@Matt Cramer
Is anyone on here a buy and hold investor using all cash?
We use a combination of strategies. We prefer to go in all cash, but with interest rates still low, we are benefitting by utilizing mortgages and keeping our cash readily available. We like buying all cash and then repositioning if beneficial to do so. We maintain high credit scores so we are able to get the best loan terms. We have also purchased with the seller holding the note. We sometimes buy with conventional loans, with at least 20% down. Our most recent purchase was made with $40K of our own cash and $100K HELOC because we wanted to move quickly. Now we are talking to lenders with the plan to secure a mortgage on that property and pay back the funds to our HELOC. We maintain our HELOC as a bridge loan and use it only short term. The interest rate on it is 3.25% so it works very well for us. HELOCs work differently than other loans, so understand how they work before venturing in that direction. We also like to pay off properties early, by consolidating debt on a few properties and holding the others free an clear.
If so why and what have you found to be the result?
We have 16 residential rental units. 2 houses are free and clear, 2 duplexes are free and clear, 1 house has a conventional mortgage loan at 4.75% (30 year fixed), our 8-plex is mortgaged with two conventional mortgage loans at 4.5% (30 year fixed), 1 house will soon have a mortgage (15 year fixed). Our equity position in our mortgaged properties is 25-50%. Our equity position in our free and clear properties is 100%, except the one house and one duplex that we own in partnership family members, in which we own a third.
In the beginning my husband favored leveraging and I favored all cash. We both gave a little. We really like the peace of mind and enjoy favorable cash flow by having more equity than debt. However, we like the ability to increase our portfolio faster by using leverage.
Was it always that way or did you start with leverage?
Our first RE investment was purchasing a duplex on contract from my husband's parents. Our second & third purchase was a duplex and a house in partnership with family members with a conventional mortgage. Our fourth purchase was purchasing a house with a conventional mortgage. Then the family partnership paid off the one house and one duplex owned by that LLC entity. We cleared the debt on one duplex by transferring the contract debt to a personal loan, renegotiating the interest rate and paying some of it down. We then were well situated to purchase an 8-plex with two conventional mortgages. Then one of our family partners died unexpectedly and we reorganized our holdings and bought out some of the interest of others. The next purchase was a house - all cash. Then we refinanced the loans on the 8-plex and immediately generated an additional $1000 per month. Our most recent purchase was a house - all cash, but some of that cash was from a HELOC which we will pay off with money we'll obtain by getting a mortgage on the house.
I have always made it a point to earn more money than I spend. We pay off credit cards every month and hold no consumer debt. No vehicle loans. No student loans. We hold our primary home free and clear, with the exception of maintaining a $100K HELOC tied to it, which we use only sparingly and only for short periods of time (variable rate but has held steady at 3.25% since we opened it many years ago.) My husband and I have full time careers outside of REI. We have an emergency fund equivalent to half our annual income. We purchase with no less than 20% down, preferably 25%. Our investments are in a stable community that has not seen the volatility experienced by other parts of the country. No low house prices here. Prices and values steadily rising.
RK or DR?
A little of both. RK helped me think out of the box. Some of RK's partner authors have put out some great material as well, such as the ABCs of Real Estate Investing. I read a little of DR, but it didn't really benefit me, as what I read related to consumer debt, which we don't have. But my interest is piqued about some of DRs other books as mentioned by others.
What ever your decision, don't feel it is an either/or. Remain flexible and open to trying a variety of strategies before settling in on what works for you. But don't tip too far in the wrong direction! Do what is best for you. Also, plan your exit when you make your entrance.
