Buying a property in cash at 21?

Question

Hi there, I'm 21 years old and interested in entering the real estate market. I currently have a substantial amount of money, totaling a few hundred thousand dollars, available in cash. However, I'm facing challenges when it comes to qualifying for a loan due to my lack of a traditional W-2 job, despite having good credit and being debt-free. My parents are experienced real estate investors who typically purchase properties outright using cash, often focusing on properties that require renovation. They consistently emphasize the benefits of cash purchases over leveraging through loans. On the other hand, various educational resources on real estate advocate for utilizing leverage when making purchases. I'm torn between the two approaches. Should I proceed with a cash purchase, or are there alternative options worth considering?

Nathan Gesner · Answer

Read a few books on real estate investing to learn the power of leverage. I like the Unofficial Guide to Real Estate Investing by Spencer Strauss. 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 for a total of $124,000.

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 for a total of $256,000. You've earned $132,000 more by splitting your money and leveraging it.

You could purchase a property for cash now and then refinance it later when rates are lower and you qualify for loans.

Corey Conklin · Answer

In my opinion buying with cash is never a bad idea if you have the means to do so. Since you have the opportunity to do that you can absolutely get started by buying property with cash while you can work on getting the right lending partners.

Most people getting into real estate are normally looking to leverage because that's their only option, You fortunately don't have to leverage to start.

As others said in previous comments, leverage is a powerful tool if utilized correct. Continue to study how to use leverage wisely but don't let it deter you from buying a property now.

Dustin Lauer · Answer

@Sarah Jenson

Hey Sarah, I’m happy to look at your scenario and discuss with you one on one .

Cash or private money should get you a better price on whatever you are buying but keep in mind refinancing can be more costly that purchase financing and involves all new repeated costs.

Todd Rasmussen · Answer

@Sarah Jenson

Kids are notorious for ruining family businesses. Most of the time because they have a better idea. Learn everything you can from how your parents have created the wealth now at your disposal and do that until you can repeat it successfully. Making mistakes with debt service is going to be exponentially harder than making mistakes without it. Once you have their system down, you can start making small changes that you can reverse if needed. If you have wealth you have the luxury of investing it conservatively and still having a very comfortable life and growing that wealth for the next generation. Leverage is a great way to grow, but comes with higher risk and debt is impatience expressed financially. Full disclosure, I used maximum leverage to scratch my portfolio into existence so my kids can by properties cash someday.

Cameron Valentine · Answer

You might consider exploring the avenue of Private Lenders. Unlike traditional lenders, private lenders often prioritize the property's value over extensive documentation. This approach can offer you more flexibility, as private lenders are generally more concerned with the property's potential. Also, O.P.M frees up more cash in your pocket to make more moves out there.

Caleb Brown · Answer

What ever you did to get the 100K's I'd repeat lol. You can buy a property cash then refi into a DSCR loan. Having parent's in it helps but make sure you buy smart, run #'s

Matthew Paul · Answer

Both ways are correct , it is a decision you have to make for yourself . You will hear from both sides here .  But your parents are experienced investors . Well there is your answer , they wont steer you wrong .

Buying a property in cash at 21?

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