All cash or conventional loan?

Member since 2022 · 16 posts · 5 votes

Hey BP,

First post in here, short intro: I’m 25, Technical recruiter living in Austin Texas, just bought my first house in Austin July 2021.

I'm keen to get into REI, not necessarily in Austin or even in Texas for that matter.
I have about $70-100k cash to play around with for my first property.

Since interest rates are horrendous currently, I got quoted 6.3% on 30 year conventional with a 750 credit score and great debt to income. It would be very difficult to cash flow doing a regular 20-25% down mortgage, so I’m considering buying a $70-100k house in all cash in a secondary market to avoid the high interest. But then I wouldn’t be able to leverage my money as well.

So should I pull the trigger now and buy a $100k house in cash, or get a $250-300k house using mortgage loan risk low or no cash flow, and refinance when rates go down, or just wait until rates go down before buying?

I appreciate any input, thanks!

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Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

Quote from @Kent Depwe:

Quote from @Joe Villeneuve:

Option D...none of the above.

Never buy a house with all cash. The cost of a REI property is only the cash that comes out of your pocket. That means if you are paying only the DP on a property, say at 20%, your cash is worth 5 times its face value. When you pay all cash, the PV is equal to the cash paid.

Never buy a property with negative CF. As that negative CF adds (or subtracts,...depending on how you look at it) up, it adds to the cost of the property. When the property has positive CF, that positive CF pays back your cost, and when the CF has completely paid you back for your cost, you have nothing in the property anymore...and the rest of the CF is pure profit.

Option D is find a different property in a different market.

Thanks for the response, my preference would be to leverage my cash, however with interest rates being upwards of 6% it’s difficult, many of the properties I’m finding would have maybe $100-300/month cash flow and that’s without including maintenance issues so could be little to none.

Interest rates being at 4-5% make cash flowing properties a lot more common it seems. So was curious given the high interest rate environment we are in would justify going all cash.

No. Your goal isn't to collect properties...it's to collect money. None of the options you have given satisfy any positive goals...so don't do it. It's far better to walk away and make no deal, then it is to make a bad one, just for the sake of making a deal.

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y
Option D...none of the above.
Never buy a house with all cash. The cost of a REI property is only the cash that comes out of your pocket. That means if you are paying only the DP on a property, say at 20%, your cash is worth 5 times its face value. When you pay all cash, the PV is equal to the cash paid.
Never buy a property with negative CF. As that negative CF adds (or subtracts,...depending on how you look at it) up, it adds to the cost of the property. When the property has positive CF, that positive CF pays back your cost, and when the CF has completely paid you back for your cost, you have nothing in the property anymore...and the rest of the CF is pure profit.
Option D is find a different property in a different market.
3 Reply
Kent Depwe
OP
Member since 2022 · 16 posts · 5 votes
4y
Quote from @Joe Villeneuve:

Option D...none of the above.
Never buy a house with all cash. The cost of a REI property is only the cash that comes out of your pocket. That means if you are paying only the DP on a property, say at 20%, your cash is worth 5 times its face value. When you pay all cash, the PV is equal to the cash paid.
Never buy a property with negative CF. As that negative CF adds (or subtracts,...depending on how you look at it) up, it adds to the cost of the property. When the property has positive CF, that positive CF pays back your cost, and when the CF has completely paid you back for your cost, you have nothing in the property anymore...and the rest of the CF is pure profit.
Option D is find a different property in a different market.

Thanks for the response, my preference would be to leverage my cash, however with interest rates being upwards of 6% it’s difficult, many of the properties I’m finding would have maybe $100-300/month cash flow and that’s without including maintenance issues so could be little to none.

Interest rates being at 4-5% make cash flowing properties a lot more common it seems. So was curious given the high interest rate environment we are in would justify going all cash.

