Mortgage upfront or pay cash then refinance?

[Nick Brubaker]

Hi everyone,

My wife and I are planning to purchase our first property here int he Decatur/Atlanta area.  We're wondering if we should obtain a mortgage from the outset or pay cash and then refinance.  The way I see it, the cash-to-refinance route would give us a bit of a competitive advantage when buying, since paying by cash would likely appeal more to sellers.  At the same time I don't know if costs (rates, closing fees, etc.) associated with refinancing are typically much different than those for a mortgage outright.  I'm interested in knowing what rationale other BP members use.  

[Joe Villeneuve]

Cash first then refi every time.  Here is the difference:

Assume an ARV of $100k; and a loan (buy or refi) of 75% of the ARV = $75k

1 - Payments the same (or very close)
2 - Loan the Same
3 - Exit from deal is where the difference comes in.  When you start with the cash and refi, you are getting your cash back out to use again.
If you take the same $75k and use it as a DP on three properties (using the above property), you get three properties.  If you use cash to buy, then refi, you can use it again, and again, and again, and...you're not limited to the number of properties that same $75k can get you.  Then, in the end when you refi the last property, you get the original cash back out, never having spent it.