Paid Cash for all deals Good or Bad?

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Paid Cash for all deals Good or Bad?

Joshua Robinson
Rental Property Investor · Dallas, TX · Member since 2020 · 10 posts · 17 votes

Hi everyone, so here’s the story. I played in the NFL for 8 years. While playing I always said that when I retired I wanted 10 properties and no debt. I was afraid that if I allowed debt to pile up while playing, and something crazy happened I could be in trouble. So while investing in real estate I did so very slowly and paid all cash for every deal. I retired this past season and I’ve been weighing the idea of refinancing my homes to take money out of them or getting a line of credit against a few properties. I currently have just over $2mil in equity in those properties. I’ve been listening to BiggerPockets faithfully for the past 9 months and I really think I’m going to start leveraging but I want to weigh all my options and not overdue it. So what I’m looking for are thoughts and suggestions on if I should refinance my current properties or if you think I should leave those properties in cash as security and leverage all future properties. Recently on a BP podcast someone said, and I don’t remember who it was. But they said they intentionally had one property completely paid off and in case something crazy happened like Covid 19 they’d take money out of that home to get through. I liked that idea but again, I’m open to others. Thanks in advance!

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Mason Hickman
Real Estate Agent · Sandwich, MA · Member since 2014 · 974 posts · 636 votes
6y

@Joshua Robinson

Very cool story! Can you live happily off of the cash flow that the rentals are throwing off or are you yearning for more? If you're happy with the income, while you won't be optimizing your returns because of all the equity in the properties, you've already made it to the "finish line." I'm sure there will be a bunch of people who come on and say you need to leverage up in order to get better returns on your equity but there's something to be said for having peace of mind without debt.

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  • Mason Hickman
    Real Estate Agent · Sandwich, MA · Member since 2014 · 974 posts · 636 votes
    6y

    @Joshua Robinson

    Very cool story! Can you live happily off of the cash flow that the rentals are throwing off or are you yearning for more? If you're happy with the income, while you won't be optimizing your returns because of all the equity in the properties, you've already made it to the "finish line." I'm sure there will be a bunch of people who come on and say you need to leverage up in order to get better returns on your equity but there's something to be said for having peace of mind without debt.

    6Reply
  • Joshua Robinson
    OP
    Rental Property Investor · Dallas, TX · Member since 2020 · 10 posts · 17 votes
    6y

    @Mason Hickman

    Thanks! I’m yearning for more, I’ve always loved real estate and definitely want to grow my portfolio.

    1Reply
  • Mason Hickman
    Real Estate Agent · Sandwich, MA · Member since 2014 · 974 posts · 636 votes
    6y

    @Joshua Robinson

    Leverage up!

    1Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Joshua Robinson congrats on your success in the NFL and for making some wise investments. A cash out refi, Heloc and 1031 exchange are all possible tools to increase your leverage depending upon your strategy going forward and whether or not you want to hold some/all of your existing properties longterm. There’s no hurry so take your time to figure out what strategy you want to implement next, then the financing part will get clearer. And you don’t have to leverage your whole portfolio to the max you can choose a lower amount of leverage on each property if you want or use max leverage on some and leave some paid off. This will give you added safety for the entire portfolio and flexibility in the future to make moves as you continue to learn and grow as an investor. Enjoy the journey and all the best in your endeavors!

    1Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @Joshua Robinson

    All depends on your investment strategy. Sounds like you want more properties. Only you can decide if you want to use additinal cash on hand or leverage your property. This is a “good” problem to have, deciding whether to deploy your cash or leverage your existing assets.

    Another way to think about it regarding “cost of money.” What is your existing cash doing for you? Is it in the bank earning less than 1% annually? Stock market? Some other investment? Which costs more? Taking the cash from where it is now or paying interest in the refinance? Again, you need to bounce this off your investment strategy as to how much cash you want to leave in reserve and amount of diversification in your investments.

    I hope my two cents helps. Good luck

    1Reply
  • Joshua Robinson
    OP
    Rental Property Investor · Dallas, TX · Member since 2020 · 10 posts · 17 votes
    6y

    @David M.

    @Brian Gerlach

    Thanks I’m definitely going to take it slow.

    My cash is in an online savings account. Which is a little better than the 1% but obviously not the best spot for profit. I have money in stocks, and other accounts. So the cash on hand is specifically for yearly expenses and acquisition of more real estate. I’m leaning toward not touching any of my previous investments and leveraging new deals only.

    Thank you both for your inputs!

    2Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @Joshua Robinson

    One more point..  Perhaps talk with an accountant on what might be a tax efficient strategy for you.  The idea is the interest payment deductions help offset some of your postive cash flow.  In turn, that saves you on some income tax which just makes that leverage money even cheaper.

    That being said, I'm with you on taking it slow and preserving your cash.  Let me clarify.  There is nothing wrong with making <1% in a bank account.  Cash is king, and you need to keep some sort of liquidity.  Enjoy, and good luck!