1 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y
Quote from @Kent Depwe:

Quote from @Joe Villeneuve:

Option D...none of the above.
Never buy a house with all cash. The cost of a REI property is only the cash that comes out of your pocket. That means if you are paying only the DP on a property, say at 20%, your cash is worth 5 times its face value. When you pay all cash, the PV is equal to the cash paid.
Never buy a property with negative CF. As that negative CF adds (or subtracts,...depending on how you look at it) up, it adds to the cost of the property. When the property has positive CF, that positive CF pays back your cost, and when the CF has completely paid you back for your cost, you have nothing in the property anymore...and the rest of the CF is pure profit.
Option D is find a different property in a different market.

Thanks for the response, my preference would be to leverage my cash, however with interest rates being upwards of 6% it’s difficult, many of the properties I’m finding would have maybe $100-300/month cash flow and that’s without including maintenance issues so could be little to none.

Interest rates being at 4-5% make cash flowing properties a lot more common it seems. So was curious given the high interest rate environment we are in would justify going all cash.

No. Your goal isn't to collect properties...it's to collect money. None of the options you have given satisfy any positive goals...so don't do it. It's far better to walk away and make no deal, then it is to make a bad one, just for the sake of making a deal.
5 Reply
Kent Depwe
OP
Member since 2022 · 16 posts · 5 votes
4y
Quote from @Joe Villeneuve:

Quote from @Kent Depwe:

Quote from @Joe Villeneuve:

Option D...none of the above.
Never buy a house with all cash. The cost of a REI property is only the cash that comes out of your pocket. That means if you are paying only the DP on a property, say at 20%, your cash is worth 5 times its face value. When you pay all cash, the PV is equal to the cash paid.
Never buy a property with negative CF. As that negative CF adds (or subtracts,...depending on how you look at it) up, it adds to the cost of the property. When the property has positive CF, that positive CF pays back your cost, and when the CF has completely paid you back for your cost, you have nothing in the property anymore...and the rest of the CF is pure profit.
Option D is find a different property in a different market.

Thanks for the response, my preference would be to leverage my cash, however with interest rates being upwards of 6% it’s difficult, many of the properties I’m finding would have maybe $100-300/month cash flow and that’s without including maintenance issues so could be little to none.

Interest rates being at 4-5% make cash flowing properties a lot more common it seems. So was curious given the high interest rate environment we are in would justify going all cash.

No. Your goal isn't to collect properties...it's to collect money. None of the options you have given satisfy any positive goals...so don't do it. It's far better to walk away and make no deal, then it is to make a bad one, just for the sake of making a deal.

That’s what I was thinking, thanks for the input!

have you been able to still find good cash flowing properties even with 6%+ interest rate on loans?
0 Reply
Conner Olsen
Real Estate Agent · Austin, TX · Member since 2020 · 1k+ posts · 941 votes
4y
@Kent Depwe Personally, I would use leverage and keep the extra cash on hand. It's more comfortable for me to have 50k in the bank with a property that cashflows $200/month. I like the options available with having cash on hand rather than locking it up in a property.
1 Reply
Marcus Flores
Investor · Austin, TX · Member since 2015 · 24 posts · 19 votes
4y
@Kent Depwe

I would agree with @Joe Villeneuve and @Conner Olsen

Using all cash to buy your first property could be beneficial if you don't plan on investing more in the near future. However, even then it's always prudent to have cash on hand for unexpected maintenance and capital expenses.

Cash flow will be hard to come by in the current interest rate environment, and will not reflect the generous returns of the past 5-10 years. However that doesn't mean that aren't positive cash flowing deals to be found. In Texas, I think you will have a hard time finding a $100K home that will cash flow the way you want it to without having it in a C class neighborhood and possibly renting out to subprime tenants. I would also stay away from leveraging yourself into a $250K-$300K single family rental. At that price point it may be more beneficial to consider a duplex or even a small multifamily property.
Something I wish I would have done when first starting my real estate investment journey is this: narrow down your 5 year real estate investment goals first. From there you can reverse engineer the process to get to that goal. And once you have a road map to those goals, the investment decisions you make have to align with that road map. Just a tip I received later on in my investment experience that I wish I would have done sooner.
Dont hesitate to reach out. I'm in Austin as well and would love to sit down and chat about strategy and other opportunities!

