one way or another on using leverage, but honestly, that’s not my goal. There are more important things in life than maximizing your ROI. Security, flexibility, and the “happy wife, happy life” (or happy husband) philosophy may matter to you more than maximizing your return. Maybe that 7.2% cash-on-cash return, for example, combined with the possible appreciation on the deal, would be more than enough for you. Great! My goal in this section was to simply share with you the benefits and risks of both options.


Related: How I Went From 6 to 37 Units With One Acquisition Using Hard Money Financing

That said, here are a couple quick tips for if you do plan to use all cash on your investment properties:

  1. Pretend You Aren’t: Using all cash makes people lazy. When buyers can simply write a check for a property, it’s natural not to have the same motivation to find an incredible deal. Therefore, when buying a property for all cash, pretend you are not doing so. Run the numbers as though you had to obtain 100% financing for the property. Would it still cash flow? If not, you may want to think twice about buying it. Analyze your cash-on-cash return, and make sure you aren’t using your all cash purchase to justify a bad deal.
  2. Use Entities Wisely: If you are going to own properties free and clear, at least try to hide the fact! Talk with your CPA and lawyer to discover the best way to hide your ownership from the public record.
  3. Consider Financing Later: Using all cash when making an offer can help you get better deals because sellers love cash offers. However, just because you bought a property with all cash, that doesn’t mean you have to keep it that way. You can place financing on the property after the purchase (usually 6–12 months later, depending on the bank) and start taking advantage of the benefits of using leverage. It can be the best of both worlds. And if you are concerned about the risk, also understand that the financing doesn’t need to be 80%. Maybe you want to obtain a 50% loan, or a 30% loan, or a 70% loan. The options are plentiful.

What’s your favorite way to finance properties? Have you ever used all cash for a deal?

Share below!


About Author

Brandon Turner

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,,, 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.


    • David Dahl

      Thanks Brandon. I tend to fall in the cash camp, but I am new to RE investing. I often wonder how people who are self managing their properties account for his or her own time investment per month. The person with 1 property paid for in cash has a lot fewer headaches than the person with 5 properties 20% down.

  1. Kat Horn

    You can’t make it any clearer that using leverage is the way to go. In my opinion, the only reason to buy in all cash is if you are buying a distressed property and can’t get financing. And then, if you are trying to grow your real estate portfolio, you should take out the financing on that property post-closing. Honestly, I’ve read a few posts on BP (and elsewhere) about Dave Ramsey and his mandate that investment properties should be purchased in all cash. It’s depressing how many potential investors feel prohibited by Ramsey’s rule from ever acquiring a rental property because they can’t afford to buy in all cash. Maybe somehow they will be at “peace” with their money and investments, but they will miss out on one of the best opportunities to grow their wealth.

    • Leverage certainly has advantages, but many investors in 2007 had lost a lot by 2009. I appreciate the fact that Brandon presented both sides. One aspect not fully discussed was the age of the investor. Perhaps you will see that after doing this for quite a few years, cash may become a very viable option. I understand that may not hold true when you are in your 20’s or 30’s… but if you have success, your situation may change by age 50. Asset protection is quite important and is perhaps the strongest argument Brandon presents in favor of leverage, but even this can be mitigated with a good umbrella policy. Yes, one option is most certainly a higher growth and ROI path, and one option is a safe, slow, boring, reliable, and night-time sleep friendly path. BOTH may be the right decision and various stages of your investing career.

    • Susan Maneck

      Depends on where you are buying the property. Where I live properties for cash buyers is relatively cheap. My strategy is to pay cash and finance the property a year or more later through a first-place HELOC. Closing costs on conventional financing is just too expensive if you are talking about a 30-50K loan.
      But that only works when you are paying 35K for house. Where Brandon lives, that’s not a good down payment!

