Paying all cash vs putting 25% down?

Scott E.

Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes

3y

I agree with @Chris Davidson. The right move for you seems like somewhere in the middle (buying a deal and putting 40-50% down).

Even with this much down, it's possible that the deal still doesn't cash flow much in the beginning because of interest rates being where they are. But the hope would be that rates come back down a bit in the next few years, which at that time you can refinance and boost your monthly cash flow.

Chris Webb

Investor · Central Virginia · Member since 2020 · 393 posts · 253 votes

3y

The cure for low cash-flow is higher down payments.

7 Reply

Bob S.

Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes

3y

All my deals are cash and I only deal with cash buyers I like having no debt. If I do need cash I can always refi out NYC is terrible, much better ROI out of state,

Jason LeePro Member

Real Estate Agent · New York, NY · Member since 2015 · 401 posts · 235 votes

3y

I have around 70 landlord clients that only own condos in NYC. Most of them purchased all-cash and most only own 1 or 2 units. The few that have mortgages initially purchased as owner occupants.

If you're going to look at 2 beds I would try to find one that can be flexed to create a 3rd bed or create a sleep alcove/den so you can get higher rent. Or consider getting 2 studios. Smaller units will typically rent faster and often have higher cash flow.

Jacob St. MartinPro Member

Investor · Charlottesville Virginia · Member since 2021 · 348 posts · 346 votes

3y

Hello David, have you ever considered purchasing real estate somewhere else? If you were to take that same capital and deploy it in a different market you could get a way higher cash flow and still decent appreciation (but not appreciation like you would get in NYC). I am not talking about stagnant cashflow markets like the midwest, but strong markets like some of the medium sized cities in the southeast or texas where lots of people and jobs are moving and markets are cashflowing and appreciating. If investing out of state worries you, you could always consider partnering with someone. This could give you all of the benefits of owning real estate without taking time away from your family. If you are interested in partnering, I am looking for a partner on a STR deal where the partner is expected to get 20-30% ROI.

If you are firmly against going to another market I think that the advice that others have given is solid.

Mohammed Rahman

Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes

3y

Hey @David Yue - lots of feedback in this forum post, but it seems to be pulling in a lot of different directions. My name is Mo, I'm an investor & realtor based in NYC. FIrstly, congrats on being in the position that you're in!! Wondering about how to make good use of your extra money is a good problem to have :)

1. You're right, most properties here won't cashflow. That's the norm in any high-priced metro market. Your investment goal should be appreciation/equity build up, not cashflow. You can get lucky to cashflow by investing in a fixer-upper, but this isn't what you probably want based off of what you wrote.

2. If you really can't stomach a slightly negative cashflow for the first couple of years (until you gradually raise rents), then you should focus on investing somewhere outside of NYC (maybe NJ, CT, or slightly upstate like Albany).

3. Keep in mind, most condos/co-ops in NYC are anti-landlord, so they will likely place restrictions on when/how you can rent out the space (unless you do it without them finding out).

Shoot me a message, I'm happy to chat further about it as there's a lot of info that's hard to cover in a post. You're welcome to also attend our meetup next week to meet in person.

Martin M.

Member since 2021 · 104 posts · 78 votes

3y

@David Yue

Hi David, some food for thought. HOAs can limit or prevent your ability to rent. Just something to consider... and even if you find a place that allows renting today, the HOA could change that in the future... at which point you could sell of course, but still something to consider.

With regards to all cash or not? That depends, but... generally speaking many investors will tell you, you want to tie up as little of your own money as possible with each investment property. In other words, use your own cash for a down payment only, and mortgage/borrow the remainder. The idea being, you keep your own cash freed up, to then use it as down payments on additional investment properties.

Over the long haul that approach gets you equity in multiple properties as opposed to one.

I get it though, in NYC that down payment may need to be sizeable just to reach positive cash flow. Maybe don't limit yourself to NYC for the first investment.

Whichever path you take, make sure that you keep enough cash reserves to weather any storms that may come your way.