3 Reply
Jordan MoorheadBusiness Member
Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
4y
@Kent Depwe leverage man! You can still cashflow in Austin and your money will go so much further with leverage. Don't get caught up on rates, they're not done going up either for now it seems...
Focus on the numbers, if the numbers work the rate is irrelevant.
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1 Reply
Matthew Paul
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
4y
@Kent Depwe If you think 6% is real high , what are you going to do a year from now if its 12% ? Or even 15% ? My crystal ball is in the shop right now , but back in the early 1980's I had an 11.5 rate and was happy because I was looking at 13 % . ( I had a 6% in 2006 for a while ) . Rates are now high now , they just have been abnormaly low for a while
0 Reply
Ariel K.
TX · Member since 2018 · 154 posts · 92 votes
4y
@Kent Depwe the difference on a $80k loan (100k house putting 20% down) is about $98/month. You need to find/make a deal so the numbers work. My first purchase was a property in OH with a rate of 5.875% in 2018. I had a huge margin so I didn’t mind the high rate - you need to stay patient and find something that works. As you hold property longer, the cash flow increases because rent tends to go up more than property taxes/insurance (all else equal).
1 Reply
Kent Depwe
OP
Member since 2022 · 16 posts · 5 votes
4y
Quote from @Ariel K.:

@Kent Depwe the difference on a $80k loan (100k house putting 20% down) is about $98/month. You need to find/make a deal so the numbers work. My first purchase was a property in OH with a rate of 5.875% in 2018. I had a huge margin so I didn’t mind the high rate - you need to stay patient and find something that works. As you hold property longer, the cash flow increases because rent tends to go up more than property taxes/insurance (all else equal).
Right, I think the higher interest just makes finding those good cash flows more challenging but not impossible.
most of the deals I’m finding on Zillow/Roofstock/MLS even in secondary markets are cash flowing about $100-200/month not including big maintenance repairs.
Which is why it’s tempting for me to just buy the whole $100k property in cash for $1k/month pure cash flow not having to worry about mortgage or interest rates, but the obvious downside is not being able to leverage your money. Tough call.
1 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y
Quote from @Kent Depwe:

Quote from @Joe Villeneuve:

Quote from @Kent Depwe:

Quote from @Joe Villeneuve:

Option D...none of the above.
Never buy a house with all cash. The cost of a REI property is only the cash that comes out of your pocket. That means if you are paying only the DP on a property, say at 20%, your cash is worth 5 times its face value. When you pay all cash, the PV is equal to the cash paid.
Never buy a property with negative CF. As that negative CF adds (or subtracts,...depending on how you look at it) up, it adds to the cost of the property. When the property has positive CF, that positive CF pays back your cost, and when the CF has completely paid you back for your cost, you have nothing in the property anymore...and the rest of the CF is pure profit.
Option D is find a different property in a different market.

Thanks for the response, my preference would be to leverage my cash, however with interest rates being upwards of 6% it’s difficult, many of the properties I’m finding would have maybe $100-300/month cash flow and that’s without including maintenance issues so could be little to none.

Interest rates being at 4-5% make cash flowing properties a lot more common it seems. So was curious given the high interest rate environment we are in would justify going all cash.

No. Your goal isn't to collect properties...it's to collect money. None of the options you have given satisfy any positive goals...so don't do it. It's far better to walk away and make no deal, then it is to make a bad one, just for the sake of making a deal.

That’s what I was thinking, thanks for the input!

have you been able to still find good cash flowing properties even with 6%+ interest rate on loans?

