Hello BPers- I'm selling a investment property that has been a profitable airbnb rental in Venice, CA but now with the new city legislation has passed I'm selling it and plan to move my equity out of state. Is it better to use the proceeds to by less properties in all cash or finance and acquire more? curious on the BPers opinion on either of these positions. Thanks! Shannon
Hi Shannon. Great question and one that I have asked myself many times. After some serious thought I have decided that I will be paying Cash for my next investments. There are lots of personal reasons behind this decision but the biggest factor is that I want to put myself in a better position for retirement income. It would also be more beneficial for my family should I become seriously injured, ill or pass away.
Over the years I have seen property values rise and fall with the economy. I have also known many investors that lost their investments by being too highly leveraged. Having good cash flow properties that are debt free will help you weather upcoming economic storms as well as provide a more secure future.
It all depends on whether your goals are looking for appreciation, cash flow or a little of both ?
Cash = less roi and less risk also all your equity tied up in one asset.
Leverage = more roi, higher risk and more diversified.
This is a personal choice.
You first must ask yourself what is your goal for cash flow and how many years do you want to take to get there.
Buying a property for cash allows you to have higher cash flow right away. Whereas putting 20 percent down on a property means you take home less cash flow.
For example. Say you have 200k to invest. Now you could take that 200k and buy a house for cash that would cash flow right way. More than likely you break even in 10 years or less depending on rent collected.
Or instead of buying 1 house for cash you buy you put a down payment on 4 houses. Lets say the monthly rent was 1600 per month and your cash flow was 400 dollars each. With the 4 houses you bring home the same amount as 1 house. Fast forward 20-30 years. The property value goes up on each of those 4 houses and you have them paid off. Your property net worth is at least 800k and your cash flow is 6400 a month if rent is not raised at all during that time. More than likely it will have been raised over the years. So long term I personally would go for more houses. The other nice thing about having a house paid off is you can take out a HELOC and use that as needed too.
There is absolutely nothing wrong with paying for houses in cash if you can do that. For most of us it ties up too much of our money in one house. You can definitely make do with fewer houses if your goal is to have everything paid off and some people find that works for them. If you do plan on paying cash for 1 house I highly recommend having 5-10k in reserves for anything that does break.
Love the responses BPers! Both sides represented. My battle has surely been higher taxes in CA and now new legislation to add an additional tax on each stay at my AirBNB which is only 1 property. I’ve owed it for 5 years and rented for alittle less on AirBNB for 3. So between acquired equity and appreciation I will take out around 400k-450k. My first thought was invest in.....need your help here? TX, FL , TN, Midwest? Multi, single, commercial? Life was easier before the changes to the uptick of an additional 15% a year in Cali for AirBNB but so it goes. Change is good but would love ur input!
That 400 to 450K would go a long way in a lot of the midwestern states, as well as TX and TN I think Fl depends on location but all are cheaper than CA lol. I suggest having a specific strategy going into whatever sector you choose SF, Multifamily, or commercial once you figure which strategy then get your magic number (goal) (the income you want and how many properties it would take to get there). Once all that stuff is figured out connect with some people in that area boots on the ground connections, contractors, property managers etc, visit yourself first though and then test the process with one or 2 properties may be on the middle to a smaller scale and when that's successful go full force in implementing your plan.