1st time to invest in rentals. what to do if $600,000 in cash?

[Rhyna Orillaneda]

Have a house in San Jose, Ca. Planning to sell. Will have $600,000 equity after I sell. Planning to buy apartment units cash in an area with good cash flow. Will this be a good idea to buy cash? I just realized that you have more cash flow if you pay cash. Hubby and I will continue to work for now since both of us work in a medical field and hopefully wants to retire soon with passive income.

[Joe Villeneuve]

Don't buy all cash to get higher cash flow.  The net result is going to be a loss.  Here's why.  The elimination of the mortgage payment (added CF in your mind) isn't enough to cover the out of pocket cost to you.  

Before this makes sense, you must understand there is a difference in cost to you between your own home and a rental property.  Cost to you = whatever you have to spend (out of pocket)...and NOT what you don't have to pay for.  In your own home, you pay for everything.  In a rental unit, your tenant pays for everything (through the rent) except the down payment.

So, if you get a loan, the cost to you on this rental property will be $120k (20% of $600k).  If you pay cash, the cost to you if you pay cash is $600k.  Why is this important?  You must first recover all your out of pocket costs (though CF) before you start to make a profit

Now which one really is the least expensive (lowest cost to you( way to go?