Buying rental with cash vs financing.

Chicago, Illinois
Starting Out
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Buying rental with cash vs financing.

Karim Talbot
Member since 2023 · 2 posts · 0 votes

First time getting into REI and my current plan is to buy with cash. Is that generally not a great idea?

Right now if I keep $340k in the bank at 4.5% I would earn $15471 in interest in a year.

If I use that to buy a house local to me, I would make approximately $22800 in a year after taxes fees etc. I have not taken into account any of the tax benefits just yet, but I know they exist. 

I run a company (that I have some equity in) and do not have a ton of time to spend on this, but would like to start diversifying and dip my toe into this. If all goes well, I can start looking at more properties down the road. 

I am looking to hold the property long-term.

Any thoughts on this would be greatly appreciated.

I do own our current home out-right and our only debt it a car payment on my wifes car. It's at 2.2% so why on earth would I pay it off. :-) 

Thanks in advance!




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Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y

I believe in using as least of your own cash as possible. Even though interest rates are high, strapping your cash in one deal will inhibit you from buying others.

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  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y

    You're evaluating at the 1 year mark but investing for the long-term?

    Think that should answer your question. 

    1Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    I believe in using as least of your own cash as possible. Even though interest rates are high, strapping your cash in one deal will inhibit you from buying others.

    2Reply
  • Noah Laker
    Real Estate Broker · Sacramento, CA · Member since 2021 · 516 posts · 408 votes
    3y

    Leverage is a powerful tool my friend! Generally I would never recommend buying in cash. Why only own one property when you could put 20% down on 5 properties? 

    If you want to build serious long term wealth, you should try to maximize your opportunity and stretch every dollar. 

    1Reply
  • Karim Talbot
    OP
    Member since 2023 · 2 posts · 0 votes
    3y

    Thank you all! 

    Yes, looking at it one year at time is not relevant. 

    I would love to have 5 properties at some point, but right now I have a business to run and 3 young kids. I do not have a ton of time to be looking.  I’m also looking at other businesses. I feel that if another home or business opportunity comes around I can always leverage the rental. I do have a little more cash to throw a down payment on something else as well. I also need to see about how to use my Roth funds for this, but it’s just time to do the research on how all of that works. 

    Right now seems like a tough time to buy well unless you really have the time to dig for great deals. Something I don’t have a lot of.

    I was in a lot of debt (the bad kind) in my 20’s and 30’s and spent my 40’s digging out and getting ahead. I’m a bit debt averse these days.

    Thank you all for your comments thus far.


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  • Paul De Luca
    Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes
    3y
    Quote from @Karim Talbot:

    Thank you all! 

    Yes, looking at it one year at time is not relevant. 

    I would love to have 5 properties at some point, but right now I have a business to run and 3 young kids. I do not have a ton of time to be looking.  I’m also looking at other businesses. I feel that if another home or business opportunity comes around I can always leverage the rental. I do have a little more cash to throw a down payment on something else as well. I also need to see about how to use my Roth funds for this, but it’s just time to do the research on how all of that works. 

    Right now seems like a tough time to buy well unless you really have the time to dig for great deals. Something I don’t have a lot of.

    I was in a lot of debt (the bad kind) in my 20’s and 30’s and spent my 40’s digging out and getting ahead. I’m a bit debt averse these days.

    Thank you all for your comments thus far.



     It can be a tough time for buyers right now but you shouldn't let that deter you. The fact that it's harder now is actually a good thing for people that are committed to investing because then the less serious people will remain on the sidelines. 

    A greater percentage of homebuyers in the market are paying in cash to avoid higher mortgage rates so it's definitely not a bad strategy if can find the right property. And you can run your numbers comparing a cash purchase vs with a mortgage. 

    1Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y

    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.

    The DIY Landlord Book4.7248 Reviews
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    2Reply
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