Cash or Credit??
Jacksonville, FL · Member since 2013 · 226 posts · 115 votes
Cash or Credit??
Most Popular Reply
Investor · Columbus, MT · Member since 2013 · 1k+ posts · 1k+ votes
11y@Kevin Martin Why can I only do one? Why 10%? that is ridiculous.... How much other cash do I have? What market am I investing in?
Lets assume Detroit and I have 100k extra besides my purchase... I'm all cash! I would buy 7 SFRs and a bullet proof vest and make some money!
30 Replies
- Investor · Columbus, MT · Member since 2013 · 1k+ posts · 1k+ votes11y
@Kevin Martin Why can I only do one? Why 10%? that is ridiculous.... How much other cash do I have? What market am I investing in?
Lets assume Detroit and I have 100k extra besides my purchase... I'm all cash! I would buy 7 SFRs and a bullet proof vest and make some money!
- Investor · Lafayette/Baton Rouge, LA · Member since 2013 · 1k+ posts · 915 votes11y
Did you search for this topic. Not saying you are kicking a dead horse, but this is debated/argued/discussed ad nauseam here already.
Given your limiting factors, I would still use leverage and do something else to put my money to work if I couldn't buy another property.
- Rental Property Investor · Memphis, TN · Member since 2014 · 57 posts · 33 votes11yLeverage is key. You won't get far buying with cash and you won't get returns much better over time (maybe more consistent, somewhat) than the stock market by buying with cash. I want cash flow so I use leverage to get $500/month cash flow off many properties versus just $1000/month cash flow off one property I bought with cash.
- Jacksonville, FL · Member since 2013 · 226 posts · 115 votes11y
Ok sorry....change 10% to 6% for the loan option and for the cash option you have 100k to invest and enough cash to cover your living expeses for 1 year if you didnt have any income.
- Jacksonville, FL · Member since 2013 · 226 posts · 115 votes11y
Originally posted by @Robert Leonard:
Did you search for this topic. Not saying you are kicking a dead horse, but this is debated/argued/discussed ad nauseam here already.
Given your limiting factors, I would still use leverage and do something else to put my money to work if I couldn't buy another property.
Robert,
Yes I have searched this topic but its been awhile and I thought I would start a new thread. I dont have alot of real estate experiece but I do understand numbers and risk. Leverage is good but when are you sticking your neck out too far?
- Investor · Lafayette/Baton Rouge, LA · Member since 2013 · 1k+ posts · 915 votes11y
I understand where you are coming from. All leverage is not the same. Even in today's low interest rate environment, it is smart to leave a margin of safety (error) so you can absorb the unexpected or unforeseen. Leverage is good when used responsibly. It is a double edged sword, so it must be used with caution.
The term "make your money when you buy" comes to mind as one of the greatest countermeasures for the risk of using leverage. If my total acquisition cost for a property is 60-70% of the ARV, am I taking the same risk when I finance 100% of that deal as opposed to someone who buys at 80-90% of ARV? Those are very different risks.
- Port Huron, MI · Member since 2014 · 86 posts · 29 votes11y
it all gets down to if you can easily invest that money at a higher interest rate than you are paying. If the rate is 5% and you can't figure out how to make more than that pay cash but if I could borrow at 20% and still get a better return easy i'd still borrow.
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Both. Cash first, then credit to get the cash back, then re-use it on the next deal, then refinance that deal to get THE SAME cash back, then....
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes11y
Originally posted by @Joe Villeneuve:
Both. Cash first, then credit to get the cash back, then re-use it on the next deal, then refinance that deal to get THE SAME cash back, then....
Exactly, spoken from the king! This is my strategy as well, I just don't have as many properties. Cash gets you deals that others cannot get, then you refi on your own time & terms. Too much leverage is when you do not have instant liquid asset access of at least 1 year of living expenses (that includes the house notes) and access to capital for expected/unexpected repairs and maintenance. Personally, I like the 3-legged stool approach: income from rentals, income from W2 job, income/liquidity from bank accounts (money market, CDs, saving accounts).
Skyline Properties - Jacksonville, FL · Member since 2013 · 226 posts · 115 votes11y
Originally posted by @Joe Villeneuve:
Both. Cash first, then credit to get the cash back, then re-use it on the next deal, then refinance that deal to get THE SAME cash back, then....
