Buying rental properties all cash

7 Replies

Hi everyone.  All I have heard preached is to leverage your financing when it comes to investments. My mindset is telling me that if I can make large amounts of money through wholesaling and eventually flipping, I could reach my $5000 rental cash flow goal faster if I buy my rentals cash instead of leveraging with banks.  I would rather pay a lot more money upfront now to get my bigger rental spreads and reach my goal faster then leverage and make a fraction of the spread. What do you guys think about this? I would love to hear from you experienced investors. Have a great day and thank you! 

Originally posted by @Dino Diaz :

Hi everyone.  All I have heard preached is to leverage your financing when it comes to investments. My mindset is telling me that if I can make large amounts of money through wholesaling and eventually flipping, I could reach my $5000 rental cash flow goal faster if I buy my rentals cash instead of leveraging with banks.  I would rather pay a lot more money upfront now to get my bigger rental spreads and reach my goal faster then leverage and make a fraction of the spread. What do you guys think about this? I would love to hear from you experienced investors. Have a great day and thank you! 

 Do the math.  

Example #1:  $50k Cost all cash; $800/month CF ($9,600/yr)

Cash in = $50,000
Cash back/year = $9,600
Time to break even = ~5.2 years
New Cash Needed for next deal = $50,000
Source for New Funds = ??????
Time to acquire needed New Funds = ??????
# of Deals to get $5k/mo = 6.25
Total New money needed = $312,500

Example #2: $50k 20% cash DP = $10,000; $800/month CF without Loan ($9,600/yr)>>>$585/mo w/ loan

Cash in = $10,000; $40k financed
Loan payments = $215/mo; $2,500/yr
Cash back/year = $9,600 - $2,500 (loan) = $7,100
Time to break even = ~1.4 years
New Cash Needed for next deal = $10,000
Source for New Funds = ??????
Time to acquire needed New Funds = ?????? (much faster than $50k)
# of Deals to get $5k/mo = 8.55
Total New money needed = $85,500

@Dino Diaz

Consumer debt and investor debt are two different things...

On the consumer side, everyone should limit debt when possible.

On the investor side, debt is a tool.

If you have $100,000. You can use it to buy one property. That same money could instead be used to buy three or four properties using the money as down payments and borrowing the rest. That also means the return % on your cash investment is higher since you're putting less cash into each property. That also means you aren't tying up your cash in one property when it could be used to buy more property. This is called the power of leverage.

If you buy right, there's not really any downside to paying more cash up front. If you start with plenty of equity and get the the point where you don't have enough cash for another deal or don't want to pay more out of pocket, you simply leverage your existing equity for your next down payment. In order to do this in the short term, you need to get great deals and force equity fairly quickly, but doing that will put you in a position that you can access that equity when you need it. 

Corby Goade, Real Estate Agent
208-297-3010

You can always pay cash to acquire the property, and get a mortgage after it’s stabilized and making money.

I do the same I'm 56 wanted to retire now. Bought 11 rental properties cash. I'm getting ready to turn them over to a property manager. Why have debt when you retire. your doing the right thing as long as you want to live the easy life. Most investors are trying to get to their sweet spot. I have mine. Good luck with your dream.
Originally posted by @Dino Diaz :

Hi everyone.  All I have heard preached is to leverage your financing when it comes to investments. My mindset is telling me that if I can make large amounts of money through wholesaling and eventually flipping, I could reach my $5000 rental cash flow goal faster if I buy my rentals cash instead of leveraging with banks.  I would rather pay a lot more money upfront now to get my bigger rental spreads and reach my goal faster then leverage and make a fraction of the spread. What do you guys think about this? I would love to hear from you experienced investors. Have a great day and thank you! 

The advantage is more cash flow per door. The disadvantage is less return on your cash. You could buy 5 houses with cash that each cash flow $1000 per month and reach your number. Or you could leverage into a 50 unit apartment building where each door pays $100 per month. Using leverage on the 50 unit, your cash flow will grow exponentially once it is paid off. Of course managing 50 tenants versus 5 is more time consuming.

I like less doors more cash flow per door for my own investing, mainly because I work full time and self manage.

wow thank you guys!!! So much value here I appreciate it

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