Buying with cash vs a loan

[Audric Crouch]

My business partner and I are about to make an offer on a duplex. We have been pre-approved for a loan, but are also considering paying cash for the property. What are the advantages and disadvantages to paying cash and refinancing after we close on the property versus acquiring the loan up front? In order to obtain the cash needed we would each open a HELOC on our primary residence and then pay those off after refinancing.

[J Scott]

Originally posted by Travis Sperr:

By using leverage you significantly increase your cash on cash return.

You *may* increase your COC return...

You will increase your COC if your cost of capital is less than your cap rate. You'll reduce your COC if your cost of capital is greater than your cap rate.

So, the key is to ensure that you're getting money cheap compared to what you're earning on the property. If you can do this (mostly by ensuring that you're making a smart buying decision), leveraging can be a good thing.

But, if you leverage a property where your cost of capital is higher than your cash return, you're going to find yourself in a MUCH worse position than if you just paid cash.