Cash or Lending - which is better?

Question

I'm looking to invest in property south of the border (I'm in Canada, looking to invest in the states).  If I am looking to do a buy and hold - should I see if I can get lending and pay a portion downpayment?

OR should I avoid lending at all cost and simply use cash to purchase?

To me on the surface, paying cash is the better option as I avoid paying any lending interest..... BUT in terms of growing having all my capital locked up in one place as i want to grab more properties....thoughts?

Mark Ferguson · Answer

I would get a loan if you can. You will make much more money and have more diversification with a loan. The tricky part will be finding a lender that will loan to foreigners. It is possible, but tricky.

Mike D'Arrigo · Answer

@Jessey Kwong Keep in mind that as a non U.S. citizen that you will not be able to get conventional financing. You'll have to use non recourse, asset-based financing which won't have as good of terms.

Mateusz Prawdzik · Answer

@Jessey Kwong It all depends on what you are trying to do... If you are looking to fix and flip... I would suggest using cash as this would give you a higher MONETARY return. If you leverage, it will give you a higher Return on Investment. Totally different things, less holding costs and fees, and less money out, increase the %age of return.

If you are looking to just buy and hold without renovating and acquire turn key properties, I would suggest purchasing with a loan and refinancing or potentially even just getting a 25 year mortgage with 7 year terms..

If you are doing the BRRR strategy, buy with hard money and rehab, rent, and refi, to pull equity out.

The goal is to increase the COC Return. (Cash on Cash) as much as possible.

All in all, regardless, purchasing cash is ALWAYS the best but in reality do you have that much capital where you can afford to lock it up for 6months - 12 months a time.

Joseph M. · Answer

Hi @Jessey Kwong , kind of funny to hear the U.S being referred to as South of the border because for us Mexico is 'South of the Border" .

I'd say with interest rates being as low as they are now  it makes sense to use financing if you are looking to grow a portfolio.

If you do have the cash to buy outright though it might make sense to do that initially as it'll give you a competitive edge to buy with cash and then you can do a cash out or BRRRR .

Brian Ploszay · Answer

You can pay cash,using cash as leverage in the negotiation to try and get a better deal.

Once you own the property, I would put a modest loan on it.   Real estate is capital intensive.  To some extent, leverage is good if it is used in an accretive way.