    • Susan Maneck

      There is another reason to pay cash. I typically buy houses in 30-40K . They are not necessarily distressed although none of them are what you’d call turn-key ready. It is very hard to get financing for houses that are this cheap unless you buy them owner-occupied. Even then the closing costs are rarely worth it. The strategy which has worked for me is owning the property for at least a year then getting a first place HELOC. Only a few banks offer these to investors but WF does although they are a pain to work with. They will only finance 60% of their own appraisals but that usually comes out to what I paid for it and sometimes more. Closing costs are either none or maybe $400 for the appraisal. You can get a teaser rate for the first year which is far below market interest rates. Then it can go up to 6%-7%, but I never let that happen. I just play musical chairs with my HELOCs like i used to do with balance transfers on my credit cards. As the HELOC is paid off, I call the bank and ask for another teaser rate, which I can usually get no questions asked. That money is then used to pay off the next HELOC, and so on. This method allowed this college professor with a modest income and limited means to buy 9 properties over the last seven years.

  2. Michael P. Lindekugel

    The notion that loan pay down is a wealth generator is completely bogus. I would attribute promotion of it to a lack of understanding of finance, economics, time value of money, and the calculus underlying discounted cash flow analysis techniques such as IRR and NPV. All ROI calculations are about cash flows. All ROI calculations are a combination of the amount of the cash flow, the timing of the cash flow and direction of the cash flow. The earlier you receive the cash the higher the ROI. ROI is really just a fancy way of saying interest.

    If your loan payment is principal and interest, then you have less cash flow because you won’t have access to the equity from paying the down the loan until you sell the asset. All you have done is move $1 from your pocket and given to the bank. Does this dollar earn interest? No, it does not. The asset appreciates, but equity from paying down the loan does not earn anything. In fact, it loses value through inflation. When you receive that $1 from paying down the mortgage when you sell the asset it is worth less than on the day you made the mortgage payment.

    Furthermore, in finance and accounting there is what is called the matching principle. If you want to recognize that you have access to the equity from paying down the mortgage, then you have to recognize the associated cost of gaining access from a refinance or disposition of the asset.

    The fact is an interest only loan will produce an IRR that is 6-9% higher than the IRR on the same deal with P+I loan.

    Michael P. Lindekugel, MBA – Finance, CDPE
    RE/MAX Metro Realty, Inc
    2312 Eastlake Ave E | Seattle, WA 98102
    P: 425.390.4197

    • Cindy Larsen

      I agree. Also I was writing my post, below, at the same time you were writing yours. I included an example showing that
      1.not only do loose the money you pay in interest (very slightly mitigated by paying a little less in taxes from the mortgage interest deduction) but
      2. You loose the ability to invest the cashflow you paid in interest.
      Still if the choice is: don’t invest in RE, and gamble on the stock market not,crashing OR
      buy with a mortgage, and pay it off as quickly as possible
      I’d get a mortgage.
      And I have.
      If your choice is between renting, and buying a house with a mortgage, the numbers most likely work out that the mortgage will increase your net worth. renting certainly won’t.

    • Colin March

      Michael, you’re assuming constant deleveraging as opposed to reinvesting the excess equity in a property. If an investor is targeting $500k buildings, he will buy it with “zero down” once an existing building has $100k of excess equity. Leave the existing building in place, bank takes 2nd lien and that trapped equity has now been reinvested. Therefore, I don’t understand your math.

  3. Jerry Rien

    One point not mentioned, how much interest you pay to have that loan. I never see or hear any mention about how the interest that adds to the loan is incorporated in the numbers. Yes you may have a renter pay down that interest, but it still affects your overall return. That being said, I do use leverage, I just make sure that if the worst case happened, I could pay that off w/o losing the proprerty.

    • Michael P. Lindekugel

      Interest isn’t added to the loan. interest is deductible for GAAP and tax treatment from EBIT or what is commonly known as NOI. the full P+I interest payment is deducted from NOI to calculate cash flow. P+I is not deducted from NOI calculate net income because the principal portion of the payment is a balance sheet and statement of cash flow transaction and not an income statement transaction.

