So just wanted to get your thoughts, would you buy a property for $450k, pay cash or finance it? It’s a brand new property with yearly property taxes less than $1000. The rent you can get is $43k per year, paid upfront. If you had the cash, is it worth it for this kind of cash flow? Refinancing is not an option and the property might not be as easy to sell in the future. Worth it?
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
7y
If refinancing is not an option, I'd finance it now as long as it meets your cash flow needs. If you pay cash and can't refi, that cash is locked up indefinitely, no more deals for you until you save up.
Curious on a few items: Why couldn't you refi in the future and what makes the property hard to sell? Why would you accept a full year of rent up front?
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
7y
If refinancing is not an option, I'd finance it now as long as it meets your cash flow needs. If you pay cash and can't refi, that cash is locked up indefinitely, no more deals for you until you save up.
Curious on a few items: Why couldn't you refi in the future and what makes the property hard to sell? Why would you accept a full year of rent up front?
This depends on a lot of things. It boils down to what else can/ would/ could you use that capital for? One way to look at it is if you were to finance at 25% down payment, you could then purchase 3 more similar properties. These could all cash flow while renters are paying down the mortgage. If you can finance 4 properties that have a 10% cash on cash return [110k down and get 11k cash flow from each], you can have just as much cash flow as if you buy the single property, but you end up with 400% more equity at the end of amortization.
Or you purchase this house for cash, you can save 100% of your rental income to purchase a second property in 10 years, and not use any of that income in the mean time, including for maintenance, cap ex, etc.
This isn't accounting for any of the other variables of a property analysis, including vacancy, insurance, etc.. Just make sure you run the numbers for everything, not just property taxes.
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
7y
It is your last sentence that bothers me. Very little cash flow might be taken into consideration if there is a possibility (I prefer high probability) of selling with appreciation in the future.
Very little cash flow, stated financing issues and difficult-to-sell makes a this a big bundle of Hell No.