Investor · San Francisco · Member since 2018 · 2 posts · 8 votes
My goal is to produce $3k/month profit from rental properties while spending less than 1hr/week on management (e.g. engage a property manager).
I could buy a couple properties in cash, or buy several properties with financing. I'm leaning towards all cash deals right now because: 1. Simplify the buying process
2. Each property puts more $ in my pocket per month (no loans to pay back)
3. Simplify management (less properties to manage)
It seems like I could make more money per month if I buy more properties via financing, but it would require more work.
When you purchase with cash, there is no mortgage - so there' nothing to refinance. Cash-out Refi loans come with a higher interest rate, a lower LTV, and usually require a 6-month waiting period after acquisition to obtain. A Deferred Mortgage - is a first-time mortgage - that has the same rate and cost as an origination mortgage. Again, you're not refinancing...you simply "deferred" financing by paying with cash originally. There's no waiting period either. So if you need to buy with cash for competitive reasons, go ahead by all means. But then get a Mortgage afterwards - a Deferred Mortgage - which will give you the same LTV terms and rates as a new purchase mortgage.
And, for those who claim that if you buy with cash, there's no cost - it's simply not true. Look at the inflation cost of a US Dollar:
Year
jan
jun
2021
1.400%
5.391%
That's a decrease in spending power.
I'm a former senior wealth banker and admittedly a money geek. There is a big difference between generating cash and building wealth. It's how the rich keep getting richer and a lot of other folks work really hard and never achieve financial independence.
Buffalo, NY · Member since 2018 · 790 posts · 530 votes
5y
@Conor Livingston personally I’d favor using some type of financing - as others have said you can use cash to buy for competitive purposes then get a mortgage later. If you are planning to hire a management company you may also get better rates but having more doors for them to manage. You also spread your vacancy risk out a little - if one of three units is empty for a month that’s a 33% loss of revenue as opposed to one of 10 which would only be a 10% reduction.
Another thought for you if you have the cash saved up to buy multiple houses with cash - have you considered investing passively in a syndication? The returns may not be as good as If you invest yourself, but it would definitely hit your ease of transaction and management criteria. J Scott was on a recent podcast episode giving an overview of the process. Darin Batchelder, Joe Fairless and a number of others also have podcasts on the subject.
My goal is to produce $3k/month profit from rental properties while spending less than 1hr/week on management (e.g. engage a property manager).
I could buy a couple properties in cash, or buy several properties with financing. I'm leaning towards all cash deals right now because: 1. Simplify the buying process
2. Each property puts more $ in my pocket per month (no loans to pay back)
3. Simplify management (less properties to manage)
It seems like I could make more money per month if I buy more properties via financing, but it would require more work.
Am I thinking about this the right way?
Conor, I think you laid out the benefits and drawbacks pretty well. However, what about this approach: Purchase in cash and then do a cash out refinance? This allows you to realize the benefits of a cash purchase (including more accepted offers, and often, a lower price). This means more long term cash flow and wealth.
Now, you did mention issues of time spent and ease of management. That can be tougher with more properties, though if you get a system in place, it becomes more and more manageable.