Questions about buying RE with all cash
Investor · Indianapolis, IN · Member since 2023 · 6 posts · 6 votes
Questions about buying RE with all cash
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3yQuote from @Zachary Bush:
Why are you employing an all-cash strategy?
Read a few books on real estate investing to learn the power of leverage. I like the Unofficial Guide to Real Estate Investing. Here's a very basic explanation to get your juices flowing:
Assume a house costs $200,000 and rents for $1,500. The market appreciates 3% per year.
Pay cash for one house and rent it for $1,500. After five years you'll have earned $90,000 in rent income and gained $34,000 in appreciation.
Buy four houses with $50,000 down on each. Mortgage payment is $1,000 on each house, so you're essentially earning $500 per house or $2,000 a month. After five years you'll have earned $120,000 in rent income and gained $136,000 in appreciation. You've earned $132,000 more by splitting your money and leveraging it.
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- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes3y
Great discussion from everyone! I invest in the Indianapolis metro area. I made 2 offers on 2 different homes, one cash and one financed. My thought was to refinance after the deal with the cash offer so as not to tie up all that money on one property. The first house, seller accepted another buyer's higher offer (don't know if the other buyer did cash or financed). The second house I wound up financing it with a 30 year conventional. The cash offer was less with quick close and seller didn't like that and wanted as much money out of the deal as possible.
If I had millions and millions in capital I might consider cash offers. I lean heavily towards financed offers now because of leverage. Different strategies work for everyone.
Did someone say unsophisticated investors don't pay cash or something along the likes?
The biggest individual private buyers I know, $50MM-$100MM in real estate investing, all go all cash. All cash isn't synonymous with quick close, no inspection, no appraisal contingency. But it can include that. So realtors that want all cash, like that specifically because lending has busted a few deals, appraisals have gotten in the way, etc. Really the all cash emphasis was for a quick close and hoping all the contingencies are waived. That's not always the case.
There's some relatively large investors on here, some active some not in regards to posting. Pretty confident the biggest ones are paying mostly, if not entirely, all cash. Are you really going to tell them they are not sophisticated? They do laps around most of these guys on here that have 3-5 houses, max leveraged, and cannot afford one tenant not to pay longer than 2 months. That profile is 80% of BP's forum. The top 2% of BP's active posters own more than the 98%, I'm willing to wager that top 2% do more deals all cash. Myself included.
What a joke of a comment. Read it back, it was from the pro Sunnyside investor. Go figure.Boards turning into trash with over leveraged, fly by night guys trying to turn into Porce Morby, or a millionaire overnight. But not listening to the ones that have amassed way more than that.
- 3yRose JonesPro MemberMember since 2019 · 57 posts · 18 votesWhen you say you don't think you will be approved for a mortgage, I wonder if you have tried to run a few deals past some mortgage brokers. I didn't think I able to buy a house, until I just went to a good mortgage broker.
Quote from @Charles Lambert:
Quote from @Dustin Lauer:
@Pam Brown. Agreed.
As a private lender, I teach my team to understand seller expectations and why they might be selling for a “cash” price.
This may be obvious to those more experienced, but I'm new to this. What sort of expectations are there when someone pays cash?
As I mentioned, my reason for wanting to pay cash for a quadplex (or whatever type of multi unit building I buy), is because once I sell my SFH (personal residence) and pay out the mortgage, I estimate I will have about $500,000 (maybe even approaching $600,000 depending on the market).
In the areas I'm looking at moving to with a lower cost of living, I can buy a quadplex, triplex, duplex, etc, for $300,000 to $600,000. My goal is to find something decent, move-in ready in a good location that I can buy for cash and have some money left over, that I will probably invest in index funds or an ETF (something else new to me that I'm just learning). Fairly liquid if I need it, though I'd rather leave it in and let it grow.
I also don't think I'd be approved for a mortgage. Under my personal name, I have an excellent credit score in the high 700s, but a poor employment history so I probably wouldn't be approved. And if I incorporate, it would be too new and without a proven track record to qualify for financing. Everyone has their reasons for paying cash or financing, those are my reasons. I hope they are reasonable, if I'm mistaken on anything, please let me know.
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- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
Quote from @Jay Hinrichs:
Quote from @Eliott Elias:
Quote from @Tim J.:
Quote from @Eliott Elias:
Why are you looking for an investor buying all cash? That is likely the least sophisticated investor you will meet.