Ramandeep Sidhu

Rental Property Investor · San Jose, CA · Member since 2020 · 75 posts · 44 votes

3y

Paying all cash for a property can be a good idea if you have the funds available and don't want to worry about mortgage payments. However, putting 25% down and financing the rest can also be a viable option, as it allows you to use your excess cash for other investments or to build up your fund. It's important to consider the potential returns on your investment, as well as your long-term goals and risk tolerance. Since you're new to real estate investing, it may be a good idea to work with an experienced realtor who knows investing. It would also be beneficial to attend local REI events and find a mentor/partner to work alongside.

Also, it's worth considering if your primary focus is cash flow or if you're more interested in long-term appreciation.

Jason LeePro Member

Real Estate Agent · New York, NY · Member since 2015 · 401 posts · 235 votes

3y

Let's get a couple things straight here. Most NYC condos aren't "anti-landord" and I don't know any that try to prevent the landlord's ability to rent. I don't know of any condo in NYC where you can't rent out unlimited from day one. Condo boards typically only have one way to prevent a landlord from renting to a third party and that's to not grant their waiver of right of first refusal. In that case you still get to rent it at the same exact terms and at the same rent, except to the condo itself... and I've never seen that happen.

Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

3y

I question why you would desire to actively invest in a residential property. It is not passive even when using a PM. If you have no intention to scale, a lot of knowledge/experience will be wasted. Owning residential is best served by those who have a passion for it.

I recommend a more passive approach. Start by searching Amazon for a highly rated book on real estate syndications. Then spend some time researching syndicators. When you are comfortable, choose a syndicator to invest with as a limited partner. This results in a passive investment in RE that can provide continuous passive income for as long as you desire.

Good luck

4 Reply

Nicholas L.Pro Member

Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes

3y

@David Yue

well, it's all going to depend on how much time you have, how much money you have, and how active or passive you want to be. If you want to own a property and be the manager, even if you have a PM, it's going to take time and energy as @Dan H. correctly notes.

but, if you have some time, you could pick a market within a couple of hours (PA or CT?), really do some legwork and research, and try to find something that cash flows. seems like that might be tough with a family and a busy job, but only you know if that interests you or not.

i would not recommend buying something in all cash, or sinking all of your cash into any one thing.

Nathan GesnerBusiness Member

Moderator

Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

3y

Read a few books on real estate investing to learn the power of leverage. I like the Unofficial Guide to Real Estate Investing. Here's a very basic explanation to get your juices flowing:

Assume a house costs $200,000 and rents for $1,500. The market appreciates 3% per year.

Pay cash for one house and rent it for $1,500. After five years you'll have earned $90,000 in rent income and gained $34,000 in appreciation.

Buy four houses with $50,000 down on each. Mortgage payment is $1,000 on each house, so you're essentially earning $500 per house or $2,000 a month. After five years you'll have earned $120,000 in rent income and gained $136,000 in appreciation. You've earned $132,000 more by splitting your money and leveraging it.

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Jason LeePro Member

Real Estate Agent · New York, NY · Member since 2015 · 401 posts · 235 votes

3y

Owning a condo in NYC can be completely passive with no PM. Find a condo with 24 doorman, a live in super, a staff of handymen and porters, and a good realtor, and it can be entirely passive. Most of my landlord clients I have never met in person, most live out of state and haven't visited their properties in years, and most have never communicated directly with their tenants.

Maybe 3-4 of my landlord clients have somewhat of a passion for real estate, even then, they don't want to read books about REI or come on forums and learn about all the different ways to invest in real estate. They are busy doing other things, have other investments, and have an extra 500K to $5mm in cash and want to own an NYC property.

Justin Winn

Real Estate Agent · Mountain View, CA · Member since 2016 · 70 posts · 59 votes

3y

Right off the top, @Chris Davidson makes a great point about just put more down to get to a cash flow positive property. Also, @Devin James makes a great point about defining your investment strategy.

Since you mentioned cash flow and that you are cautious I would encourage you to look at your investment risk factors as really 3 things. Cash reserves, cash flow, and equity growth.