Ok so basically you use this stradegy to buy with cash so you can get a better deal then you refi and get your cash out. I can see how this is a great way to acquire multiple properties overtime but your still giving your asset or a portion of it to the bank. Why not initially take your cash and buy multiple properties with a bank to maximize your leverage potential?
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Kevin Martin:
Originally posted by @Joe Villeneuve:
Both. Cash first, then credit to get the cash back, then re-use it on the next deal, then refinance that deal to get THE SAME cash back, then....
Ok so basically you use this stradegy to buy with cash so you can get a better deal then you refi and get your cash out. I can see how this is a great way to acquire multiple properties overtime but your still giving your asset or a portion of it to the bank. Why not initially take your cash and buy multiple properties with a bank to maximize your leverage potential?
You buy with cash so you can get it all out again for repeated use...not because it gets you a better deal. In fact, I've overpaid for deals when overpayment still had the allowable numbers. I can do this since refinancing gets me all of my cash back...no matter what I paid for it...so long as the total cost (rehab included) was under 75% of the ARV.
You are maximizing your leverage potential. If you only use your cash for down payments, when you run out of cash, you run out of down payments, and you stop. My method allows you to go on forever...or at least until you run out of deals that make dollars. Paying cash for a property and leaving it in the property means I've spent the funds and must replace them with new funds to move forward. Refinancing all the cash back out means I've never spent it, and I can use the same cash over and over...never needing more to move forward.
...and so what if the bank gets a hold on my asset. What I've described above is far more important than having an exclusive hold on any of my assets. 100%, or any percent equity is just a trophy to me. It has no real value until I cash it in by selling the property (then it's gone), or refinancing (which is what I'm doing). Besides, I still have 25% equity minimum in all my deals since I can only refi up to 75% of their ARV's.
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @JD Martin:
Originally posted by @Joe Villeneuve:
Both. Cash first, then credit to get the cash back, then re-use it on the next deal, then refinance that deal to get THE SAME cash back, then....
Exactly, spoken from the king! This is my strategy as well, I just don't have as many properties. Cash gets you deals that others cannot get, then you refi on your own time & terms. Too much leverage is when you do not have instant liquid asset access of at least 1 year of living expenses (that includes the house notes) and access to capital for expected/unexpected repairs and maintenance. Personally, I like the 3-legged stool approach: income from rentals, income from W2 job, income/liquidity from bank accounts (money market, CDs, saving accounts).
I too like the three legged approach...rentals, flips, partnerships and sandwich lease options. OK 4 legs...but it's more stable. W-2 isn't going to happen. It takes away the only thing that I can never get back, and is more valuable than anything else since it allows me to do everything else....time. My job is to manage everything, and find. analyze and execute the next deal(s)...and not do rehab, or w-2 it. My cash does the w-2 dance, and my cash works as many jobs as I can find for it since it has an unlimited amount of time available to it.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes11y
Originally posted by @Joe Villeneuve:
Originally posted by @JD Martin:
Originally posted by @Joe Villeneuve:
Both. Cash first, then credit to get the cash back, then re-use it on the next deal, then refinance that deal to get THE SAME cash back, then....
Exactly, spoken from the king! This is my strategy as well, I just don't have as many properties. Cash gets you deals that others cannot get, then you refi on your own time & terms. Too much leverage is when you do not have instant liquid asset access of at least 1 year of living expenses (that includes the house notes) and access to capital for expected/unexpected repairs and maintenance. Personally, I like the 3-legged stool approach: income from rentals, income from W2 job, income/liquidity from bank accounts (money market, CDs, saving accounts).
I too like the three legged approach...rentals, flips, partnerships and sandwich lease options. OK 4 legs...but it's more stable. W-2 isn't going to happen. It takes away the only thing that I can never get back, and is more valuable than anything else since it allows me to do everything else....time. My job is to manage everything, and find. analyze and execute the next deal(s)...and not do rehab, or w-2 it. My cash does the w-2 dance, and my cash works as many jobs as I can find for it since it has an unlimited amount of time available to it.