That's a pretty naive statement. Can you explain?Investors who purchase all cash limit their buying power. If your goal is to purchase a hand full, by all means. If you want to create a large portfolio, cash is going to delay you immensely. Anyone who defends all cash purchases invest in real estate as a hobby.
Dude your so far off base on this you simply dont know many true cash investors of any size apparently. my company will have 200 plus homes in inventory with Zero debt. far from a hobby .
now my 90 home new build project 75,000,000 at build out I have debt on that as we are in and out of each home in one year or less so short term construction loans.. your talking folks in a completely different league than those that need debt or to sub too to acquire their homes.. Just sayin.Interesting how you boast your portfolio to back up all your points. I know many cash investors, I tell them all the same thing. The level I am talking about is the top 1% of all investors, not yours.
Quote from @Eliott Elias:
Quote from @Jay Hinrichs:
Quote from @Eliott Elias:
Quote from @Tim J.:
Quote from @Eliott Elias:
Why are you looking for an investor buying all cash? That is likely the least sophisticated investor you will meet.
That's a pretty naive statement. Can you explain?Investors who purchase all cash limit their buying power. If your goal is to purchase a hand full, by all means. If you want to create a large portfolio, cash is going to delay you immensely. Anyone who defends all cash purchases invest in real estate as a hobby.
Dude your so far off base on this you simply dont know many true cash investors of any size apparently. my company will have 200 plus homes in inventory with Zero debt. far from a hobby .
now my 90 home new build project 75,000,000 at build out I have debt on that as we are in and out of each home in one year or less so short term construction loans.. your talking folks in a completely different league than those that need debt or to sub too to acquire their homes.. Just sayin.Interesting how you boast your portfolio to back up all your points. I know many cash investors, I tell them all the same thing. The level I am talking about is the top 1% of all investors, not yours.
The top 1% of investors do not leverage into real estate. If they do, it's heavily short-term or a just a smaller fraction of the entire portfolio. I don't know a single investor that's allocating as much capital as I am into REI, or more, that's using leverage to any degree besides me(albeit to a lesser degree). I'm putting more into REI than 99% of this board combined, I'm not speaking about one's I know--I am speaking about one that i am. Your statement is totally false, Jay is 100% correct. This sentiment of leverage till you die really needs to quit on these boards. This ******** was barely okay during super low rate periods, but we're going to go with high(er) ish rates for the next era and people need to move differently. Giving advice like this is borderline predatory and awful.
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @V.G Jason:
Quote from @Eliott Elias:
Quote from @Jay Hinrichs:
Quote from @Eliott Elias:
Quote from @Tim J.:
Quote from @Eliott Elias:
Why are you looking for an investor buying all cash? That is likely the least sophisticated investor you will meet.
That's a pretty naive statement. Can you explain?Investors who purchase all cash limit their buying power. If your goal is to purchase a hand full, by all means. If you want to create a large portfolio, cash is going to delay you immensely. Anyone who defends all cash purchases invest in real estate as a hobby.
Dude your so far off base on this you simply dont know many true cash investors of any size apparently. my company will have 200 plus homes in inventory with Zero debt. far from a hobby .
now my 90 home new build project 75,000,000 at build out I have debt on that as we are in and out of each home in one year or less so short term construction loans.. your talking folks in a completely different league than those that need debt or to sub too to acquire their homes.. Just sayin.Interesting how you boast your portfolio to back up all your points. I know many cash investors, I tell them all the same thing. The level I am talking about is the top 1% of all investors, not yours.
The top 1% of investors do not leverage into real estate. If they do, it's heavily short-term or a just a smaller fraction of the entire portfolio. I don't know a single investor that's allocating as much capital as I am into REI, or more, that's using leverage to any degree besides me(albeit to a lesser degree). I'm putting more into REI than 99% of this board combined, I'm not speaking about one's I know--I am speaking about one that i am. Your statement is totally false, Jay is 100% correct.
Montana Ranches are the play ground of the wealthy. And those 20 30 40 50
million dollar ranches get sold for cash.. there is no sub too or 80% LTV loans going on with the 1% ers. Or the 10 to 20 million dollar log homes in Jackson hole or any of the other ultra wealthy ski area properties.. the point is sophisticated investors do pay cash. Unlike your statement that only unsophisticated investors pay cash..
Age plays a big role in this younger folks starting out need leverage generally speaking so its very appropriate for them to use it. but as we age out the mind set changes and paid for assets become the goal.. Just look at your portfolio of 16 homes what would your cash flow look like with zero debt compared to what you have now which I have to assume each prop has max debt. And then there is everything in between. - Oh I get why leverage is mentioned, I just don't get why being so damn over leveraged is always pushed. It's ad nauseam here.