      Less Operating expenses
      = Net operating income or Earnings Before Taxes and Interest
      Less interest (not annual debt service which is principal and interest)
      Less depreciation
      =Net Income and taxable income.

      Net Operating Income
      Less annual debt service (principal and interest)
      = Cash flow

  4. Cindy Larsen


    i have bought for all cash bought for 20% down and for 30% down. I prefer leverage because of it’s impact on ROI due to depreciation and appreciation. But mostly, because it allows me to buy more properties sooner.

    However, leverage is not as good as it seems at first glance. Lets assume you buy a $400,000 small multifamiy at 25% down. suppose that for the income from this property, it is in the 28% tax bracket.
    1. Mortgage costs: As you pointed out above, your mortgage reduces your cash flow, and the costs of borrowing are NOT compensated much by the interest deduction. Suppose that in order to get a 4% interest rate, in this market, you paid 1.5 points (0.015x$300,000 = $4,500) plus a loan origination fee of $950 plus various other fees associated with the loan, plus a $500 appraisal fee. Total upfront costs of $$6,500 (or more). Your mortgage is $1432/month, and over the first 5 years, you pay a total of $59,084 of interest on the loan, and you still owe $270,285 on your loan. OK, you say, but I got that great mortgage interest deduction. Right. That was a average of $59,084/5 = $11,817 you got to deduct from your rental income. So, at 28% it saved you $3,309 you would have paid in taxes each year, or $16,544/year.
    Mortgage costs ($6,500 + $59,084) – Taxes Saved ($16,544) = $49,020 Income lost to the mortgage.
    That is an average mortgage cost in after tax money of $817/month or $9,804/year. That is a NEGATIVE ROI. There is also opportunity cost. You could have invested that invested that initial loan cost of $6,500 plus the $817 increased cash flow, at conservatively (4%interest) and at the end of 5 years you would have the $74,313.
    So, the mortgage costs you twice: the interest you pay is gone forever, plus you don’t make any money on the rental income that you could have invested. Total impact on networth of this mortgage is negative -$49,020 + -$74,313 = -$1123,333 in the first 5 years, and you still owe $270,285
    So borrowing $300,000 at 4% for 5 years is EXPENSIVE
    2. Loan paydown: people tend to think of this as “I’m not paying my mortgage, my tenant’s rent is paying my mortgage, and paying down my loan at the same time” Another, way to think of this is: “I am choosing to loose a lot of cash flow that I could be investing, but hey, at least I will loose less cash flow every year, and after 30years I will only have paid $215,000 interest in addition to paying off the $300,000, and not investing all that cash flow I paid as interest. Seriously, the only real justification to paying interest is that with it, you can buy properties that you could not buy without it.
    2. Depreciation: the $14,545 depreciation deduction on your rental income will result in tax savings of 0.28 x $14,545 = $4,072 whether you have a mortgage or not. Once your income goes above $100,000 the amount of depreciation deduction you can take drops rapidly.
    4. Appreciation: Yes leverage wins big here. If we invest $400,000 in 4 properties, and appreciation is
    4%/ year (the average over the last 30 years) then we get 4% x $1,600,000 = $64,000/ year on the 4 properties. Over 5 years our net worth goes up by $320,000 instead of only going up by $80,000. Great.
    But, don’t forget that the same leverage that gained us $240,000 in net worth also cost us $493,332 in net worth due to interest paid and lost opportunity cost.

    It seems to me that with no mortgage, if you invest the cash flow that you would have paid on the mortgage, you come out way ahead. If you just spend that extra cash flow, instead of investing it, you come out about even with getting a mortgage.

    Another imteresting thing I have learned recently, is that the more mortgages you try to get in a short time frame, the more effect the drop in your FICO score (from having your credit checked, and the your indebtedness increase) serves to give the lenders excuses to charge you higher interest rates or more points, which makes borrowing even less attractive. I paid 3.75% for and owner occupied 4plex and 4.375 for the duplex litterally next door at the same time. My next property will be at least 4.5%, with the same interest buydown points.

