Is it better to finance or pay cash?

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If you've got below market rents, no need to factor in vacancy at all, so your set there. (Low rents means you can either increase rents... good for your numbers... or if tenant does leave new, higher rents will cover any vacant time.)I wouldn't have a problem with tenant taking care of the yard in exchange for lower rent, just make sure you don't end up paying $300/month for lawn service.I'm guessing repair costs in Florence aren't as expensive in DC, but $2k/year on a 3-unit still seems really low to me. If that's his high estimate I'm guessing one or more of the following is happening:Owner is doing repairs himself.Tenants don't ask for repairs b/c rents are low.Seller hasn't paid for many capital expenses (roof, furnace, etc.).He's not keeping records, so he has no idea what he's actually spending.He's full of it.Hopefully it's not number 5. I'm guessing it's a combination of 1, 2, 3, and 4 meaning you're in for some serious expenses. I paid $1800 to have a small part of a roof replaced on one of my houses last year. Washing machine went out in that same house. The two of those put me well over $2k right there, and that was just one unit. Not every year is that expensive, but I haven't had to replace the whole roof yet either.When I'm analyzing a property (and again, this is my market), I estimate 10% for repairs and capex combined (I'm in a high-rent area but I'll go 15-20% if rents on the unit are low or it's in a part of town I expect to have tenants that might beat the place up), 5% for vacancy (10% in a less desirable area, but again, you don't need to worry about this), 6% for property management (10% is standard but I'm at 6%) and then I make an educated guess on water bill and lawn care.I also make my best guess at what the deferred maintenance will cost to fix, and then I factor that into my acquisition cost. You've got to fix all of the stuff that's been ignored, but assuming you won't continue to ignore things when they break, that will be a one-time expense.For this building I'd go with 20% expenses at current rents if you want to self-manage, 30% if you want someone else to manage. That is, of course, assuming rents are below market. If they're actually market-rate rents, then I'd factor in at least an additional 5% for vacancy, maybe 10% if rentals in your area aren't in high demand.So, let's say you're going to self manage:$3024 - Maintenance/Capex$1398 - Taxes$1080 - Water$450 - InsuranceYour expenses total $5952, which leaves you with $9168/year. Assuming $10k in deferred maintenance and 2% in closing costs, you're all in on your acquisition for $112,000, giving you an 8.2% return if you purchase cash.If you put 75% down and get a 30 year loan at 5%, your monthly P&I payment will be $402.62 or $4831.44/year, which would leave you with $4336.56/year in cash flow. But, of course, you only put in $37k ($10k maintenance, $2k closing, $25k down), so your cash on cash return is 11.7%, and your principle paydown would put you well over your 12% target.If I were going to buy this building, I would purchase cash to get a better price, do the needed repairs, then get financing through Fannie Mae's delayed financing program (I think max 70% LTV). Ideally, after the repairs you'll be able to get it to appraise for at least your purchase price + initial repairs, maybe even more, which means you can get a slightly bigger loan which will give you an even better cash-on-cash return and invest your funds elsewhere.Of course, I'm not a licensed real estate anything, a lawyer, or an accountant, and I certainly don't know your area, so you need to do your own due diligence.

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If you want to buy more properties, you should get financing.

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The very wealthy I know leverage with loans and good deals and hold for building cash flow. When markets go back down lenders tighten up so it's a good time to have cash built up when lenders require more lower ltv's to buy.If you used all cash to buy properties in good times of the economy and then held what might happen in a down turn as lender tighten on taking equity out etc. So when lending guidelines are loose load up on debt with great properties and save the cash. When things go down it might not be the right time to sell but cash flow should be there on the properties if bought correctly to add with existing cash to deploy.

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You can't really say an 11.3% cap rate is too low unless the market is paying a higher cap rate on similar properties in similar zones. Regarding cash buy or financing, its a personal decision if you really have no alternate use of cash. Usually the idea is to use leverage to expand your investment opportunities.

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Are you suspicious of the seller's figures?

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The property turned out to be run by a slum lord. Exact words of the RE agent. On the positive side, he is also an investor and knows what to look for while we try to find suitable properties.

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Always finance! Why spend $100k on a $100k house when you could put 20% down on 5x $100k homes? Leverage is what makes real estate investment no special / unique.

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If you have more money than you need or no use for the money you have park it in a rental. It will return about 3% more than putting it under your mattress and it will be relatively safe till the markets turn. If you want to grow your wealth use OPM.

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@Brad KaiserWhen I started the first 11 properties that I bought were all 100% financed, one way or another, because I didn't have any money. The last 100 properties that I bought were all zero% financed.At first I said borrow as much as you can for as long as you can, because I had to. Now i don't have to.

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I'm new so I'm suspicious of everything! This was the response to my questions:1. Rental history had been strong due to below market rents. 2. All are in 12 month leases. Unit A is coming up in June for renewal. C*** has all 3 leases. 3. Owner pays for water which is 80-100 per month. Tenant in Unit C takes care of yard. I reduced their rent to $375 for that service. 4. No management fee figured. 5. I estimated $2k per year for miscellaneous repairs. I don't get many calls for repairs so I figured high.