Buying with Mortgage vs Cash?

Question

Hello friends , hope all is well during these wild times.

I’ll try to keep it short . When I started I refinance all 8 of my properties . I would pay cash then 6 months later refi .

Now, however I have cash flow and money to buy outright .

The biggest thing with a mortgage is it takes a lot of the cash flow away . In my market I buy duplex’s bc SFH don’t work (mortgaged) bc taxes are high.

Should I start buying in cash to make these SFH cash flow ? In my market I want to get some singles instead of all apartment bc I have gotten a lot of ask for houses to rent.

I have been giving the opportunity to buy something and I can’t make my mind up. Put half down to lower mortgage payment or just pay 60k cash and take the 12% return?

Fellow landlords what do you prefer to do?

Douglas Gratz · Answer

@Joe Villeneuve

With mortgage (mind you, it’s a shell so all is being redone and hoefully not much maintence first year)

After all is said and done I’ll be all in for 80k. The numbers below represent me getting a mortgage for the asking price and I will use 20k cash for the rest

Rent =$1350 section 8 guarantee

Monthly Expenses : (I’m leaving out 10% for repairs since things will be brand new) I also leave out 5% vacancy bc I have a good system where when someone’s outs some is in right away

1.  $269 mortgage

2. $100 insurance

3. $280 taxes

4. $40 sewer

5. $30 travel

6. $40 (for bills associated with credit cards spread across all 12 of my units)

7. $15 exterminator (twice a year)

Total expenses ($774) (or $904 if I take 10% for repairs)

1350-774 =$576

Or 1350-904 =$446

I have another scenarios where I take mortgage for 40k and use cash for the rest and that give me an extra $100 in positive cash flow

Ned Carey · Answer

@Douglas Gratz Borrowing will increase your return on investment. It will likely increase your net cash flow by virtue of more properties.  (assuming the interest rate is lower than the un-leveraged return.)

However it also increases your risk and reduces your cash flow per property cash flow.  When you are in growth mode responsible use of borrowing will help you grow.

You may get to a point where growth will be less important than the cash flow. You may also want fewer but more profitable properties to reduce your hassles and workload. Then it makes sense to start reducing your borrowing to increase cash flow.

Joe Villeneuve · Answer

If this place is gutted, that means a relatively long rehab to get it rent ready.  Did you include the operating costs during the rehab?

Joe Villeneuve · Answer

The cash flow you are claiming is most likely an illusion.

What are the actual numbers...in dollars...for:

monthly expensesmonthly mortgage pmt (If financed)rent

Joe Villeneuve · Answer

I can explain all of that, but I'm not going to give you a summary of it.  That wouldn't be fair to you.  I've explained this many, many times in this forum.  If you are interested, PM me and I'll give you the details

Douglas Gratz · Answer

@Joe Villeneuve

So you believe getting a mortgage and putting down 15k is the better option because id break even in 3 years compared to 9?

(ps its not a shell, it just needs a new HVAC 900 soft house so shouldn't be to much and a small roof)

So in the future can you help explain how I should analyze my future purchases with a solid example and as to why you say my ROI% mens nothing

Joe Villeneuve · Answer

...and, what I wrote under what you wrote

Joe Villeneuve · Answer

9 years to break even.

You're analyzing wrong.  Your cost is 70,000 since you're paying all cash.  That means you're spending $70k to save 3k a year.  That makes no sense.  If all you had to do was pay the DP of $14k in cash, that's you total cost.  Your CF would be reduced to around $500/month or $6k/year.  So you would break even in less than 3 years.

Percentages lie.  They tell you nothing of value.  Numbers with dollar signs in front tell the truth.

Alex Corbishley · Answer

We have a mixture of paid with cash and mortgages.   No mortgage houses do cash flow better, but ROI is less.  It really depends on the tax situation - the mortgage interest is deductible.  We try to approach initial purchase with the ability to pay cash and close in 2 weeks.  Then later refi to pull $$ out.

Douglas Gratz · Answer

@Joe Villeneuve

I ask because I’m thinking of buy I house all cash. 55k to buy and $15k in repairs

Rent = $1,200

Monthly Expenses

Taxes- 190

Insurance- 100

10% for repairs -120

Sewer and Trash -45

1200-455= $745.00*12=$8,490

$8,490/$70,000 = 12% return

Buying with Mortgage vs Cash?

Most Popular Reply