Buy Cash, or on a Loan?

Question

Hey! I wondered whether I should buy my first rental cash, or with a loan? It's my first time and I hear all these different suggestions...

Thanks for your answers!

Charles Carillo · Answer

@Simon Huber

The great thing about real estate is that your financing choice is not permanent. If you buy in cash, you can always refinance, and if you get a mortgage; you can always pay it off.

Buying with cash is usually a great move (if you can do it) since you can usually negotiate a better price with the seller because there is no financing contingency and you can close fast. Then you can address any deferred maintenance, complete any renovations and finally refinance it.

Mohammed Rahman · Answer

Hey @Simon Huber - you'll definitely a hear a lot of things pulling you in different directions, ultimately it depends on what you want to do!

The pros of using cash are that you end up cashflowing a lot since you don't have a monthly mortgage payment to make... however the con is that you've now sunk a lot of your own cash into a deal when you could have used that cash towards purchasing another property or investing it elsewhere, or even keeping it as a cash cushion for you.

Lexey Vezzoso · Answer

Hey Simon!

This is just a personal opinion but whenever you can leverage someone else's money I would do that. I'm not sure your exact situation but if you use a loan to buy your rental you may have cash on top of that to invest in another deal?

Good Luck!

-Lexey

Mark Munson · Answer

Hi @Simon Huber

It ultimately depends on your goals. If you are well capitalized and are only seeking one rental, then buying cash is fine. If you are looking to grow a rental portfolio, then I'd suggest leveraging your money with a loan, so you can acquire more properties. In this market, I'd prefer to remain as liquid as possible, in the event a good deal comes along and I can buy it cash to beat out competitors. Ultimately, to grow your portfolio you will likely need to finance some deals, so just be open to that idea as well. Feel free to reach out if you need any more feedback or advice, happy to help. Best of luck!

Bud Gaffney · Answer

@Simon Huber Loan.

Scott Crowley · Answer

Simon!

Great question. As it has already been stated in this thread, it really depends on what your goals are.

Having said that, I would highly recommend using OPM anytime the opportunity presents itself. Not only will it keep you more liquid to capitalize on other deals and/or expand your portfolio at a quicker pace(if that is your goal), but it generates a stronger return being leveraged than full-on equity. There is also the perspective that when you own an investment property free and clear, you're a much larger litigation target because there is actually money to be sought & paid out in a lawsuit against you.

Also, if you utilize leverage, you are adding things like mortgage interest to your list of tax write-offs and letting the tenant pay down the principal(increasing your equity over time instead). Again, this just keeps your cash in a more liquid form to move quicker.

Eliott Elias · Answer

Loan.

Simon Huber · Answer

Got it, thank you so much for your thoughts!

Buy Cash, or on a Loan?

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