    The best approach, it seems to me, is to get the lowest interest rate you can, on the largest loan, by owner occupying a multifamily, increase it’s income and decrease expenses. Then, next year, owner occupy another small multifamily to again get the best interest rate. Otherwise, my plan is to buy small mulfamilies for cash, and use my extra cashflow pay down whichever loan has the highest interest rate. if a deal comes along that I cant afford, and can’t pass up, I can always get a loan on a paid off property to make a downpayment.

    • Darin Anderson

      I am sorry but every point in this comment is mathematically wrong.

      1. You double counted the supposed costs. The income lost to the mortgage of 49,020 after taxes is real. But then when you added in a return on the money you would have gotten you counted the principal on it again. But that is already counted in the 49,020 that was lost. The only thing you could count there again would be the actual return, which would be 74,313 – 6500 – 49,020. So that would only be a little less than 19K. So that would get you to about 68K not 113K.

      2. Next you ignored the fact that if you bought the property with a mortgage that leaves you with 300K cash still available to you to do something else with that you would have to have spent on the property if you didn’t have a mortgage. There is a huge opportunity cost there that you are ignoring. If you simply invested that 300K at 8% return compounded over 5 years that makes you 140K. So right there it blows away the 68K loss in income on the property. If you invested it at 4% return it is 65K so almost the same as the supposed loss because of the 6500 up front loan costs. But the point is not to invest it at some low return like you are paying the bank. That’s why we invest in real estate. So the real comparison is to invest that money in 3 other comparable properties, which are then returning you something more like 10,12,15 CoC returns. Then it blows the supposed loss out of the water.

      To set this up as a loss of 113K in net worth or even 68K in net worth is just bad math. It presents a very distorted picture of the investment prospects that bears no resemblence to what the actual financial performance will look like when using leverage.

      All the rest of the numbers in the comment are also flawed because they rely on the flaws in the first point.

      Mathematically this can be reduced to a very simple problem. If you can borrow at 4%, deduct the cost from taxes, and put the remaining money to work at a rate higher than 4% your ROI and net worth will come out ahead exactly 100% of the time. It is no more complicated than that. You cannot beat leverage for ROI and building wealth at these interest rates.

  5. David Krulac

    I’ve been on both sides. The first 11 properties that I bought were all 100% financed, because I did start with nothing. Leverage allowed me to grow in the business such that I have done over 900 deals for my personal inventory now. However, the last 100 properties bought were bought with 100% cash, so I’ve gone form 0% cash to 100% cash. There was a time when I had 50 mortgages and I was making big mortgage payments every month, the largest of which was $4,000 a month payment. Paying mortgages was my biggest expense every month and I began to feel as though I was a bank employee; that I was working for the bank. I decided to get off that merry go round and pay down and pay off mortgages. It took a long time, but getting rid of those mortgages is a wonderful feeling. But when starting out or in your growth phase borrowing is darn near essential.

  6. Likewise, I started my real estate investing career by financing all my purchases and buying VA foreclosures with $1,000 or less down. I had 11 mortgages at one point and began getting nervous that if several tenants did not pay their rent, I could be in trouble. I then began paying off all my mortgages so I could weather anything that happened.

    Today, I have been buying properties for all cash which gives me a big edge over other investors competing with me to buy the same properties. I have come out the winner on several bidding wars without being the highest bidder because I paid all cash and waived all contingencies and offered a fast close. By paying all cash, I successfully bought 16 Condos in a bulk purchase from an estate, 10 new Condos from a builder in a bulk purchase, and several SFRs. I did do a cash out refinance from some of my properties to buy the 10 Condo bulk putprchase from the builder. I have found I have not only been able to buy at a lower price, I have also save the cost of all of the fees the lender charges to make the loan.

    Although ROI is definitely lower without the leverage, knowing I own numerous properties free and clear and can survive any major downturn is nice. I mitigate the litigation risk with umbrella policies. I am not a fan of creating an LLC for each property. I prefer simplicity.

