Spend more and leverage or spend less and use cash?

[Rita Oliva]

There are two scenarios below for a first purchase. What would you do? Let's say you could buy a turnkey property for a market value $67k that cash flows at $400 a month after all expenses. With a 20% down payment and closing costs, you are in it for $17k. You don't have much equity in the property but the acquisition cost is low and it cash flows immediately. You also could buy an equivalent property off market for $55k. It will only need about $1-2k to make it rent ready and once rented t will rent for the same amount as the property above. Since the purchase price is low, you would have to buy it will cash. You need $60k cash upfront to buy the property and get it rent ready. Let's say the ARV will be $67k. Which option would you choose if you only had $60k to invest and plan to build a portfolio of buy and hold properties?

[Shawn Mcenteer]

I think you will acquire property faster by spending more and leveraging.  At the end of the year if you bank your cash flow you are looking at roughly 5k where as if you refi your cash deal it has potential to be substantially more cash to buy another at a quicker rate assuming all goes well with rehab.

[James Wise]

Money is cheap right now & one of the most important reasons one should invest in real estate is to use cheap bank money. I recommend leveraging to build a larger portfolio. This will provide you with a lot of assets come retirement time.

[Kyle McCorkel]

I agree, money is cheap now, so leverage is best.  You could do a cash out refi after the cash purchase to pull out most of your money anyways, and you would get that instant equity.

However, I also believe in spreading out your risk.  If your total investable money is $60K, maybe spread that across three different properties.  Then you're not tying everything up in that one property.

[Rita Oliva]

Thanks everyone. That's what I was thinking. It makes more sense to spread it out over more properties even if I spend a bit more on the purchase price. 

[Bryan O.]

@Rita Oliva both options work. After renovating the second property, you can refinance out at 75%-80% and then put the money in another deal. That means both of your deals are using the same leverage, the real difference is time and skills. Do you have the time and skills to source the property, perform a successful rehab, and get a good tenant in place, or is that time and knowledge better just bought in the property package?

[Jade N.]

Good luck @Rita Oliva! Thank you for the real time example ; )

[Diogo Marques]

There is no one size fits all.
Very well known investors go lighter on the leverage, and some go all in.
In between 50-75% is the ballpark