Quote from @Jay Hinrichs:
Quote from @V.G Jason:
Quote from @Eliott Elias:
Quote from @Jay Hinrichs:
Quote from @Eliott Elias:
Quote from @Tim J.:
Quote from @Eliott Elias:
Why are you looking for an investor buying all cash? That is likely the least sophisticated investor you will meet.
That's a pretty naive statement. Can you explain?Investors who purchase all cash limit their buying power. If your goal is to purchase a hand full, by all means. If you want to create a large portfolio, cash is going to delay you immensely. Anyone who defends all cash purchases invest in real estate as a hobby.
Dude your so far off base on this you simply dont know many true cash investors of any size apparently. my company will have 200 plus homes in inventory with Zero debt. far from a hobby .
now my 90 home new build project 75,000,000 at build out I have debt on that as we are in and out of each home in one year or less so short term construction loans.. your talking folks in a completely different league than those that need debt or to sub too to acquire their homes.. Just sayin.Interesting how you boast your portfolio to back up all your points. I know many cash investors, I tell them all the same thing. The level I am talking about is the top 1% of all investors, not yours.
The top 1% of investors do not leverage into real estate. If they do, it's heavily short-term or a just a smaller fraction of the entire portfolio. I don't know a single investor that's allocating as much capital as I am into REI, or more, that's using leverage to any degree besides me(albeit to a lesser degree). I'm putting more into REI than 99% of this board combined, I'm not speaking about one's I know--I am speaking about one that i am. Your statement is totally false, Jay is 100% correct.
Montana Ranches are the play ground of the wealthy. And those 20 30 40 50
million dollar ranches get sold for cash.. there is no sub too or 80% LTV loans going on with the 1% ers. Or the 10 to 20 million dollar log homes in Jackson hole or any of the other ultra wealthy ski area properties.. the point is sophisticated investors do pay cash. Unlike your statement that only unsophisticated investors pay cash..
Age plays a big role in this younger folks starting out need leverage generally speaking so its very appropriate for them to use it. but as we age out the mind set changes and paid for assets become the goal.. Just look at your portfolio of 16 homes what would your cash flow look like with zero debt compared to what you have now which I have to assume each prop has max debt. And then there is everything in between. Quote from @Eliott Elias:
Quote from @Tim J.:
Quote from @Eliott Elias:
Why are you looking for an investor buying all cash? That is likely the least sophisticated investor you will meet.
That's a pretty naive statement. Can you explain?Investors who purchase all cash limit their buying power. If your goal is to purchase a hand full, by all means. If you want to create a large portfolio, cash is going to delay you immensely. Anyone who defends all cash purchases invest in real estate as a hobby.
What a bunch of horseshit. You don't have experience with wealthy investors.- Rental Property Investor · New Braunfels, TX · Member since 2022 · 409 posts · 408 votes3y
Haha, you just made my day Tim😂
- Investor · Indianapolis, IN · Member since 2023 · 6 posts · 6 votes3y
Thank you all for the responses. I didn't expect to start such a heated debate, but I have learned a lot, so thank you. And thank you to those that reached out to me to answer specific questions.
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesLinear return. Also, REFI LTV is lower than with mortgage at start,...and, if you get a discount, it won't be more than about a 10% discount, but a REFI LTV won't be higher than 75%. This means you're getting back less than what you paid for the property. The discount doesn't help in the long run. You will end up paying more for the property than if you used financing.
Quote from @Aasim Ali:
@Joe Villeneuve cash to get discount then refinance it.
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
Quote from @Tim J.:
Quote from @Eliott Elias:
Quote from @Tim J.:
Quote from @Eliott Elias:
Why are you looking for an investor buying all cash? That is likely the least sophisticated investor you will meet.
That's a pretty naive statement. Can you explain?Investors who purchase all cash limit their buying power. If your goal is to purchase a hand full, by all means. If you want to create a large portfolio, cash is going to delay you immensely. Anyone who defends all cash purchases invest in real estate as a hobby.
What a bunch of horseshit. You don't have experience with wealthy investors.Vague and nothing learned with this statement. Put some thought, use that brain and get back with something that will benefit who ever is reading this a few years down the line. I stand by leveraging debt.
- 3yElvise AtemPro MemberMember since 2023 · 23 posts · 16 votes
I think Tim explains it a little better in my opinion. cash is not bad so long as you can REFI after closing to move on with other deals. cash is powerful and gets you to a better deal. REFI after closing is the most powerful game an investor used to leverage his money.hope you get to decide quickly and get your money cash flowing for you.
hope that was helpful!
