Buying in Cash Question

Member since 2025 · 1 post · 0 votes

I am looking into investing in real estate. I would be an out of state landlord as I do not live in Indiana. I have the LLC, management company, address, etc process worked out. My question is this:

Mortgage rates are high and at 20 percent down it would be tough to have positive cash flow. At more down I could probably make it more profitable. One thing I am not understanding if i have 225k in cash that I don’t want to invest in the market how is having it in a high yield savings smarter than buying the property in cash. Based on rent and appreciation it would be better than the cash. To be clear I understand why you don’t buy in cash and why you do a mortgage. I am just wondering why it would be such a bad idea. I know I could do a dscr cash out refinance loan later on to buy another property.

Thank You!

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JD MartinBusiness Member

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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

I'm not sure who said it wouldn't be better, but yes in general I would agree that a well purchased investment property should provide a better return than a high yield savings account. I'm reasonably certain I could buy something tomorrow all cash in my market, right off the MLS, and achieve a 6% cash on cash return exclusive of any appreciation. But I manage our portfolio (I have a company) and everything is local. I have an optimized system and situation. And it does take some work unlike 3% of money just sitting in the bank. I am not so certain of that plan purchasing out of state as you will have a lot more costs and uncontrollables than if you were local.

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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
1d
I'm not sure who said it wouldn't be better, but yes in general I would agree that a well purchased investment property should provide a better return than a high yield savings account. I'm reasonably certain I could buy something tomorrow all cash in my market, right off the MLS, and achieve a 6% cash on cash return exclusive of any appreciation. But I manage our portfolio (I have a company) and everything is local. I have an optimized system and situation. And it does take some work unlike 3% of money just sitting in the bank. I am not so certain of that plan purchasing out of state as you will have a lot more costs and uncontrollables than if you were local.
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Arman AhmedPro Member
Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 923 votes
22h
Quote from @Steven Weiss:
I am looking into investing in real estate. I would be an out of state landlord as I do not live in Indiana. I have the LLC, management company, address, etc process worked out. My question is this:
Mortgage rates are high and at 20 percent down it would be tough to have positive cash flow. At more down I could probably make it more profitable. One thing I am not understanding if i have 225k in cash that I don’t want to invest in the market how is having it in a high yield savings smarter than buying the property in cash. Based on rent and appreciation it would be better than the cash. To be clear I understand why you don’t buy in cash and why you do a mortgage. I am just wondering why it would be such a bad idea. I know I could do a dscr cash out refinance loan later on to buy another property.
Thank You!
I don’t think buying in cash is automatically a bad move. If the property still produces solid cash flow after taxes, insurance, maintenance, vacancy, and management, it can be a pretty straightforward way to get started without taking on debt. The bigger question is how much liquidity you want to keep and what else you could do with that $225K. Since you’re already looking at the Midwest, I’d also compare some neighboring markets where lower entry prices could let you buy in cash and still have decent cash flow.
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Divin KanyamaBusiness Member
Accountant · Seattle, WA · Member since 2025 · 311 posts · 98 votes
17h
Buying the property in cash is not inherently a bad idea, @Steven Weiss . It can eliminate interest expense, improve monthly cash flow, strengthen an offer, and reduce the risk of carrying debt on an out-of-state rental. The comparison, however, should be based on the property’s expected total return after vacancy, management, maintenance, capital expenditures, taxes, insurance, closing costs, and eventual selling costs—not simply rent plus appreciation versus the savings-account yield.

The main tradeoff is liquidity and concentration. A high-yield savings account remains accessible and predictable, while cash placed into one property becomes less liquid and exposed to property-specific and local market risks. Future appreciation and a DSCR cash-out refinance are possibilities, but neither should be treated as guaranteed; value, rents, rates, seasoning requirements, and lender terms may be different when the capital is needed.

A balanced approach may be to pay cash or make a larger down payment while retaining meaningful reserves for repairs, vacancy, and personal needs. If the deal produces an attractive unlevered return under conservative assumptions and still leaves adequate liquidity, an all-cash purchase can be a rational strategy rather than a mistake.
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
10h
Steven, I wouldn’t look at the decision as simply “cash versus mortgage.” I’d compare what each option does to the entire portfolio. If you buy cash, you eliminate the current interest expense and likely improve monthly cash flow, but you also have $225K tied up in one property. The opportunity cost of that capital matters if you could use part of it for another investment, keep a larger reserve, or deploy it elsewhere.
With financing, you preserve more liquidity, but the higher interest rate reduces cash flow and increases the amount of capital you need to support the property. I’d also stress-test the deal rather than assuming you’ll definitely be able to refinance later at favorable terms.
A DSCR cash-out refinance can be an option, but I wouldn't make today's purchase depend on a future refinance. The future valuation, lender requirements, interest rate, DSCR, and available LTV could all be different. I'd run the property both ways and compare cash flow, cash-on-cash return, total equity, debt service, reserves, and what your remaining $225K could do elsewhere.
Feel free to DM me, I’d be happy to send over our Turn Key Rental Analyzer so you can compare the cash purchase versus financing scenarios side by side.
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Jules Aton
MD/DC · Member since 2024 · 1k+ posts · 1k+ votes
10h
I have paid cash for properties and interest rates were a consideration but it was more of a later in life move based on my financial plan’s asset allocation. As others have noted a significant disadvantage is trying up your money especially if Midwest out of state which often translates into a class C or D neighborhood. It would be worth searching here, the stories are plentiful, and really doing your due diligence to avoid purchasing something that will be a hassle to manage and difficult to resell.
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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
7h
@Steven Weiss
you can do whatever you want with your own money, but if you buy a random MLS property in all cash, your return will not be low - it will be NEGATIVE for years and years.
it will only be positive if you pretend the costs that come with buying a rental and putting it into service don't exist.
most of us use leverage to magnify returns.
but we're in an equity market, not a cash flow market.
i BRRRR. then i break even when it's rented. the return is the equity.
@JD Martin can cash flow because he's a rock star with all of the advantages he described. just to be blunt - you can't.
and if you buy a property you haven't seen, in a place you haven't been to, and turn it over to people you haven't met that you 'vetted' via Google, you will highly likely just lose even more money.
hope this helps. no point in sugarcoating anything right now.
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
5h
One of the BEST reasons for investing in real estate is leveraging bank loans - that tenants pay off.
You want to control more real estate, not less.
Putting an amount down to cashflow is smart, but leverage loans to increase your ROI.
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Alex S.
Investor · Washington, US · Member since 2021 · 75 posts · 14 votes
4h
One thing that often settles it: compare the cash-on-cash on the financed version against what the $225K would realistically earn parked elsewhere, since that is the true opportunity cost of paying cash. Also stress-test the financed case at a vacancy rate and rate you would actually hate, because the all-cash buy is really just buying a lower break-even point. If the financed deal still clears your reserve target under that stress, the leverage is doing real work for you.
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