Buy first house cash, refinance later?

Question

Hi!

Me and my wife are just starting out in real estate investing. We have saved up some cash, basically enough for downpayments of 4 or 5 properties. How ever, getting started and finding good properties to invest in takes a bit of time, and we may need to adjust our strategy. At first we planed to invest the whole budget in the coming 6 months or so, but that just seems unrealistic at the moment. So instead of just having our savings in a bank account without any interest, we're considering buying our first property all cash instead of taking out a loan and then refinance later, when we need the money for other properties. This way we will "put the money to work" right away, and we will gain a few thousand dollars extra per year. Even if we're already pre-approved for a loan, it will also make the process a little easier, if we don't need to deal with a bank, at least not yet.

What do you say? Is this a good idea? Or are there any significant downsides of doing the first investment all cash and refinance later, when we need the money? The kind of properties we're looking at for our first investment are all well-maintained houses in better neighborhoods that should be fine to finance with a loan, I should add.

Jens Ohlsson · Answer

Thanks you for you advice, Amanda! :)

I haven't been online here for a while, but since I asked the question, we ended up buying a house in good condition, that don't need any rehab at all for the moment. The numbers are decent and it will give us a pretty good cashflow from day one. We will keep a close eye of the market and hopefully the market doesn't crash in the very near future, which could lock up part of our money for some time.

We are going to keep the property for a long time, so we're not overly concerned about short term market trends. As long as we have a tenant we're fine, and we have a margin so we can afford a lower rent in case the market temporarily goes down.

Right now we're looking for property managers in the Atlanta area - any advice?

Evan Parker · Answer

Definitely sounds like a strong candidate for the BRRRR potential. I see you've already bought a property though so congrats on that! And best of luck on your journey.

I'm currently reading (listening) to the BRRRR book right now and it's opening my eyes to the process in greater detail. I Definitely recommend it if you haven't read it already.

Amanda G. · Answer

Hi Jens,

This sounds like a version of the BRRRR strategy, without doing much rehab. Your risks are having the funds locked up for 6+ months (assuming you keep it in your own name), not knowing what the appraisal will be (ie how much you can take out), and the future interest rate.

Run the deals for your best and worst case scenarios- do you like the cash flow after the refi if you get 75% of $10k less than you think it is worth at 6-7%?

These are not terrible risks to take, they are just some of the ones to consider. Also make sure you have padding in your savings for that surprise cap ex which is going to show up even on the well maintained home.

The advantage is speed- you can commit to closing, and your first close is going to be cheaper than the later one with the refi. It also gets you in the game, which is valuable by itself.

If you aren't already members of your local REIA, hunt them down. You may feel better using some of that capital as a ride-along partner on the deal of someone with experience while you look for your own.

Good luck whatever you choose!

Buy first house cash, refinance later?

3 Replies