I agree all the way on the time factor. I'm not quite 50, so I consider myself relatively young, but having more time was a major contributor towards this journey for me. Also, I enjoy my job, so I get more from it than just a paycheck.
Skyline Properties - 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @JD Martin:
Originally posted by @Joe Villeneuve:
Originally posted by @JD Martin:
Originally posted by @Joe Villeneuve:
Both. Cash first, then credit to get the cash back, then re-use it on the next deal, then refinance that deal to get THE SAME cash back, then....
Exactly, spoken from the king! This is my strategy as well, I just don't have as many properties. Cash gets you deals that others cannot get, then you refi on your own time & terms. Too much leverage is when you do not have instant liquid asset access of at least 1 year of living expenses (that includes the house notes) and access to capital for expected/unexpected repairs and maintenance. Personally, I like the 3-legged stool approach: income from rentals, income from W2 job, income/liquidity from bank accounts (money market, CDs, saving accounts).
I too like the three legged approach...rentals, flips, partnerships and sandwich lease options. OK 4 legs...but it's more stable. W-2 isn't going to happen. It takes away the only thing that I can never get back, and is more valuable than anything else since it allows me to do everything else....time. My job is to manage everything, and find. analyze and execute the next deal(s)...and not do rehab, or w-2 it. My cash does the w-2 dance, and my cash works as many jobs as I can find for it since it has an unlimited amount of time available to it.
I agree all the way on the time factor. I'm not quite 50, so I consider myself relatively young, but having more time was a major contributor towards this journey for me. Also, I enjoy my job, so I get more from it than just a paycheck.
.......and that is a great reason to have your REI set up like I do. I enjoy my career too. It's not a job for me either. I'll be 60 in January. If I started today, I could be retired (still involved in my career) within 3 years. I know this to be true since I've mentored a number of students that have accomplished that very timeline within that time period (faster in one case).
- Realtor · McLean, VA · Member since 2009 · 184 posts · 80 votes11y
Check out @Brandon Turners BRRRR strategy. This is the method I'd use. Granted in recent podcasts the examples were a $100K line of credit but the same applies here.
Buy - use the $100K to purchase a property
Rehab - renovate the property to get it rent ready
Rent - place a good tenant at market rent
Refinance - to get you initial investment back and in some cases possibly more
Repeat - do this all over again!
There is obviously more to it than this and if you search the forums for "BRRRR" you can dig deeper and reach out to those who have done it.
- Jacksonville, FL · Member since 2013 · 226 posts · 115 votes11y
Originally posted by @Joe Villeneuve:
Originally posted by @JD Martin:
Originally posted by @Joe Villeneuve:
Both. Cash first, then credit to get the cash back, then re-use it on the next deal, then refinance that deal to get THE SAME cash back, then....
Exactly, spoken from the king! This is my strategy as well, I just don't have as many properties. Cash gets you deals that others cannot get, then you refi on your own time & terms. Too much leverage is when you do not have instant liquid asset access of at least 1 year of living expenses (that includes the house notes) and access to capital for expected/unexpected repairs and maintenance. Personally, I like the 3-legged stool approach: income from rentals, income from W2 job, income/liquidity from bank accounts (money market, CDs, saving accounts).
I too like the three legged approach...rentals, flips, partnerships and sandwich lease options. OK 4 legs...but it's more stable. W-2 isn't going to happen. It takes away the only thing that I can never get back, and is more valuable than anything else since it allows me to do everything else....time. My job is to manage everything, and find. analyze and execute the next deal(s)...and not do rehab, or w-2 it. My cash does the w-2 dance, and my cash works as many jobs as I can find for it since it has an unlimited amount of time available to it.
Joe,
I like this strategy...your using both cash and credit to maximize your leverage. When you say "not do rehab" are you saying you prefer turn-key properties or you yourself dont like to do the rehab work? Also, when you do refi and pull your cash out how do you make the payments on the loan? I am assuming rent income but maybe you have another method.
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Kevin Martin:
Originally posted by @Joe Villeneuve:
Originally posted by @JD Martin:
Originally posted by @Joe Villeneuve:
Both. Cash first, then credit to get the cash back, then re-use it on the next deal, then refinance that deal to get THE SAME cash back, then....