Yes.
0 Reply
John MorganPro Member
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
4y
@Kent Depwe
I would put 20% down on a couple houses to buy n hold in states that are blowing up with population like Texas. Maybe look 45 min to an hour from Austin. Or the San Antonio area. If the numbers work, I’ll continue buying in Texas if interest rates keep going up. This housing shortage we have here will continue for decades. Don’t get so caught up on the interest rate. Look at the big picture. And half of CA will continue moving here for obvious reasons. Good luck!
0 Reply
Carlton Blair Kutas
Investor · Denton, Tx. · Member since 2019 · 12 posts · 8 votes
4y
I think you should take sometime to figure out what your goals really are. If it’s cash flow there are markets for that. The properties cashflowing $100-$300 a month might actually be good buys in this market. If you have the ability to get $300 a month in cash flow in a growing market I would be personally taking that.

I don’t agree with the first reply saying a negative cash flow is an instant no go. Yeah no one wants to pay $50 a month for a home when cash flow was so rich just 2 years ago. However, that doesn’t really mean the property is losing you money. If it wasn’t just a bad deal, it’s probably still appreciating, still having principal paid, and you are also writing that “loss” off on your taxes.
0 Reply
Carlton Blair Kutas
Investor · Denton, Tx. · Member since 2019 · 12 posts · 8 votes
4y
Quote from @Kent Depwe:

Quote from @Ariel K.:

@Kent Depwe the difference on a $80k loan (100k house putting 20% down) is about $98/month. You need to find/make a deal so the numbers work. My first purchase was a property in OH with a rate of 5.875% in 2018. I had a huge margin so I didn’t mind the high rate - you need to stay patient and find something that works. As you hold property longer, the cash flow increases because rent tends to go up more than property taxes/insurance (all else equal).
Right, I think the higher interest just makes finding those good cash flows more challenging but not impossible.
most of the deals I’m finding on Zillow/Roofstock/MLS even in secondary markets are cash flowing about $100-200/month not including big maintenance repairs.
Which is why it’s tempting for me to just buy the whole $100k property in cash for $1k/month pure cash flow not having to worry about mortgage or interest rates, but the obvious downside is not being able to leverage your money. Tough call.
Worth asking, does your current job net enough money where you can afford the maintenance out of pocket? If not maybe you’re in a place you don’t take risk using leverage and take the larger cash flow for the next properties. If you have the income to tolerate the risk of leverage then that when you leverage. Over the decades it’s always been the real estate that makes you the most money Not the cash flow.
0 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y
Quote from @Carlton Blair Kutas:

Quote from @Kent Depwe:

Quote from @Ariel K.:

@Kent Depwe the difference on a $80k loan (100k house putting 20% down) is about $98/month. You need to find/make a deal so the numbers work. My first purchase was a property in OH with a rate of 5.875% in 2018. I had a huge margin so I didn’t mind the high rate - you need to stay patient and find something that works. As you hold property longer, the cash flow increases because rent tends to go up more than property taxes/insurance (all else equal).
Right, I think the higher interest just makes finding those good cash flows more challenging but not impossible.
most of the deals I’m finding on Zillow/Roofstock/MLS even in secondary markets are cash flowing about $100-200/month not including big maintenance repairs.
Which is why it’s tempting for me to just buy the whole $100k property in cash for $1k/month pure cash flow not having to worry about mortgage or interest rates, but the obvious downside is not being able to leverage your money. Tough call.
Worth asking, does your current job net enough money where you can afford the maintenance out of pocket? If not maybe you’re in a place you don’t take risk using leverage and take the larger cash flow for the next properties. If you have the income to tolerate the risk of leverage then that when you leverage. Over the decades it’s always been the real estate that makes you the most money Not the cash flow.
RE without the CF is like a house without a roof. You need both. If you have no roof, the house will leak (CF), and without a house under the roof, the roof will collapse (RE).
1 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y
Quote from @Carlton Blair Kutas:

I think you should take sometime to figure out what your goals really are. If it’s cash flow there are markets for that. The properties cashflowing $100-$300 a month might actually be good buys in this market. If you have the ability to get $300 a month in cash flow in a growing market I would be personally taking that.