    • David Dahl

      Thanks Brandon. I tend to fall in the cash camp, but I am new to RE investing. I often wonder how people who are self managing their properties account for his or her own time investment per month. The person with 1 property paid for in cash has a lot fewer headaches than the person with 5 properties 20% down.

  7. Susan Maneck

    Financing after purchase is my favorite option, but mind you I’m buying properties where a 3bdrm 2ba house with a garage and a big yard can be purchased for less than 50K. If you finance a property more than a year after purchase you can do so at the property’s value at that time,, not what you originally purchased it for. I just did my principle residence this way. I purchased it for 30K three years ago. It appraised at 70K, they loaned me 50K which gives me enough money to go out and buy another house. I like HELOCs because I avoid large closing costs and have more flexibility.

  8. Jeff Filali


    I’ve used primarily cash only except a few owner financed deals, these past two years to get my REI started. For me my goal at first was to only build with cash to learn and not have the exposure to leverage. Now I have built my cash properties to just over $400K in equity that are bringing in just over $7K month. I’m very comfortable in my portfolio now and plan to start using some leverage, or take some of that equity to go after larger multi units soon.

    I totally get the leverage angle, but feel many people get way over leveraged to the point their investing almost becomes a JOB. A lot of people I know have huge portfolios that barely cashflow. Sure the debt is being paid by other people’s money, but what happens if a crash hits and their tenants can’t pay rent for 60-90 days, most would go bankrupt trying to evict tenants and fill their units.

    Also on protecting your properties from being sued due to showing too much equity. You can always be your own banker, start a separate Capital Holding Co., that lends the money & carries the mortgages for your RE Holding Co.

    Use leverage, but use it wisely and never over leverage.

  9. Jason Barfield

    I find it interesting people say if you don’t have the loan you won’t have the interest to write off on your taxes. That is like saying I don’t won’t to make a million dollars unless I can have enough expenses to write off on my taxes cause I don’t want to pay taxes. I want to have a tax bill at the end of the year cause it will be a sign that I have actually made some money. I don’t think the compounding of interest working for you and not against you when you are reinvesting your money into another all cash high cashflow deal is being considered.

  10. Steve Vaughan

    I’ve received large discounts buying with cash. Also don’t have $4k÷ in borrorowing costs or appraisal fees or lenders title insurance,
    Your $80k borrowed is actually $86k + the PITA of getting the loan and spinning your wheels for 45 frustrating days waiting for the money. Oops – that appraisal is subject to a pest inspection. Make it 60 days and another $200.
    This argument doesn’t even apply to 90% of people because they don’t have the ability to pay cash on their own. Of course they’d rather borrow!
    Don’t get me started on the ‘tax benefits’ of paying mortgage interest. Send me $10k and ill return $3k anytime.
    I know leverage has its place and I have borrowed plenty, just don’t gloss over being able to buy at larger discounts or at least includee the extra costs of borrowing in comparisons.

    • Denise Brown-Puryear

      Well spoken and I agree. We buy cash at this stage. However, I started out with mortgages as well. Still have a mortgage on a property in NY which has soooooo much equity because of when I purchased the property which was in 2001. I like the combination of cash and “some” leverage as we are conservative in our approach. For us the cash flow and the ability to be able to weather a downturn without worrying about making the mortgage payment for that property. We also like having the flexibility to refinance a property or sell off for something else if desired. Also, the discounts given when buying cash is phenomenal when your purchase right in the market that you are working.

      Different things work for different people. And this works for us.

    • Chris Nelson

      I’ve been reading through this thread, originally posted at the beginning of the year, and I’m trying to decide what to do with some cash, and this particular post is exactly the way I see it, as far as each point presented.

    • Lynnette E.


      I agree with what you wrote so much! So much money is lost to interest on the mortgage, on the basic fees related to loans, including the document prep, lender’s title insurance, and appraisals, and then all over again with the refinancing over and over!

      The only main issue I think you left out is the ‘I let my renters pay my mortgage’ saying.

