Better to pay in cash or just the minimum down?

[Dustin Howard]

Getting ready to buy my first rental property. I am coming into some money in the near future. My question is mostly related to tax benefits and cash flow. Is it better to buy out a property or put down the minimum cash? My goal is to have a high monthly cash flow while taking as many tax advantages as possible. I do plan on acquiring several properties in the next few years...not sure if that matters.

[David M.]

@Dustin Howard

Your goal of high cash flow and tax benefits are almost competing.  Consult with a qualified professional or two.  Read about the 'power of leverage' as it relates to real estate (investing).  

For example, by increasing / maximizing your leverage, the interest you pay on the loan is deductible.  This helps offset your rental income.  Thus, you pay less tax.  While one may say that you have this added expense of paying for money, i.e. the loan, remember your tenant is paying you rent which is effectively going towards the loan.  So, even if you don't cash flow, you now have used 'somebody else's money' to mostly buy a property for which your are using the 'tenant's' rental payments' to payback that 'somebody else.'  Also, potentially more lucrative than some cash flow, you are building up equity in the property as well as potentially appreciation wealth/equity.

Unless you are coming into a megawealth situation, you don't want to have all your cash/wealth tied up in one property since you say you want to buy more.  If you own the property in cash, how will you purchase the next property?  Do you have more cash?  What about enough to put down to even finance the purchase?  With the 20% down concept, you can buy/finance 5 properties with the cash that you could have used to purchase just one...  Make sense?

It all depends on your investing goals, timelines, strategies, etc.