If you pay cash for a condo, and have little in reserves and the condo has maintenance issues, you could be in a high risk environment. If you look at 40% down and it makes for good cash flow, in a good house with little maintenance required and your appreciation is solid and reserves are good, then you’re likely to be lower risk situation.

Ultimately only you know what the right mix of those three factors will allow you to sleep easily at night, and see the types of returns you want.

Best of luck

Rich Hupper

Broker / Investor · Tewksbury, MA · Member since 2008 · 1k+ posts · 351 votes

3y

Only buy into a condo complex that is small where you can buy one then get valuable information on the other owners and their intentions to sell. Try to buy directly from the other owners when they are ready and slowly accumulate all the units. Next thing you know you could own 4+ income producing units and have your own apartment complex.

That's my strategy at least.

Trevor Naumann

Real Estate Agent · NY · Member since 2022 · 111 posts · 48 votes

3y

Theres allot of great advie in here already but ill have a go

Since your not looking to make big moves in real estate at this time, I might consider buying in cash and viewing it as a store of value initially. Long-term, I would bet prices in NYC will go up right? So, this could be a comfortable place to store some money and let it grow over time. Then, in a year or whenever there is some rate improvement, assuming you like being a landlord or manager of a property manager, you can make the decision to refinance. Im upstate not in the NYC market but I would be willing to bet that you will get a better purchase price and have an easier time buying what you want as a cash buyer.

Jason LeePro Member

Real Estate Agent · New York, NY · Member since 2015 · 401 posts · 235 votes

3y

Hmmm. I would recommend the exact opposite. I would only buy in a large condo complex where there are economies of scale. What happens in a 4 unit condo and one or two of the unit owners don't pay the HOA. What happens when it's time for major capex and there are only a few unit owners. Also, keep in mind if anyone owns more than half the units in the condo it becomes non-warrantable. Then financing options become more limited and prices tend to crater.

Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

3y

Quote from @David Yue:

Hi, just wanted to get some general advice from some seasoned investors. My wife and I currently both work and make pretty decent salaries, were in our 30's and are paying off our 15 year mortgage on your primary residence. We have some excess money and would like to purchase our first investment property. Since we live in NYC any single family or duplex is out of our price range. We were looking to purchase a 2 BD Condo with low HOA fees. We could have the option to pay off the unit entirely and not have to worry about paying the mortgage.. Or I can just just put the 25% and try to use the remaining fund somewhere else, however due to high price of units here in NYC most properties do not generate positive cash flow. The reason this is even an issue is because of the few variables 1. I have little to know experience in real estate investing. 2. I tend to worry easily and having negative cash flow concerns me. 3. Real estate is a portion of my investment portfolio, not the only 1. I do not really have any intention of owning 5 10 100 units like some the veterans on this site.

Any advice would be appreciated

put down that would cover the mortgage, lets say 40%. THn rented it out.

Wait to sell it in 2027/2028, you will make money anyway. Think that downpayment is more like investong to CD. No need for cash flows.

Bud Gaffney

Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes

3y

25% down all day. OPM is gold in this business.

Bruce WoodruffPro Member

Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes

3y

@David Yue Put down the least amount possible to get the cash flow you want. You always want to use OPM.

But I will second the opinions presented above that say invest OOS. Why mess with low cash flow PLUS you are stuck in an incredibly tenant friendly state...

At least look around down south or in the midwest and run your numbers...you could maybe get 2 -3 houses instead....

Rebecca Six

Member since 2019 · 11 posts · 10 votes

3y

Invest somewhere else. Check out turnkey investing.

Steve Vaughan

Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes

3y

When you ask a bunch of RE hammers what to do, they will say to find a nail. Real estate is the only nail they know.

As a worrier with no RE experience that has to invest out of area? No way. Stick to what you know- your specialty or stocks/ mutual funds.

To answer your title question, I only buy with cash when closing speed or property condition get me a significant discount. Leverage vanilla bankable deals.

Leo R.

Investor · Member since 2021 · 591 posts · 695 votes

3y

Open question for @David Yue and everyone else; why would anyone buy a cashflow negative property?