Risks of Purchasing the Property with Full Cash

Member since 2023 · 1 post · 0 votes

Hello everyone,

I was wondering if there are any risks in buying a LTR property full in cash without any downpayment. For instance, if I want to invest in a 200,00 dollars property, it can be any type of house, multifamily, SFR or whatever, it is a good idea if I just pay the house at the full price? Are there any risks involved that I may not know? It is better to purchase a property with standard leverage, 20% downpayment?

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Caleb Brown

Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes

It depends on your situation. Most would rather spread the 200K across multiple properties as a down payment. Often you'll have better returns by using it as a DP. You can also capture more appreciation with having more than 1 property. Cash is great because you have no mortgage, low risk. Just run the numbers weigh both options. You can always refi or do a HELOC down the road if you wanted to utilize the equity.

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Caleb Brown
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
2y
It depends on your situation. Most would rather spread the 200K across multiple properties as a down payment. Often you'll have better returns by using it as a DP. You can also capture more appreciation with having more than 1 property. Cash is great because you have no mortgage, low risk. Just run the numbers weigh both options. You can always refi or do a HELOC down the road if you wanted to utilize the equity.
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Scott E.
Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
2y
Not a horrible plan with where rates are at right now. Probably a better plan to use leverage at ~65% LTV, then do a rate and term refinance down the road when rates come down.
The simplest way to look at this is calculate your return. If you buy a property cash for $200,000 and it cash flows $1,667 per month, I'd consider that a good deal. 10% return on your money.
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Logan Padilla
Lender · Los Angeles · Member since 2023 · 19 posts · 7 votes
2y
Paying all-cash isn't a bad move, but by financing the property, you can preserve your liquidity, invest it, and let it work for you. Then, you have money working for you in an investment account on top of the appreciation from the property and the equity gain from paying down the principal balance.
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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
2y
Quote from @Levi Wood:

Hello everyone,
I was wondering if there are any risks in buying a LTR property full in cash without any downpayment. For instance, if I want to invest in a 200,00 dollars property, it can be any type of house, multifamily, SFR or whatever, it is a good idea if I just pay the house at the full price? Are there any risks involved that I may not know? It is better to purchase a property with standard leverage, 20% downpayment?

Hey Levi,
If you have the means, doing an all cash offer is the way to go. It will make your offer stronger and you will have more negotiating power.
What you can do is buy all cash and do a cash out refi after closing. That way you don't put all your money in a deal and still benefit from having an all cash offer.
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Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
2y
1. Do you have extra money if you have a large repair?
2. Do you have extra money if you lose your job?
3. Do you plan to make another investment soon? Do you have the funds to do that without taking a new loan out.
4. If you plan to make another investment thru the same finance company? That way you might cross collateralize without taking cash out of the first investment.

These are the major risks of doing all cash. Situational if you need cash later.
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