      My renters don’t pay my mortgage, but they certainly pay for my next all cash purchase of a house…which I can get at a lower price and with less competition because its an all cash offer.

  11. Aaron deMontalvo

    Your initial statement summarizes it best: what works for you. Removed from much of this discussion is risk. Debt free is the lowest risk. For those most risk averse that makes the most sense. The opposite side are the ones who leverage with ARMs and creative financing. These folks were crushed in 2008. The more conventional loan as Brandon describes seems to be a very fair balance. I think this is what attracted me most to his thought process. Hopefully we’ll never see another rapid 50% correction as we did in so many markets. That said, if you can keep your debt:asset ratio <70% you'll probably be okay over time especially if you're in it for the Long haul.

  12. John Barnette

    Equity money is not working for you. There is an opportunity cost associated with it. Also an opportunity gained benefit that does tend to be fairly short lived. Namely a better deal for cash. Opportunity gained in piece of mind too. The cash flows on a financed or cash property investment are a measured return OF your cash invested. And ultimately if held long enough a return ON your investment. All assuming a long hold duration and not selling and taking a lump sum return of capital and hopefully healthy return on as well.

    I don’t know the delta on rates of return OF capital in comparing say a 100% financed, 50% financed, 25%. Thinking when rates are low and thus allowing for a reasonable cash flow on a smaller down, that there will be an “optimized” situation.


  13. Phil Olinger

    I always enjoy these articles on using debt to build wealth, that put the “all cash” idea down. It is always written by young and ambitious people making way more than me and way more than I ever care to make but here is what the “good debt” crowd fail to understand.

    My Counter: If you saved 100k (without it being due to a windfall or high paying job), your savings rate is astronomical. You are a guru budgeter, and better than most talking on here.
    Hypothetical Example: A mechanic/graphic designer, with a personal yearly savings rate of 25k
    Time to accumulate 100k = 4 years
    In 4 years this person will have 1 home paying 7200 per year
    8 years later they will only need to deploy (7200*4 = 28,800 + 72,000) or 18K per year. (that means that this person will also have 7k free to invest in other things or a yearly trip to where ever you want to)
    12 years later (7200*2*4 = 57,800 +4300) or 11k per year (leaving them with 14k per year to invest elsewhere 2 yearly trips)……I can repeat the math, but you should get my drift.

    What is always overlooked is that the all-cash buyer can sometimes be a super saver. You are accelerating a supersavers savings rate and compounding their buying power exponentially. I can keep their savings rate at 25k per year and always apply it to rental home buying, but then they buy homes faster in terms of years, thus making the time to buy the second home in 3.2 years and 2.5 and 2 years and then eventually 1 per year. This saving and paying cash eventually creates a rental portfolio that allows the owner to buy 1 property every year with no “personal savings” money put into the game. (This happens around years 8-14) You build a self-sustaining bank, that generates 100k of income per year without ever going to the bank. (This is my personal goal)
    – Also when someone saves like this, the good debt crowd won’t acknowledge some very faulty assumptions.
    1. this super saver never gets a raise at their job
    2. they never pay off say… A car, or a mortgage (25k turns to 30-35k/year instantly)
    3. they never find a way to save even more money from their personal expenses
    4. THEY HAVE NEVER ASKED…HOW MUCH IS ENOUGH? When my Income – Expenses = 5k per month (60k/year savings rate). Am I done? When I meet people who are “cash” people and savers, they know all of the above answers. Paying off your home mortgage alters question 4 dramatically. That is what this website is about right… freedom. If you want to work for a bank for 30 years go ahead. I want to stop in 10 -15 years and not be beholden to anyone and cash keeps me free of my boss and the bank. So give me lawsuits, poor ROI, no tax savings, and call me stupid/unintelligent, I have done way dumber things with money.

    • Darin Anderson

      The most limited resource we have is time.

      Cash is fine.
      Cash is safe.
      Cash is king.
      but ….
      Cash is slow.