- Member since 2023 · 243 posts · 199 votes3y
Quote from @Zachary Bush:
Thank you all for the responses. I didn't expect to start such a heated debate, but I have learned a lot, so thank you. And thank you to those that reached out to me to answer specific questions.
I was anxiously awaiting your reply to this long thread as I imagined you would be shocked.
From what I've seen this is rare.
The biggest problem I've seen on this thread is limiting beliefs.
The one strategy you used/seen in your specific markets is the only strategy that works in all use cases and all markets. Any other strategy? Well, that's either not correct or not smart.
Two things to consider:
1) Respect variables. There are sooo many factors that make one strategy more efficient than others.
Plans for the home (minor touches, "to the studs", make it glamorous), condition of the home, its price in comparison to comps in the area, credit score, personal goals and fears (big factor), plans for children such as college, terms of the sale, trust in your inspector and your team, your workload, your current medical health, your stress tolerance, tax benefits, your family's stress tolerance, area's growth, your trust in the seller's disclosure, offers on the table, current interest rates...you get the idea.
2) One of the most beautiful formulas (besides Euler's Identity) is:
Interest = P (Principal) x R( Annual Rate %) x N (Time Period).
One point of view is, yes, you borrow money but you pay less out of pocket and you just pay a small amount per month and you can keep doing this for other homes. Yes, you're in debt but you have monthly rental income!
Another point of view is a $200k loan at 7% interest on a conventional 30 year means you pay $13k in interest for the first few years (Total interest of $279k and total cost is $479k). This is why that formula is beautiful. Why am I just giving my money away?!The author of Rich Dad, Poor Dad stated he doesn't use any of his money and emphasizes to "use other people's money, stupid."
So which approach to use?
It depends on all of the variables and what you're trying to do. Both loans and cash paying are one of the many, many tools to fulfill your goals and situation. Is cash king? Not all the time. HELOC, 1031, refinancing, lease to own, etc. are all available tools.
So think if you have Let's move away our limited / "blinders on" perspective and analyze all the available chess moves.
Thanks, - Investor · HI · Member since 2018 · 7 posts · 5 votes3y
I feel like more people were interested in debating if cash or financing was the better option instead of answering his questions. I’d go as far to even say some of the comments were even bordering on rude and arrogant.
- Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes3y
I have paid cash for some and financed others . Fast deals ...cash . Others financed . It depends on the situation . As I get older , I look to have them paid down to increase cash flow . Leverage if used sparingly can be good . If SHTF and you are over leveraged you can lose it all
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesDo you mean using your own money to pay them down to increase CF? How? Your mortgage payment doesn't change. All that changes is how much cash you spend on the property, which is the same thing as increasing your cost.
Quote from @Matthew Paul:
I have paid cash for some and financed others . Fast deals ...cash . Others financed . It depends on the situation . As I get older , I look to have them paid down to increase cash flow . Leverage if used sparingly can be good . If SHTF and you are over leveraged you can lose it all
- Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes3y
Quote from @Joe Villeneuve:
Do you mean using your own money to pay them down to increase CF? How? Your mortgage payment doesn't change. All that changes is how much cash you spend on the property, which is the same thing as increasing your cost.Quote from @Matthew Paul:
I have paid cash for some and financed others . Fast deals ...cash . Others financed . It depends on the situation . As I get older , I look to have them paid down to increase cash flow . Leverage if used sparingly can be good . If SHTF and you are over leveraged you can lose it all
It may increase my cost today , but in 6 years when I retire , I will have no debt
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesYou'll have no debt, but you won't turn a profit for years and years beyond. Your cash is what you pay for the property. As long as you have positive CF with that debt, the tenant is the source of funds that is paying that debt,...not you. They are doing it for free.
Quote from @Matthew Paul:
Quote from @Joe Villeneuve:
Do you mean using your own money to pay them down to increase CF? How? Your mortgage payment doesn't change. All that changes is how much cash you spend on the property, which is the same thing as increasing your cost.Quote from @Matthew Paul:
I have paid cash for some and financed others . Fast deals ...cash . Others financed . It depends on the situation . As I get older , I look to have them paid down to increase cash flow . Leverage if used sparingly can be good . If SHTF and you are over leveraged you can lose it all
It may increase my cost today , but in 6 years when I retire , I will have no debt
When you use your cash to do the same thing, you're not saving on the interest since you were never paying it. However, you are paying full price for the property. That's your cost,...the cash that comes out of your pocket.
