Cash vs. Loan

[Jesse Chunn]

I have enough cash to do several all-cash deals. In my area (DFW), sub $80k single family properties are fairly plentiful. My thinking is that I could do several of these deals for cash, and if I get to a point where I run out, I can either sell (for at least a small profit) or get equity loans. Of course the assumption is that I will also have passive income from the existing properties that would cover the loan payments and provide net cash flow on top of at least $200-500 per month each. I have good credit and good income from my "day job".

Question: Is there anything wrong with that approach? What should I watch out for? What are the advantages / disadvantages to this? Is there a better way? I would really appreciate some thoughts and advice.

[JD Martin]

There's nothing wrong with starting all cash. That's how I started. Leverage is where your growth is going to come from, however, unless you're young enough that you can wait the 20-30 years to expand naturally. The key to that is not to be over-leveraged. Personally, I like the 50% threshold, in that half of my properties would be noted and half free, or that all properties would be noted no greater than 50% (the former is better IMO). This provides for growth potential and still leaves a boatload of equity out there for riding out the difficult times. 

I use the same 50% mark as a threshold for profitability, i.e. more than 50% of my units would have to be vacant at once before I would be dipping out of my own money (outside of the business) to cover expenses.