Cash Out or Finance?

Question

I live in California. North of the Bay Area, 3 hours. I am relatively new to real estate. Property is too expensive to invest here. I am looking to invest in out of state single-family homes. Would it be better to Cash out on a property with interest rates so high? Or get financing? Financing frees up cash, but cashing out would generate good monthly rent. Any thoughts?

Joshua Janus · Answer

If you wanted to cash out refinance just make sure the new debt you are taking on is being utilized on a new asset that will produce a higher return on the cash that you are borrowing against!

I would advise finding an investor friendly realtor when you choose a market. You really want someone that invests in their market themselves and understands the numbers. They should be able to determine the COC, annualized return, estimated ARV of a BRRRR, accurate rent comps and more. The valuation and market value of a multi family property differs from a single family and you want someone that understands the distinctions if you go that route. If they just represent first time single family home buyers and aren’t constantly finding off market properties and reviewing deals, you’ll find a better investment through someone else.

https://www.kiavi.com/blog/out-of-state-real-estate-investing

https://learn.roofstock.com/blog/out-of-state-real-estate-investing

I choose to invest in Cleveland and Columbus, Ohio. Cleveland is ideal for lower priced multi family properties with soaring cash flow. Columbus is a top five appreciating city in the US with an unexpected mix of cash flow which is backed up by a population and job growth. Breaking the One Percent Rule isn’t uncommon in either of these areas and can be applied as a baseline in situations where immense appreciation isn’t expected in B-C class neighborhoods. Whatever market you choose to put your money in, spend the time to learn it.

Remington Lyman · Answer

Do delayed financing

Patrick Drury · Answer

@Robin LarsenI would definitely recommend checking out Columbus OH. It's a solid hybrid market of cash flow and appreciation. Columbus has lots of job opportunities and population growth

Anthony L Amos Jr · Answer

Use leverage as long as it still cashflows

Robin Larsen · Answer

Let me clarify, sorry. I am not refinancing. I have saved the money to purchase a property without taking out a loan. I just don't know whether it is a bad idea to have all of that money tied up in one piece of property.

JooYung Choi · Answer

What's your cash on cash return? Do the calculation for both options and see which one's more appealing to you.

Jimmy Lieu · Answer

Hi Robin, I went through the same dilemma being born and raised in Portland Oregon and the PNW is way too expensive to invest in! Therefore, I moved Columbus Ohio and absolutely love it here ever since! As someone who works with a lot of out of state investors - there's so many catalysts for why you should invest here. Specifically, there's job growth (Intel, Honda, Amazon, Nationwide, etc) and the population is growing (unlike Cleveland or Cincy). I really see Columbus Ohio as an extremely safe bet for the next 10-20 years. Plus, there's still so many positive cash flowing and 1% deals here in Columbus Ohio. Just a few weeks ago, I helped a client close on a deal getting them 20% cash on cash return. As a local investor and agent here in Columbus, let me know if you have any questions or want to connect!

Erik Estrada · Answer

Hey Robin,

If this is your primary residence, look into a line of credit instead of doing a cash out. You can leverage your equity when you find an opportunity and not pay any interest if you don't draw from the line of credit.

Alex Bekeza · Answer

@Robin Larsen use leverage and depreciation.  You can still take a relatively low LTV loan which mitigates the issue of today's rates and then you get the best of both worlds.

Cash Out or Finance?

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