Hello all. I was wondering if anyone purchases properties in cash and what the pro/cons of this would be. I purchased a duplex at the beginning of this year in the pursuit to begin my road to financial freedom. After reverse engineering the amount of properties it would take for me to become financially free i was a bit overwhelmed. It would be between 30-40 properties cash flowing 100-200 each. The area i'm investing in has houses as low as 30 000 up to 300 000$. I was thinking it might be a smart idea to live frugally for the next 5-8 years and save as much money as i can and purchase properties in cash.
I figure it would take relatively the same amount of money as purchasing 40 properties but i would only have to purchase 1/4 or a 1/5th of the amount to create the same amount of passive income. It would probably take about the same amount of time or maybe quicker as your money would start snowballing after owning a few properties.
I was wondering if anyone uses this strategy and if you have any advice/pro's/cons for choosing this path. Thanks!
If you need 40 properties at 200 a door to make it then you must have a very high standard of living to need 8,000$ every 30 days .
I'm not sure I understand. you're saying it'll take too long to get all those houses to cash flow the way you want with debt service, so you want to use all cash instead....to go faster? That is the opposite of how debt strategy works, using debt allows you take more risk in trade for going much faster.
you need to do the math more in depth.
the snowball with using leverage is much faster to acquire properties, once you're done with acquisition you can start paying things down. this is evident when doing a simple ROI calculator for cash vs leveraged properties. you'll make a higher return on leverage, and assuming you use the assets efficiently, that allows you to buy more, faster. waiting for cash to add up goes very, very slow.
Assume I want to create 4000$ per month in passive income. Assume each one of my properties brings in 100-200 cashflow. Lets be conservative and say more yield 200 per month so i need 30 properties to achieve this goal. Assume the average property i purchase is 100 000$ mark. I need 20% down for each of these properties plus $ for lawyer fees and hidden say an extra 5000 for that. So lets say i need 25000 minimum o purchase each one of my 30 properties. Some more/some less. 25 000x30=750 000 i need to acquire to purchase rental properties. I can obtain it through a mixture of rehabs/refinances/private lending/my day job etc. Then you will still need to hire someone to manage 30 rentals or do it yourself.
Right now if Didn't have a mortgage on my first property I bought for 100 000$ I would be making 1000$ a month passive income. No mortgage/no vacancy fee + my 100 cashflow. If I worked hard, saved and lived frugally for the years to come I could purchase 5 or 6 more rental properties 500 000 - 600 000 dollars needed. Save money, invest properly do some flips/refi's + snowball effect from previous rentals. It would probably take the same amount of time as flipping refiing etc 30 rentals to achieve my goal and wouldn't be as much of a headache. Not saying either way is wrong, just my thoughts.
Agreed it is daunting
Add to this that $8000 after taxes is not much over 50k a year it doesn’t come out to very much money, especially for a couple. Add in children and forget about it
@Dennis M. I don't know where you live, but Canada is F**king expensive.
The pro of using cash is you close quickly, there is no lender requirements, or financing contingencies. If you were selling a 150k house which would you take? All cash offer for 140k, close in 7 days (provided the buyer shows proof of funds) or an offer for full price, 3.5% down FHA loan from someone who just has a pre-approval letter, close in 30 days, risk the financing falling through and having to start all over? In most markets right now both would probably lose though because someone would offer above asking cash because RE is so hot right now. Cash is king for this reason.
Don't leave all your cash in a property. Pay in cash for the ease and speed of the transaction then refinance it to get most (preferably all or more) of your money out and do it again. You'll reach your 40 property mark much faster by leveraging than saving up cash and buying every single one outright. Living frugally is a good idea but honestly how much cash could you save in 5 years by "living frugally"? Probably not enough to buy a property you would live in yourself...
@Peter M. Thanks for the advice :) Not a bad idea to save up a bunch of money and purchase then refinance. Never thought of it that way. Might be smart to do a 2 for 1 type of deal if paying in full with cash. Pay in full-Refi and purchase a 2nd property. Personally though i don't want 40 or more properties. I like the idea of having less properties that make you the same amount of money. I don't know, maybe I'm wrong.
Well that's the whole point. You buy 40 properties, most of which are leveraged. Wait for them to appreciate, sell off the worst ones and use the proceeds to pay off the best ones. Then instead of 40 you have say 15 paid off properties that pay large rents but there is not mortgage anymore so all the money you were paying to the bank you keep as income. If 15 all pay $1000 per month in rent, you keep $5000/month for taxes, insurance and expenses-BAM there's 10k per month and you retire to the beach.
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