Exactly, spoken from the king! This is my strategy as well, I just don't have as many properties. Cash gets you deals that others cannot get, then you refi on your own time & terms. Too much leverage is when you do not have instant liquid asset access of at least 1 year of living expenses (that includes the house notes) and access to capital for expected/unexpected repairs and maintenance. Personally, I like the 3-legged stool approach: income from rentals, income from W2 job, income/liquidity from bank accounts (money market, CDs, saving accounts).
I too like the three legged approach...rentals, flips, partnerships and sandwich lease options. OK 4 legs...but it's more stable. W-2 isn't going to happen. It takes away the only thing that I can never get back, and is more valuable than anything else since it allows me to do everything else....time. My job is to manage everything, and find. analyze and execute the next deal(s)...and not do rehab, or w-2 it. My cash does the w-2 dance, and my cash works as many jobs as I can find for it since it has an unlimited amount of time available to it.
Joe,
I like this strategy...your using both cash and credit to maximize your leverage. When you say "not do rehab" are you saying you prefer turn-key properties or you yourself dont like to do the rehab work? Also, when you do refi and pull your cash out how do you make the payments on the loan? I am assuming rent income but maybe you have another method.
When I say "don't do rehab" I mean don't you pick up a hammer for any reason other than it is in your way. You lose money when you do your own rehab. It is impossible not to.
Rent pays for everything. All hold properties MUST have positive cash flow. If it doesn't, don't buy it.
- 11yAlexander FelicePro MemberGuy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
Originally posted by @Joe Villeneuve:
Both. Cash first, then credit to get the cash back, then re-use it on the next deal, then refinance that deal to get THE SAME cash back, then....
@Joe Villeneuve and @Lee Huffman have convinced me this is absolutely the best way to buy rentals. I just follow them around on BP reaffirming their advice.
Pay cash, get it rented, refi your cash out, repeat.
- Rental Property Investor · Mt Juliet, TN · Member since 2014 · 90 posts · 33 votes11y
Yes @Alexander Felice, that's the way to go! Just received docs today to sign to finish another refinance of a deal we bought all-cash in June, did rehab, tenant moved in almost immediately, then started refi process. We're getting almost all of our cash out with a 30-year fixed loan at 4.875% (higher rate to reduce out of pocket costs of refinance). Out of pocked costs primarily consist of impounds for taxes and insurance.
Good luck!
- Lender · Indianapolis, IN · Member since 2015 · 107 posts · 36 votes11y
Legal Disclaimer: I am a licensed Mortgage Originator in IN, FL, OH anything I say may not be applicable to other states. NMLS#1157855.
This question is lacking in legs. There is no way as a lender I could advise you on this issue. In any case there are a number of mitigating factors that could take a solid answer and turn it into the other. What is your DTI, is it an under 90 day flip, condition of the property, credit history, is the money seasoned source of the property, source of the money, how did you arrive at that rate, what day of the week is it, what is the market doing, the seller started a short sale or foreclosure, what would the property appraise for is it an inclining or declining area?
The short answer is get a good lender who can tell you if it is a good loan then you can decided which is better after you have resolved the loan questions.
- Jacksonville, FL · Member since 2013 · 226 posts · 115 votes11y
Originally posted by @Joe Villeneuve:
Originally posted by @Kevin Martin:
Originally posted by @Joe Villeneuve:
Originally posted by @JD Martin:
Originally posted by @Joe Villeneuve:
Both. Cash first, then credit to get the cash back, then re-use it on the next deal, then refinance that deal to get THE SAME cash back, then....
Exactly, spoken from the king! This is my strategy as well, I just don't have as many properties. Cash gets you deals that others cannot get, then you refi on your own time & terms. Too much leverage is when you do not have instant liquid asset access of at least 1 year of living expenses (that includes the house notes) and access to capital for expected/unexpected repairs and maintenance. Personally, I like the 3-legged stool approach: income from rentals, income from W2 job, income/liquidity from bank accounts (money market, CDs, saving accounts).
I too like the three legged approach...rentals, flips, partnerships and sandwich lease options. OK 4 legs...but it's more stable. W-2 isn't going to happen. It takes away the only thing that I can never get back, and is more valuable than anything else since it allows me to do everything else....time. My job is to manage everything, and find. analyze and execute the next deal(s)...and not do rehab, or w-2 it. My cash does the w-2 dance, and my cash works as many jobs as I can find for it since it has an unlimited amount of time available to it.