      Any path towards financial freedom that is navigated with cash only can be cut in half or more with leverage. If done unwisely, leverage could lead to ruin. Anything done unwisely can lead to that.

      But if done correctly, leverage using rates that allow you to get more assets and more cash flow from the same investable cash dollars will accelerate the path to financial freedom considerably. There is no math that can show otherwise.

      The only argument for cash is safety. And its a big one. People need to understand how to use leverage properly and safely. But there are no other arguments for cash. When done correctly, cash loses to leverage on measures of ROI, net worth growth, and time to financial freedom every time, all the time.

      BTW, you said you want to stop in 10-15 years . I stopped in 8 and make considerably more off the rentals than I did at my W2. Every property I own is leveraged. Without leverage, I wouldn’t own 1/3 of the properties I do, and I wouldn’t make half the cash flow I do.

      • Phil Olinger

        I am not saying leverage is wrong, I am just saying cash buying isn’t the moronic idea it gets played out to be on here. I agree leveraging works and it is what you can tolerate. You are not wrong if you leverage… but every article on here is about leveraging.

        Just do a simple exercise for me and pretend you stop buying property. Write out all of your mortgages smallest to largest and see what that payment is. Think if you went and attacked the lowest mortgage with all of your extra capital and paid it off and then rolled it into the second on and so on until you had no mortgages. My guess is that you personal income would double with no mortgages.

        Just try the math, it almost always works. If I wrote an article about doubling your monthly income through leveraging in 5 years or less, everyone applauds it. Instead I say just pay your debts as fast as possible and poof you can do the same thing. It is looked at as dumb, not smart, and unsophisticated. All cash isn’t quick, and it isn’t for everyone, we understand that but 0 foreclosure risk is worth 4 years. Maximum income is also worth it. It is an understandable trade off, just don’t look down on the hill billy math that an all cash buyer does.

        • Darin Anderson


          I never said cash was moronic.

          I said : “cash is safe, cash is king, cash is slow.”

          You said : “All cash isn’t quick, and it isn’t for everyone, 0 foreclosure risk is worth 4 years.”

          Looks like we agree.

  14. Casey Culver

    You nailed it with the “Happy wife, happy life” in my situation haha! It’s clear to me that using financing is a better option, but the wife comes from the Dave Ramsey school of “no debt ever.” We’ve just bought our first investment home with cash, and I bet when she gets that rental check depositing into her account then she will come around to the financing idea :).

  15. I would agree with most of the above comments, because it seems it all comes down to what you are comfortable with and how you want to sleep at night. The banks these days are not going to loan you 80 or 90% on investment real estate. My commercial bank wants 65% LTV after repairs. In my market, with 100 grand cash, I can buy and finance 3 bread and butter houses. If I paid cash, I could only buy one.

    I recently discovered non-recourse IRA loans. My self directed IRA buys a house for cash, I fix it up and I can cash out refi with a non-recourse loan. The max LTV is 60%. Again, I am making my money go twice as far.

    Both cases, the loans are around 6% with a 15 year amortization. So I am using someone else’s money and my renters money to buy myself a bunch of free and clear houses.

    Don’t wait to buy real estate. Buy real estate and wait.

  16. John Murray

    This is what is great about the United States, many options. Could be the downfall of some. The investment and wealth game is all about assets and equity. The individual can crunch endless numbers and still come up without a game plan. To reach the point of insulated from loss the individual must have multiple income streams, and assets that produce income. This could be from pure profit, depreciation, and pass through to offset other income streams. At this point the daily grind of earned income, credit score and the insecurity of loss becomes meaningless. Not exactly to big to fail but big enough not to worry about cutting a loss or two to continue with the game plan. If you understand this you are half way there, the other half is hard work.

  17. Nathan Williams

    For folks on the fence (or for those who think the only way you can go big in REI is through leverage) I highly recommend listening to BP Podcast 155. I’ve listened to it twice and it has solidified my decision and strategy to own properties free and clear. Sharad is a wonderful example how anyone can achieve massive wealth and financial independence by owning properties free and clear. He shares how he does this through saving rabidly, being extremely present/knowledgeable in his local market, and being an all around great human being. Oh, and he learned everything from BP.