I don’t agree with the first reply saying a negative cash flow is an instant no go. Yeah no one wants to pay $50 a month for a home when cash flow was so rich just 2 years ago. However, that doesn’t really mean the property is losing you money. If it wasn’t just a bad deal, it’s probably still appreciating, still having principal paid, and you are also writing that “loss” off on your taxes.
Negative CF adds to the cost. Your cost should be restricted to the DP...ONLY.
Tax deductions, as a reason to accept a bad deal, is just a rationalization...and really bad math. All a deduction does is reduce the loss...it doesn't save it.
A good deal is a good deal. A bad deal is a bad one. Accepting a bad deal just because "times are different" is (fill in your favorite negative description here).
2 Reply
Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
4y
Paying all cash could be a great way to get an offer accepted (could also use hard money). Just refi out later on, with a DSCR loan you can refi up to 80% of its appraised value as soon as you're done with the project.
0 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y
Why would I want it accepted if I'm paying full price on my offer? How long will it take before the cumulative CF = the cash I paid for it? That's very important, because that's the mark of when I start making a profit.
0 Reply
Kent Depwe
OP
Member since 2022 · 16 posts · 5 votes
4y
Quote from @Kent Depwe:

Quote from @Ariel K.:

@Kent Depwe the difference on a $80k loan (100k house putting 20% down) is about $98/month. You need to find/make a deal so the numbers work. My first purchase was a property in OH with a rate of 5.875% in 2018. I had a huge margin so I didn’t mind the high rate - you need to stay patient and find something that works. As you hold property longer, the cash flow increases because rent tends to go up more than property taxes/insurance (all else equal).
Right, I think the higher interest just makes finding those good cash flows more challenging but not impossible.
most of the deals I’m finding on Zillow/Roofstock/MLS even in secondary markets are cash flowing about $100-200/month not including big maintenance repairs.
Which is why it’s tempting for me to just buy the whole $100k property in cash for $1k/month pure cash flow not having to worry about mortgage or interest rates, but the obvious downside is not being able to leverage your money. Tough call.

Interesting point here, so buy $100k house all cash, then refinance out 80% of the value when I want to buy another?
0 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y
Quote from @Kent Depwe:

Quote from @Kent Depwe:

Quote from @Ariel K.:

@Kent Depwe the difference on a $80k loan (100k house putting 20% down) is about $98/month. You need to find/make a deal so the numbers work. My first purchase was a property in OH with a rate of 5.875% in 2018. I had a huge margin so I didn’t mind the high rate - you need to stay patient and find something that works. As you hold property longer, the cash flow increases because rent tends to go up more than property taxes/insurance (all else equal).
Right, I think the higher interest just makes finding those good cash flows more challenging but not impossible.
most of the deals I’m finding on Zillow/Roofstock/MLS even in secondary markets are cash flowing about $100-200/month not including big maintenance repairs.
Which is why it’s tempting for me to just buy the whole $100k property in cash for $1k/month pure cash flow not having to worry about mortgage or interest rates, but the obvious downside is not being able to leverage your money. Tough call.

