I'm involved with a group of investors which purchased our first investment property in Florida. The property is performing as expected, even slightly better. We're planing for the future and our opinions are a little lopsided. We have a discussion coming up on whether to pay this house off before we purchas our next property (roughly 5 years) And own all future properties cash. Or to leverage this house to buy our next investment property sooner. One member is fighting for the benefits of not losing money to the banks on interest and or PMI while others believe in using OPM. Any articles or opinions that can clear this up for me are greatly appreciated as I want to go into the meeting as informed as possible.
Both. All the money you put in as cash is negative money that you have to recover first to break even, then you start to make positive cash.
Buy/rehab with cash, get the cash out while holding the property, use the cash again, repeat until tired of making money.
Notice, I never mentioned the BRRRR strategy...did I?
If you can outperform your debt, why not take on more?
@Erik Baker You can make the argument (not sure which side you are on) to add the leverage to the deal and get the next one sooner by calculating and showing your partners the ROI of the two scenarios (all cash v. leverage). Your return on your money is always going to be higher with using debt bc your cash was used less.
Another point in this favor as well is that your 2nd investment is purchased years sooner, making time value of money made on the 2nd investment all the more meaningful.
Finally, and like Joe was also getting at, you can use the same call it $100k, buy/rehab/refi property after property after property. Recycled dollars is an advantage to real estate a lot of other industries can't use.
There is the one argument I know of to hold in all cash rentals is that you make more cash flow per month than a leveraged rental, meaning you need less of all cash rentals in order to make X dollars in cash flow a month AND with less tenants to manage.