    1Reply
  • David AcostaPro Member
    Wilmington, NC · Member since 2014 · 208 posts · 144 votes
    6y

    Congrats on the position, @Joshua Robinson, sounds like you've got a really strong operating position. As you mentioned, the conservative route is probably your best option -- to me, in this situation, that's hedging a portion of your portfolio into lines of credit while leaving a solid portion paid off. As you look to scale, the HELOC will give you quick access to capital when a deal pops up, while allowing you to keep your equity in the home until it's actually needed. When you create equity in your new acquisitions, replenish the existing lines of credit so that you keep your foundation intact. Just food for thought. Best of luck of moving this forward, and congrats again on all the success!

    0Reply
  • Joshua Robinson
    OP
    Rental Property Investor · Dallas, TX · Member since 2020 · 10 posts · 17 votes
    6y

    @David Acosta

    Thanks David. Just so I have a clear understanding, you’re saying with the income from the rental properties you’d recommend paying off the money used first. Then once it’s all replenished try and repeat?

    0Reply
  • David AcostaPro Member
    Wilmington, NC · Member since 2014 · 208 posts · 144 votes
    6y

    Hey, @Joshua Robinson -- in line with the BRRRR strategy or value-add commercial deals, I would look to buy properties that you can add value to. In a perfect situation, you would be able to perform a cash-out refinance on this new investment once renovated(improved the value), and replenish the funds you used for its purchase(the homes you own outright). As mentioned, I like the idea of using a HELOC on one of the properties in your portfolio. So here, you could tap into the equity when you find a good deal, otherwise, it stays in the home. But again, just one strategy.

    2Reply
  • John Edwards
    Rental Property Investor · Topeka, KS · Member since 2017 · 56 posts · 137 votes
    6y

    @Joshua Robinson I would spend time clearly articulating your goals and backing in to how to get there. Leverage vs not is too broad of a question for anybody to answer for you. We are not leveraging because we can achieve our goals without the risk in the timeline in which we want to achieve them. Definitely spend time asking the first question before running with an answer on the debt front.

    1Reply
  • Hai Loc
    Specialist · Toronto, Ontario · Member since 2012 · 2k+ posts · 891 votes
    6y

    @Joshua Robinson

    If i had an option

    I would pay cash for that fact of having the ability close quick and potential for a deep discount..

    Especially for a value add where you need to pour in more cash to stabilize and eventually refinance at its full potential..

    But if you referring to just cash and no plans on debt then it could be just the comfort zone of the individual.. they may not like debt and don't care too much on ROI but just simply a stable asset..

    Debt is cheap these days so its always a consideration for most investors

    I hope NFL season happens this year with no disruptions

    1Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @Joshua Robinson

    No, that's not what I'm saying.  No real point in taking out a loan, and quickly paying it off.  kinda defeats the purposes.

    You need to figure out your strategy / goals.  Other than leverage, you still have to be considered about your depreciation running out.  Also, when you sell the depreciation unrecapture for residential, etc.  Unless you are doing 'flips,' real estate investment is a long game.

    Like I said, you have a "good" problem where you basically are "wealthly" is what I am hearing.  Next, this means there is no "right" answer.

    If you want, direct message me and we'll informally chat about this sort of financial management

    0Reply
  • Andy Nathan
    Rental Property Investor · Chicago, IL · Member since 2019 · 203 posts · 119 votes
    6y

    @Joshua Robinson great story. In regards to your inquiry, start by evaluating your comfort level. Maybe that is just refinancing one property? Maybe you can refinance more. The truth is that it is not the ideas we present. It is more about how you decide to act on those ideas. So far, your gut has worked well for you. Keep using it.

    1Reply
  • Joanne Eriaku
    Realtor · NY · Member since 2020 · 167 posts · 169 votes
    6y

    @Joshua Robinson are you looking to add more properties for the sake of having more income or are you looking to add more properties just for the love of real estate?

    1Reply
  • Todd Powell
    Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes
    6y

    @Joshua Robinson first off, congratulations on your NFL career, as very few EVER make it! My son went D1 on a full ride and we were blessed with that opportunity. On your RE side, I would applaud you as many pro athletes live above their means and then go broke when it all ends. I know many would say leverage up, but you can NEVER argue with paid off properties. You own them and they make monthly cash flow and will appreciate. So, the only thing I would consider would be doing 1031s into bigger units ONLY if it improves your cash flow position. I would caution you that it is hard to pull off this and it helps to have the bigger deal already lined up. YOU have already found success and many on BP will toss you advice but have not achieved what you have. I have done it, so my advice to you is tread carefully and do not risk or toss away what you have already achieved. Again, well done !! What position did you play and for what team ?

    1Reply
  • Todd Powell
    Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes
    6y

    @Joshua Robinson. 2012 Minnesota Vikings? One of our coaches son’s dad is the D line coach for the Vikings. My son played college ball for Portland State Vikings!! Haha

    1Reply
  • LeAnn RileyBusiness Member
    Real Estate Broker · Minneapolis, MN · Member since 2015 · 116 posts · 67 votes
    6y

    @Joshua Robinson

    Great comments and ideas. One other thing. It depends also on what properties your equity is in, where they are located - is it in appreciable areas? Also how long have you owned them, how are they performing, are they optimized. There comes a point where they are depreciated for tax purposes and the velocity of money is accelerated if you chose to switch out the portfolio to different real estate investments. That's why some people like multifamily or others prefer single family.