  18. Dave Rav

    Very good post. I’ve always been of the camp that leverage is a good thing!

    For me, your point of buying 5 properties using some degree of financing (vs using the same amount of pocket capital and only obtaining 1 property for your portfolio.

    And it IS up to the investor’s situation and level of comfort. Again FOR ME, I have a great degree of confidence in what i do, so being responsible for that financing (even 100%) isn’t as daunting. Plus all the other benefits you mentioned (tax, etc) make it worthwhile to use some degree of financing. Or, if not institutional financing, at least OPM.

  19. Glenn F.

    In the article regarding the 4th wealth generator, the loan paydown:

    “Of course, if you have no loan on the property, you have no loan paydown. You have essentially killed one of the four wealth generators.”

    No. You can easily take the cash flow that would go to a loan and put it in your pocket, save it, invest it, improve the property, etc. which all still generate wealth. In fact, you have more control and freedom because those dollars go where YOU want them to.

  20. Kevin Polite

    Retirement? Brandon, I agree 100% with financing at 20% until you reach a certain age and I’m nearing that age where I’m chasing cash flow instead of ROI. I’m thinking I’d much rather have that cashflow then chase returns at 65+. All my properties were purchased in C- areas that are now nearing B+ areas and more, so the appreciation is there and the rents continue to rise due to the areas being more desirable and there are so few rentals in particular area that I never have a problem renting. Not quite there yet, but just thinking down the road

  21. Mike Dymski

    Housing prices are inflated due to artificially low interest rates. Paying the high prices without getting the benefit of the reason for the high price (low rates) is simply paying too much.

    Real estate investing is not a one-size-fits-all game though and there are lots of successful strategies.

  22. Lewis Christman

    I am looking at a property now and considering all cash which I hate in that it depletes my account however I also look at the cashflow that is generated and this gets me closer to paying my living expenses which is the primary goal at this time. I would prefer to leverage it a small degree yet that puts me farther away from living expenses. The goal will be to place a line of credit on the building after some time to gain back that liquidity to invest more.

    One note for people that pay cash as a way to mitigate lawsuits and create something new. Create an LLC and have that company place a mortgage on the property. 1 there is now a mortgage on record to keep the attorneys away and 2 yes you pay a mortgage payment to the llc this then becomes potential financing for your next deal after the money grows

  23. Charles Connolley

    Looks like a lot of people aren’t comfortable with secured mortgage debt, which I can understand if you are older or just don’t like the leveraged position. However, just remember there is an “opportunity cost” to having all that cash tied up. For example, disregarding closing costs and repairs, if I had $100K, I could basically pay cash for a $100K already rented home and have a cash flow, or I could buy 4 or 5 with 25% or 20% LTV loans. I have my renters build equity and increase my net worth 4x or 5x as fast.

    My goal in 2019 is to have enough cash on hand and line of credit availability to make cash offers, close quickly, and cash-out refi immediately with the smaller local bank I work with who says they are all in with this type of business plan. That seems to me the best of both worlds, because I get the increased leverage in negotiating the purchase price with a cash offer, but don’t keep 80% of the cash tied up for more than 60 days after closing and move on to my next deal.

    • Chris Nelson

      That is my exact situation, what to do with 100K cash? I don’t live in a market where there is anything under 200K, so I’m looking out of state. And I’m leaning towards the plan to use my 100K as down payments on a few properties, instead of buying just one for all cash.

  24. Charles Ganimian

    Great commentary on both sides. I am 53 and my plan is to pay off my 4-plex and 2 3-plexs to cash flow $100k per year as a supplement to my retirement. I am one of the fools that self manages and places $0 per hour value on my time doing almost all maintenance myself. In this mode I can’t imagine many more units. I can’t decide if I should grow and make a little on a lot or stay small and make a lot on a little. I am leaning toward simple and low risk.

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