Help! Which Way to Go?

11 Replies

Hi.  I'm in a position to be able to buy one or two properties for cash.  Is it better to just do the 25% down, take out loans, and buy several properties or pay cash for one or two single family homes in states like Ohio, MO, AL, etc. where they are inexpensive? Anyone invested in Warren, MI?  

Depends on the location, the type of property, the cash flow, the potential for appreciation & an exit strategy, your long term goals, etc.

Owning a property for cash is a low return (cash on cash), low stress way to own real estate. My first few properties were ones I bought with cash. If you want to scale up - own more properties - this is a really slow way to grow. In some ways I hampered my growth potential because I insisted on doing all cash houses at the beginning.

You get a better return with leverage but you also have the added liability of a loan to pay back. In theory, this becomes an asset as inflation destroys the value of the loan, but in reality you have to balance your leverage with your ability to withstand shocks to the system like recessions, local real estate downturns, eviction moratoriums, etc. 

Originally posted by @Diana Rosett :

Hi.  I'm in a position to be able to buy one or two properties for cash.  Is it better to just do the 25% down, take out loans, and buy several properties or pay cash for one or two single family homes in states like Ohio, MO, AL, etc. where they are inexpensive? Anyone invested in Warren, MI?  

 Columbus, Ohio has inexpensive properties

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@Diana Rosett it totally depends on what you're goals are! If you're looking for a relatively safe place to park cash it can make sense to purchase homes with all cash. Since you don't have a loan on these properties you're raw cash flow on a monthly basis will be higher, however you're return on your money (cash on cash return, or how hard your money is working for you) will be much lower. Hope this helps! I own some property in Ohio if you ever want to chat more!

Do you have other real estate investments? If the answer is no, I would never advise buying multiple properties before you know what you like about holding or landlording, etc. A cash buy is safe and high cash flow in and you can always take out a loan on it later, but leverage can get you more for sure. But too much leverage and not enough knowledge can be a bad pile of not much cash or appreciation.

@Diana Rosett I'm in the process of building up now. My first two properties were bought with cash. They were both bought around $100,000. The market has exploded. One is worth $220,000 and the duplex I house hack if I moved out and got at market tenants in both sides would be worth $280,000 leaving about an $600 cash flow and a 10% CoC return to attract an investor. The other two I leveraged with 25% down and mortgages. One was gorgeous a 4 plex and needed no repairs. It has two very long term tenants, a 2 year tenant and the 4th I just flipped and the new tenants move in Sunday.

The second needs some work but I got a great price on it. Both tenants have been there 2+ years. We’re doing some work now and some will get done over the winter.

Depending on how much cash you have and where you are buying you might consider buying one property cash to be able to generate some cash flow and then leveraging the next. Not every lender will lend on loans under $100,000 if you’re under that threshold. So you may have to look a little bit harder. If one lender says no you can always ask them if they know who will lend on that type of loan.

@Diana Rosett  
You are definitely on the right track with looking at properties in Ohio. I would recommend you start with one property if you don't have any previous experience before buying multiple at once. If you already have some experience, I would say go out and get those 4 houses all leveraged with loans as opposed to buying 2 cash. I think it's a better approach. It depends on what you are looking to do though. 

@Diana Rosett Columbus Ohio has a growing market at the moment. Investors use several strategy's effectively in this market including BRRRR, Airbnb, Fix/Flips, etc. Financing is where you have options. If it is a off market property or distressed property, I would suggest using cash or hard money. Hard money can help you diverse your portfolio in order to optimize your door to door cash flow. If your picking up a lipstick property with minor rehab, you could possibly use OPM/private money, or a conventional loan. It just depends on your investment strategy.