Cash vs. Loan

Arlington, TX · Member since 2016 · 57 posts · 21 votes

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.

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JD MartinBusiness Member

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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

10y

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.

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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
10y
$100k unlevered asset where you earn $10k in NOI or 10% return. Take that same $100k asset, put down $20k, borrow $80k, you may only make $5k NOI now after debt service, but a 25% return instead. These are hypothetical but directionaly corrrect. I picked the bookends here as well and you can land anywhere in between. Need to find a place to park the rest of that liquidity though...not a bad problem to have.
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Errol Sadler
Rental Property Investor · Atlanta, GA · Member since 2016 · 34 posts · 14 votes
7y
Hey @Jesse Chunn I came across this thread and I am curious to see how you made out. I too am out of the rat race and maybe I did it the wrong way but it worked out for me. I was cash heavy, and I took advantage of a weak market in a small town in GA. I purchased all cash and did minor renovations to them. now I am at the point of getting new appraisals and I will pull out at least the cash out of it that I put into it because I have created steady rental income so now I can gauge how deep I need to be in cash wise and I can already count my rental income since I have created a system that my tenants have come to adapt.
Please do share how things worked out for you over the years.
Talk soon
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