Financial Advisor · Stephenville, TX · Member since 2016 · 163 posts · 85 votes
At most REIAs I've attended, many experienced investors try to dissuade new investors from doing cash deals.I understand the mathematical concepts around leverage, and I get that most of the time newcomers can't jump into real estate investing with all-cash deals. I also understand that, in many cases, the advanced investor makes money from mentoring, providing HMLs, etc. I just think you get better ROI (and much less pressure/stress) doing cash deals (if you can afford it).
So tell me, from your perspective: if you could do cash deals (meaning paid for property and repairs in full-no loans), would you?Why or why not?
I know some folks calculate ROI as a percentage of their funds in the deal-I'm talking about overall (no points paid, interest, etc).
And when I talk about stress/pressure I mean how I've had to hang on to money-pit properties that are so far upside down I can't unload, and there's that stress of having to find a tenant to keep making loan payments. I don't have that stress with my two cash properties. And I can't wait until values return (or I raise enough capital) that I can unload the other two!
I think if you look at the numbers again, you'll find that the ROI for leverage is higher than using your own cash, if you have it.
That said, most folks think "my cash" when they hear/read "cash". So, yes - there will always be a preference to minimize the "out of pocket" one puts into a deal.
Remember also that with the exception the very long-term experienced investors, cash reserves tend to be a VERY dear commodity, especially post-2008.
By using private lenders, you help them (re)build their retirement accounts or personal reserves. So, that's a good thing for them.
By leveraging your own resources - retirement funds, equity, borrow against savings, etc. - you're increasing the value of your own resources by way of the profit on the deal.
In general, leverage will always produce a better return than tying up your own cash.
My $0.02...
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice." - DJ Benedict