Should I consider a cash offer?

Question

I'm prequalified for a DSCR loan (unemployed so this is the best loan for what I am looking for). I believe I am qualified for the best rate possible based on my credit score. But even still I am looking at a 6%+ rate with 25% down. The property I'm looking at is just fine for DSCR but once all expenses are said and done I'm looking at little to no cash flow (most places I do the math on I get negative cash flow.)

Now I may slightly overestimate the expenses, but what that much interest I am really looking into making a cash offer (maybe a slightly lower cash offer as well as a financed offer.) All cash would take a little less than 1/5th of the money in my bank trust. But my cash flow day one is looking really good (including all the expenses.)

And the way I'm looking at it, if I want to refinance it when rates are better then I always can, correct? But this way I would have a much better idea of how my expenses are looking once I own it and if I could still cash flow well if I refinanced it.

Meanwhile this would be an opportunity for me to put my foot in the door and have income coming into the LLC I will create (which I am assuming I may be able to get other types of loans with income in the future as well right?) and that way if the market changes drastically or I am able to find a one in a million I would still be perfectly capable of getting a loan and striking on it.

This would be my first rental and I would just like to get some thoughts before I make an offer. Thank you.

Joe Villeneuve · Answer

The answer is no.  If you have to pay all cash to get positive CF, then all you're doing is paying for the negative CF up front.

Nicholas L. · Answer

@Ryan Cox

if you're not employed, and this will not cash flow positive, i would wait... seems like this would negatively impact you, even if you have a substantial amount of cash.

and, counting on rates coming down is risky.  refinancing costs money - typically thousands of dollars - so typically you need a large decrease in rates, not just a quarter or half point.

but let me know if i am missing something...

Ryan Cox · Answer

@Nicholas L. It looks as if it would cash flow positively at the rate I would get it at, just at a small percentage (and that is including all kinds of maintenance costs and future repairs that I added to monthly expenses.)

However if I paid cash for it the cash flow would be much better. My guess off the top of my head without having my numbers in front of me is about half the rent I would charge would be straight cash flow. And the refinancing more or less would be just an option if rates were to get really good