Self fund first property or get loan?

[Shawn Nofziger]

My wife and I are both six figure earners. We have the means to self fund two to four properties off the bat.  I know there are pros and cons to each side of this question but is it better to self fund your first deal or to put a down payment for a real estate investment loan? What seems to be the overall consensus on this question? And if the answer is well it depends, what does it depend on?

And my apologies I should have prefaced this by saying I am very new with all of this and am trying to put together a roadmap and plan for where I want to go with everything. I love that there is a forum for being able to ask questions like this in and get a great responses back. I really appreciate it

[JD Martin]

Congrats for having means to do it - that takes discipline and foresight.

I can't tell you what to do, but I bought my first 5 properties with cash outright. Eventually I figured out that if I sunk all of my cash into properties, I wouldn't be able to buy any more for a long time and starting using some leverage. But I started off really conservative because I lost a bundle of money on my first go-round. 

What you do depends on your long-term goal. If you only plan on owning 2-4 properties, then there's really no harm in self-funding them unless you know a better, safer way to make more than the going interest rate on that money (most investment mortgages right now are about 7%, maybe effectively 5.5-6% after taxes depending on your brackets and tax structure). If your plan is to own a lot of properties, then you are probably better off getting notes as you go. After my beginning I started using my cash to make outright offers then financing back out of them later, usually 6-12 months down the road. Even at that, all these years later I still have a lot of cash locked in properties. 

[Stuart Udis]

@Shawn Nofziger I recommend using debt from the start even if you can self fund. Banking relationships are incredibly important in this business, especially as you grow your business.  Seek out the smaller relationship oriented banks in your market and begin borrowing from them even if their terms are slightly less competitive than a bigger bank. Remember you are investing in relationships above all else. These loan officers will be important resources if you are consistently executing on the business plans behind each loan they give you. I've personally benefits from this and now originate $8M+ loans from the same loan officers who gave me my first $100K loans 10 years ago. 

[Jonathan Greene]

I think you can make this pretty easy on yourself if you have the funds for two to four properties. On your first, use all cash. On your second, use a loan. It also depends on what you want to do with the properties. Are you looking to just get long-term rentals and keep going? If so, then it makes sense to get loans from the start.

Cash gives you the benefit to win against others, as @JD Martin said, and then finance it later. It also gives you the leverage to adjust your rate by putting more money down.

[Anderson S.]

Quote from @Shawn Nofziger:

My wife and I are both six figure earners. We have the means to self fund two to four properties off the bat.  I know there are pros and cons to each side of this question but is it better to self fund your first deal or to put a down payment for a real estate investment loan? What seems to be the overall consensus on this question? And if the answer is well it depends, what does it depend on?

And my apologies I should have prefaced this by saying I am very new with all of this and am trying to put together a roadmap and plan for where I want to go with everything. I love that there is a forum for being able to ask questions like this in and get a great responses back. I really appreciate it

So it depends on your goals. If you have a lot of liquid cash + high credit score, it could be beneficial to use a loan (to keep yourself liquid) and then repay quickly. It's really hard to give financial advice without having a full idea of what you're trying to do (fix and flip, buy and hold etc). BUT let's find time to connect!

[J. Mitchell Bernier]

Quote from @Shawn Nofziger:

My wife and I are both six figure earners. We have the means to self fund two to four properties off the bat.  I know there are pros and cons to each side of this question but is it better to self fund your first deal or to put a down payment for a real estate investment loan? What seems to be the overall consensus on this question? And if the answer is well it depends, what does it depend on?

And my apologies I should have prefaced this by saying I am very new with all of this and am trying to put together a roadmap and plan for where I want to go with everything. I love that there is a forum for being able to ask questions like this in and get a great responses back. I really appreciate it

 If you can pay in cash and not deplete your liquid cash below your emergency savings bucket, I would go cash right now. I don't see the need in financing at 7% or higher if you don't have too. I know some mentioned about developing banking relationships and I totally agree with that, so here is what you do. 

1) Open a business checking account in the name of your LLC to hold the assets.

2) Deposit your cash into that account to fund the real estate purchases

3) After owning for 60-90 days, talk with a local lender about a line of credit against the 2 properties at 60% LTV.

4) After about 30-45 days, have the line open to use if you need that liquidity that you used, but until then you are not paying 7% interest on nothing. 

Good Luck! 

[Julia Lyrberg]

Hi Shawn, Whether to self-fund or use a loan really depends on your goals. Self-funding gives you full control, no debt, and better cash flow, but it ties up a lot of your cash. Using a loan lets you spread your money across more deals, scale faster, and potentially see bigger returns. If you’re looking to grow a larger portfolio quickly, financing might be the move. But if you want to keep things simple and lower risk, self-funding could be a solid option. It all comes down to your comfort with risk and how fast you want to grow.