How to invest my cash

Question

Pretty new to real estate investment-currently own six doors. We have about $70k to invest right now and would like to know the BEST way to invest this. Teetering on buying properties cash so we own them free and clear, holding onto it until the market decreases, etc. Any suggestions? Thanks!

Jassem A. · Answer

Say you live in an area where you can buy a property for 50,000 cash and rent it for 1,000/mo. If you were to buy five houses at 20% down that each produced 1,000/mo you would be at 5,000/mo. Lets estimate taxes and insurance on each property to be 100/mo and P&I to be 250/mo. If you choose to purchase with cash, you can expect to receive 900/mo positive income minus any other expenses that might come up with owning one property, like maintenance.  If you choose to purchase with loans then you can expect to receive 650/mo positive income from each property or a total of 3,250/mo and now you also have to deal with any problems that come up by owning five properties.  Of course when the loans are paid off it will increase to 4,500/mo.

Joe Villeneuve · Answer

If you buy with all cash, and the market drops, you're cash in your property also dropped since the property is worth less than you paid for it.

If you only spend a down payment, and finance the rest, that drop doesn't impact you since what you have established is a cash flow situation...that isn't impacted by the drop in property value.

Kevin Dean · Answer

Hey @Rachel Dixon here are a few things that I would think about.

If you buy one property in cash....

• Lower risk in meeting obligations as you have no debt to service
• Lower actual returns, as your invested capital is higher
• Higher cash flow per unit
• Lack of diversification. If you have all of your money tied up in one property, you are not diversifying your property specific risk across multiple properties
• Less headache as you will only have to manage one additional property rather than two or three

If you buy multiple properties with your saved capital combined with leveraging bank debt...

• Higher risk in meeting debt obligations as you will have multiple mortgages
• Higher actual returns as your returns will be leveraged
• Lower cash flow per door
• Receive the benefit of diversification among a number of units.  You are diversifying your property specific risk across multiple properties
• Potentially more headache as you will have to manage more than one additional unit

In regards to holding onto cash and waiting for a market correction, people have been waiting for a market crash for years now. Imagine how they feel after watching active investors do well over the last few years while they were sitting on the sidelines earning inflation on there money market investments, waiting for a turn in the market.

It seems as though you already have experience being that you already have 6 doors. If you are concerned with a turn in the market, I would just be more conservative in your projections, use enough leverage to boost returns and diversify across multiple properties, but no more than you are comfortable with. The snowball you create by buying rental properties correctly, has historically outperformed sitting on the sidelines in cash.

No one can time the market, but everyone can be conservative in their projections and cash flow over the long term!

Nick C. · Answer

Depending on where you are 70k isn't going to get you much if you pay cash. As mentioned above buying multiple properties with financing gets you more bang for your buck, but also mitigates the risk out over a few properties in case you get a lemon. If you only own 1 and get a lemon you're in trouble.

How to invest my cash

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