Interesting point here, so buy $100k house all cash, then refinance out 80% of the value when I want to buy another?
If you end up with a 20/80 when you refi, why are you spending all cash and ending up with two closings...with 2 closing costs, delayed access to the 80% cash you want when you refi for the next property, potentially losing that property due to the delay to someone else?
Just buy it with 20% down now, and have the 80% cash for more than one more deal. If you found 4 other properties just like the first one (where you spent all your cash), how do you get any of the other 4 without the cash for a DP?
The only actual cost to a REI is the cash that comes out of their pocket. If you buy a property all cash, you just bought that property at full price (based on the offer). If you put up 20%, you just bought a property that's worth 5 times what you paid for it...and, the rest of the cash you didn't spend should buy you additional property (or more) as DP's that will add more cash flow than you subtracted in the first property with the mortgage payment, and more property value than you would have with just one property.
Now, take the total PV buying all cash, and compare that to buying more than one property using only DP's, and multiply those totals times whatever the appreciation (%) would be. Buying all cash is an exponential loss on both CF and PV.
0 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
What they all said^^^. Most importantly, use OPM and don't even think about the interest rates. The rising rates will wash out all the rookies and scaredy cats. You can always make money.....
0 Reply
Steven Foster Wilson
Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes
4y
Quote from @Kent Depwe:

Hey BP,

First post in here, short intro: I’m 25, Technical recruiter living in Austin Texas, just bought my first house in Austin July 2021.

I'm keen to get into REI, not necessarily in Austin or even in Texas for that matter.
I have about $70-100k cash to play around with for my first property.

Since interest rates are horrendous currently, I got quoted 6.3% on 30 year conventional with a 750 credit score and great debt to income. It would be very difficult to cash flow doing a regular 20-25% down mortgage, so I’m considering buying a $70-100k house in all cash in a secondary market to avoid the high interest. But then I wouldn’t be able to leverage my money as well.

So should I pull the trigger now and buy a $100k house in cash, or get a $250-300k house using mortgage loan risk low or no cash flow, and refinance when rates go down, or just wait until rates go down before buying?

I appreciate any input, thanks!

Why not buy 4 $100k properties? The benefit of leverage is being able to scale faster.
1 Reply
Andrew Frowiss
Real Estate Agent · Austin, TX · Member since 2016 · 96 posts · 69 votes
4y
Hi @Kent Depwe I'm a Realtor and Property Manager in Austin and these are my thoughts on the situation. I would avoid paying for a house all cash, and use a loan to get a home. Keep building your cash and rinse and repeat. There are still secondary markets in Texas and I'm sure other states that will allow you to invest with 20% - %25 down and you can still cash flow, and bank on your appreciation + loan pay down. If you buy a house all cash you would make more in cash flow, but if you have multiple properties financed you will make cash flow + appreciation on all of them. Of course run the numbers and decide for yourself.
I help Investors buy single family and multi family properties in Killeen TX as it's still a cash flow market with similar appreciation rates to Austin.
2 Reply
Kent Depwe
OP
Member since 2022 · 16 posts · 5 votes
4y
Quote from @Andrew Frowiss:

Hi @Kent Depwe I'm a Realtor and Property Manager in Austin and these are my thoughts on the situation. I would avoid paying for a house all cash, and use a loan to get a home. Keep building your cash and rinse and repeat. There are still secondary markets in Texas and I'm sure other states that will allow you to invest with 20% - %25 down and you can still cash flow, and bank on your appreciation + loan pay down. If you buy a house all cash you would make more in cash flow, but if you have multiple properties financed you will make cash flow + appreciation on all of them. Of course run the numbers and decide for yourself.
I help Investors buy single family and multi family properties in Killeen TX as it's still a cash flow market with similar appreciation rates to Austin.
Those are good points, what sort of cash flow are you seeing in Killeen? I’ve found a few in San Antonio area that do about $200-300 but that’s not including any big maintenance issues that arise or vacancy.

might be worth having a chat as I’m still scouting around for a property manager as well!
0 Reply
Tyler DeVerse
Rental Property Investor · San Antonio · Member since 2019 · 6 posts · 5 votes
4y
I would always say leverage, it will become much harder to find a deal but well worth it one you see all the other benefits of having 5 houses get paid down by tenants, 5 houses to depreciate on taxes, 5 houses appreciating.
Of course are the end of the day it depends on your goals and risk tolerance and as they say, deals are made not found.
0 Reply

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