Tips for Real estate investing debt free?

[Jay Leisten]

Im looking to invest but want to do it all cash out of pocket. Is there anyone here who started working that way with say 15-25k? Sweat equity is no problem for me. Should I be scouting forclosure sales on the courthouse steps? buying micro condos?

[Joe Villeneuve]

@Jay Leisten Remember those questions I listed above?  I'm going to fill in the blanks for you based on a typical property:

Typ. Property:

$60,000 ARV (either when you buy or down the road)
$45,000           Cost to buy/rehab/close...also = 75% ARV
$  9,000           20% of Cost (DP)
$     500           Cash Flow per month with NO DEBT
9 years            How long it takes to get the next $45k to buy next property all cash ($5k/yr)

Here is the list of questions you need to ask, then compare the answer from the 3 options:

Q1 - How much out pocket (cash) am I putting in?
Q2 - How much cash am I getting back...what is my cash flow?
Q3 - How long will it take before I break even, and actually making money...see Q1 & Q2.
Q4 - How long will it take before I have the means (cash) to go onto my next property?
Q5 - What is my Cash on Cash Return?
Q6 - How long could it take to acquire 10 properties?
Q7 - How much money would you end up spending for those 10 properties?
Q8 - How long would it take to break even...as in all the cash you put in, you got back?

Here are your 3 options to buy/rehab:

Option1 - Buy all cash, and carry no debt.
        Q1 - $45k
       Q2 - $6k/yr
       Q3 - 7.5 years (assuming no repairs, not vacancies, no problems)
        Q4 - 9 years (assuming $5k/yr)
       Q5 - 13%
       Q6 - 90 years (9 years per property)
       Q7 - $450k ($45k/property...not counting inflation)
       Q8 - 75 years (7.5 years per property)

Option 2 - Buy using cash for 20% down payment & financing the rest.
       Q1 - $9k
       Q2 - $3.75k/yr
       Q3 - 2.4 years (assuming no repairs, not vacancies, no problems)
       Q4 - 2 years
       Q5 - 42%
       Q6 - 5 years
       Q7 - $90k
       Q8 - 22 yrs +/-

Option 3 - Buy all cash, then refinancing to get all your cash back out within 6 months.
       Q1 - $45k
       Q2 - $48.35k = $45k + $3,35 in CF
       Q3 - 3 - 6 months...when you refinance
       Q4 - 3 - 6 Months...when you refi
       Q5 - 107% (remember, you're getting all your cash back + CF
       Q6 - 2.5 - 5 years
       Q7 - $0  When you refi that last property, you get your original cash back.
       Q8 - Your ahead as soon as you refi.