Profit comes after your have recovered your cost, in the same form you paid it,...that means cash flow recovering your cash you spent. Your CF will be higher with no debt, but that increased CF never reduces the amount of time it takes to recover your cost. The timeline is usually in at least a decade....many times that recovery period is after the would be term if you had a mortgage instead.
Flip side. If your cash in was only the DP, that recovery period would be very, very soon. Many times, on a good deal, in less than 5 or 6 years. So the profit difference between the two options, is enormous.
Also, the risk with no debt is far greater than the risk with debt, simply because without debt, you have a lot more AT risk. - Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes3y
Quote from @William Grantham:
I feel like more people were interested in debating if cash or financing was the better option instead of answering his questions. I’d go as far to even say some of the comments were even bordering on rude and arrogant.
This happens every time the subject comes up. There are those who are absolutely sure that their way is the only right way, and they often attempt to shout down those who disagree.
- Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes3y
Quote from @Joe Villeneuve:
You'll have no debt, but you won't turn a profit for years and years beyond. Your cash is what you pay for the property. As long as you have positive CF with that debt, the tenant is the source of funds that is paying that debt,...not you. They are doing it for free.Quote from @Matthew Paul:
Quote from @Joe Villeneuve:
Do you mean using your own money to pay them down to increase CF? How? Your mortgage payment doesn't change. All that changes is how much cash you spend on the property, which is the same thing as increasing your cost.Quote from @Matthew Paul:
I have paid cash for some and financed others . Fast deals ...cash . Others financed . It depends on the situation . As I get older , I look to have them paid down to increase cash flow . Leverage if used sparingly can be good . If SHTF and you are over leveraged you can lose it all
It may increase my cost today , but in 6 years when I retire , I will have no debt
When you use your cash to do the same thing, you're not saving on the interest since you were never paying it. However, you are paying full price for the property. That's your cost,...the cash that comes out of your pocket.
Profit comes after your have recovered your cost, in the same form you paid it,...that means cash flow recovering your cash you spent. Your CF will be higher with no debt, but that increased CF never reduces the amount of time it takes to recover your cost. The timeline is usually in at least a decade....many times that recovery period is after the would be term if you had a mortgage instead.
Flip side. If your cash in was only the DP, that recovery period would be very, very soon. Many times, on a good deal, in less than 5 or 6 years. So the profit difference between the two options, is enormous.
Also, the risk with no debt is far greater than the risk with debt, simply because without debt, you have a lot more AT risk.I get what you are saying . I do a mixture of both , financing and paying cash . The cash properties no one would finance since they were in bad shape .
I know plenty of investors that pay cash . Why ? Basically because they can . One of the few investors I do work for just stroked a check for $900K for a waterfront property . Settled in a week , and was gutting it the following day . He drives a rusty Ford van , and looks homeless , great guy though . He pays right away .
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Properties that are not financeable due to extensive rehab are different, but that's a different discussion of why or why not.
Also, just because you "can" do something, doesn't mean you "should". LOL.
- 3yBasit SiddiqiBusiness MemberAccountant · New York, NY · Member since 2015 · 8k+ posts · 4k+ votes
There are little differences in regards to buying a property with cash or with a mortgage.
Properties purchased all cash do not have a mortgage and as such, no mortgage interest
Buyers can negotiate a potentially better purchase price because there are likely less contingencies and a faster close time.
Best of luck
Basit Siddiqi CPA4.880 Reviews - Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Sylvia B.:
Quote from @William Grantham:
I feel like more people were interested in debating if cash or financing was the better option instead of answering his questions. I’d go as far to even say some of the comments were even bordering on rude and arrogant.
This happens every time the subject comes up. There are those who are absolutely sure that their way is the only right way, and they often attempt to shout down those who disagree.
No, all this debate is because it's Investment, hello.
In any kind of investment you would see very strong argumentation that in the long run, would help you one direction and trajectory. Either it's stock investment, gas or real estate you would see this a lot as heavy due diligence is a must. As investor in buy side we also don't want people to lose money or having unnecessary higher risk in their purchase.I would pay cash if it's special property like there's gold beneath it and/or STR in Phuket where mortgage is not attainable, but for just hundred bucks cash flow out of midwest LTR, why I shall sacrifice one hundred k ? that kind of thinking made me feels bad as the return is too low for such big investment.
I've purchased cash few times but that's because at that particular time and location,I have no choice. So cash is my last resort.
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