Joe,
I like this strategy...your using both cash and credit to maximize your leverage. When you say "not do rehab" are you saying you prefer turn-key properties or you yourself dont like to do the rehab work? Also, when you do refi and pull your cash out how do you make the payments on the loan? I am assuming rent income but maybe you have another method.
When I say "don't do rehab" I mean don't you pick up a hammer for any reason other than it is in your way. You lose money when you do your own rehab. It is impossible not to.
Rent pays for everything. All hold properties MUST have positive cash flow. If it doesn't, don't buy it.
Ok sounds solid pretty solid. What would you say is the most difficult part of this process? Getting the cash, finding the deal, getting a loan (refi), ect....
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes11y
@Lee Huffman. "Just received docs today to sign to finish another refinance of a deal we bought all-cash in June." That's great!
Would you please speak to the time and costs involved in that refi? 30 days? $5000? $500? How much is the loan? Do lenders not mind just giving you the money because you own it free and clear? Even on an investment property? Was the process pleasant?
Thank you. I'm asking as a cheap-o with some high equity properties. Thinking of paying a couple off and doing the velocity game, but am concerned about having go to banks with hat in hand and pay $4k - $5k each in fees. Cheers!
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesDepends on the property. Once the property is found, and that is relatively simple since our market analysis dictates what market we are in to begin with, we have cash partners, credit partners, lenders, etc...all waiting for us to say "go". There really isn't a difficult part in the mix.
Originally posted by @Kevin Martin:
Originally posted by @Joe Villeneuve:
Originally posted by @Kevin Martin:
Originally posted by @Joe Villeneuve:
Originally posted by @JD Martin:
Originally posted by @Joe Villeneuve:
Both. Cash first, then credit to get the cash back, then re-use it on the next deal, then refinance that deal to get THE SAME cash back, then....
Exactly, spoken from the king! This is my strategy as well, I just don't have as many properties. Cash gets you deals that others cannot get, then you refi on your own time & terms. Too much leverage is when you do not have instant liquid asset access of at least 1 year of living expenses (that includes the house notes) and access to capital for expected/unexpected repairs and maintenance. Personally, I like the 3-legged stool approach: income from rentals, income from W2 job, income/liquidity from bank accounts (money market, CDs, saving accounts).
I too like the three legged approach...rentals, flips, partnerships and sandwich lease options. OK 4 legs...but it's more stable. W-2 isn't going to happen. It takes away the only thing that I can never get back, and is more valuable than anything else since it allows me to do everything else....time. My job is to manage everything, and find. analyze and execute the next deal(s)...and not do rehab, or w-2 it. My cash does the w-2 dance, and my cash works as many jobs as I can find for it since it has an unlimited amount of time available to it.
Joe,
I like this strategy...your using both cash and credit to maximize your leverage. When you say "not do rehab" are you saying you prefer turn-key properties or you yourself dont like to do the rehab work? Also, when you do refi and pull your cash out how do you make the payments on the loan? I am assuming rent income but maybe you have another method.
When I say "don't do rehab" I mean don't you pick up a hammer for any reason other than it is in your way. You lose money when you do your own rehab. It is impossible not to.
Rent pays for everything. All hold properties MUST have positive cash flow. If it doesn't, don't buy it.
Ok sounds solid pretty solid. What would you say is the most difficult part of this process? Getting the cash, finding the deal, getting a loan (refi), ect....
- Chief Administrative Assistant · Tampa, FL · Member since 2012 · 16 posts · 6 votes11y
Our firm specializes in 0% interest business credit and we work with A TON of real estate investors! They'll use the credit to rehab a property, as a stop gap for buying the property itself, marketing their rentals, etc. They find the credit to be extremely helpful, because it isn't immediately out of pocket, and the 0% intro APR means no interest for 6-12 months which is generally plenty of time for them to turn a profit. You can view a presentation hosted by Mitch Stephen (who wrote the book "My Life & 1,000 Houses" on Youtube
https://youtu.be/aaIOMbpCKkw
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