Free & Clear vs Bank Loans

[James Hunt]

I currently own a SFR that is cash flowing really well. I'm low on capital, but on 1/8/19 I will be able to cash out refi when a grant expires on the property. I'll have two years rent saved in addition to the cash out money. My first thought was to use the 18k across three properties, all under 30k. An older investor suggested I buy a home free and clear instead. Thoughts? FYI Invest in D class areas in Cleveland.

[Thomas S.]

Equity kills cash flow. The less money you have in a property the better. This is something that cash buyers rarely understand. If you can not get financing this would be your only option on low priced real estate and you live with it but if you do not have to your best option is always to put the minimum down. If a property can not achieve positive cash flow with 100% financing it will never have positive cash flow because the result of increasing the DP is that the equity generates your cash flow not the property. No point in investing in real estate if it is only the cash that is generating the return. There are far easier and less stressful investments. 

Your friend does not understand the opportunity value of cash. Spread it around and make it earn it's keep.