    You are in a great position to really make a plan of how you want to deploy your funds. Is this a passive portfolio or are you wanting to learn how to scale safely and yet maximize your funds? Sounds like you want to participate as your next career or passion. 

    So....it depends on your vision and direction. Do what you love and the money will follow, that's what I always tell my clients. Your hard work and prior planning affords you the luxury of really identifying what you want, growing your portfolio to live off the passive income and to leave a legacy. Everybody has different reasons WHY they are investing in real estate but usually it's for freedom to do what you love! 

    0Reply
  • Jeff S.
    Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    6y

    @Joshua Robinson I am with you on not leveraging existing but leveraging new properties. The largest property owner in Portland said don’t borrow against one to buy another and never do blanket loans. Keep separate. You are in a good place.

    2Reply
  • Les Edwards
    Accountant · Perth, Australia · Member since 2020 · 7 posts · 5 votes
    6y

    Congrats on your situation and being where you're at! Miss you on the Vikes as well!

    Something to consider with leverage is what the markets that you're looking into are doing. Is it a hot market where prices are moving upwards at a high rate in which case the cost/risk of leverage allowing you to get in earlier is likely going to pay significant dividends down the road as you pay less and gain more on the property? Or are you buying in a more subdued market where the cost/risk of leverage and being in the market a bit quicker doesn't really provide any significant advantage?

    There's a ton to consider when deciding to leverage, personal risk and the peace of mind is probably the top of the list, as someone fortunate enough to be in the position to not need it that's probably the top of your list and the thing you'll most need to decide, if being debt free helps you to sleep at night I'd argue that means more than anything else. If you think that you can handle some debt to further your other goals then you're in a great position.

    Also agree with others on the idea of trying it with perhaps one of your properties and seeing how it feels for you. And speak to your accountant, if they're any good they'll be able to give you a really good idea on whether you're going to make money just on the tax side of things from either decision.

    1Reply
  • Joshua Robinson
    OP
    Rental Property Investor · Dallas, TX · Member since 2020 · 10 posts · 17 votes
    6y

    @Todd Powell

    Haha small world Todd. Thanks man, I understand and agree with that, thank you for sharing. I’ve done the 1031 exchange and it’s a great option but having to always buy up means losing cash each time. So I would have to make enough money for personal expenses and RE expenses. Eventually I’d run out of cash I would think.

    As far as everything else, a lot of people mentioned that my goals are a major factor into if I decide to leverage. So honestly I invest in real estate because I don’t want to work a regular job. Being a realtor I do love real estate, so the thrill, excitement, and itch will always be there. But the goal is to make enough to not have to work. As far as comfort, I’ve grown to hate debt but I know if used correctly it has many advantages. So realizing that makes me want to go that route. But reverting to my comfort level I’m considering “trying” it out with one property and go from there. Debt is cheap right now so if I plan on getting in on the leveraging side I definitely should do it sooner rather than later I think.

    0Reply
  • Bryan Beal
    Rental Property Investor · Greenville, SC · Member since 2019 · 115 posts · 264 votes
    6y

    @Joshua Robinson this is something real estate investors will discuss/debate forever - to use leverage or to own your properties free and clear. I absolutely see both sides - owning your assets without any debt is a nice, conservative approach that people use all of the time. But using leverage (let me stress) responsibly can allow an investor to "leverage" your cash to spread out your liabilities amongst multiple assets. Personally, I'm a leverage guy - if I can carry a note and buy 4-5 homes (assuming 75-80% LTV) with the cash I have as opposed to one home with that same cash, sign me up. I can spread my risk across multiple assets instead of just one. And obviously this scales as well. I've purchased 35+ homes in the last two years all using leverage - they are all occupied, our tenants are paying down our mortgages for us and we're seeing about 20% cash on cash returns.

    I love this topic and it’s a great discussion. If you’d like to discuss further I’d be happy to chat!

    3Reply
  • Todd Powell
    Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes
    6y

    @Joshua Robinson not sure what you mean that 1031 cost you money. I have a buddy who has traded up many times over the decades and now makes $45k a month positive cash flow. His job now is managing property managers in various states and owns many apartments. Seems good to me as opposed to owning many small houses. Scaling up seems difficult to find the awesome deal on the bigger units, but using the tax free 1031 helps the cause. Best of luck on your RE journey!!

    1Reply
  • Zack Howard
    Member since 2019 · 32 posts · 22 votes
    6y

    Texas has some really great opportunities. I would learn all I could about brrrr, read the book if you haven't yet, and try to use some of that equity to grow my portfolio. Just think about it for little to no money out of pocket you can increase your equity, increase your cash flow, and start taking advantage of better tax breaks. It's a win win. It might require some work to do but will payoff big in the long run. 

    1Reply
  • Zack Howard
    Member since 2019 · 32 posts · 22 votes
    6y

    I know and understand you hate debt, as you should. But when you learn the difference in good debt and bad debt you'll learn to look at it a different way. Leverage in real estate can be an amazing thing. 

    1Reply
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