Cash or credit for buy and holds.

4 Replies

My questions to the community is would you recommend paying cash if you have it for a buy and hold property or finance it. I see positives to both sides and wanted other people's experiences and input on the pros and cons.

It really depends on long term goals.  In my market a combination of both works..good luck!

I have strong feelings on this, though my approach probably isn't or everyone.  Two things:

When possible - buy in cash!  You will get your offer moved to the top, and will be able to offer less because you have such favorable terms.  I've only purchased a few places like this, but I feel strongly that cash is the only way to go, if you can swing it.

When possible - hold as financed.  Long-term, if you hold a place in cash, you will both experience smaller returns (total returns) from that one property, and will slow down your growth rate buying additional properties.  

With that said, the buy-refi strategy is not common enough that all mortgage people get it.  And if you don't follow the guidelines precisely, you can be caught without a chair when the music stops.  Do research in delayed financing (a key term) and then find a mortgage agent with experience working with investors.  

If you can pull it off, the strategy is a good one to get properties at a discount, and keep your money working for you.  

Happy hunting!

I prefer to buy cash for the same reason as Jeremiah since it makes your offer stronger than competition and if you get to seller early enough you can often get the property locked up before anyone else can put in an offer.  

You can then refinance your money back out at a later date but you have to speak with your lender and ideally multiple lenders to ensure that you know the criteria they will use to evaluate the deal and that they are willing to loan to you and on the type of property that you are buying.  

Also, as Jeremiah pointed out, by having more properties even with mortgages on all, you will do better than having just 1 or 2 with no mortgage.  

You can also make a cash offer and close with financing if you can swing it in time but you have to be prepared to close it in cash if your financing doesn't come through in time.    

I'm relatively new at this with only two rentals, but I see myself sticking to the buy-fix-hold model and purchasing with cash with intent to refi after the seasoning period.  

With a cash purchase, you can go after a property that a bank might not be comfortable financing which seriously limits your buying competition. It also allows you to purchase property via auction. Spend some money fixing it up and find a quality tenant. Do a cash-out refi after the seasoning period when the lender will base the LTV off of appraised value versus purchase price. If you work the numbers correctly, you'll find that you may actually have little cash into the property after the refi.

Example:  Purchase a house for $50k.  Add $25k for repairs.  Total cash in = $75k.  6 months to a year later (seasoning period), house appraises at $100k.  Assuming the lender wants 25% down for a non owner occupied property, take a mortgage for the remaining 75% = $75k.  Total cash outlay = $0.  Caution - this works if you know your market and can reasonably anticipate what the property would appraise for after repairs.  You also tie up your capital for what seems like a long duration of time.

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