Cash vs Financing on low cost properties?

[Pedro Torres]

Hello everyone, 

I'm looking into buying my first property. Currently I have 25k in cash (with 2k added each month from my 9-5 job) and was looking to buy in the east (Milwaukee, Cleveland, or Detroit areas), because of how inexpensive these properties are. I want to buy and hold. 

The question is, do you think it's financially better to buy a property in cash or use my HELOC (5.5%)?

Here's an example property, something like this is what I'm looking for: 

https://www.zillow.com/homedetails/5524-Maryland-S...

Of course I will fly to Detroit and check out multiple properties while I'm down there. Also take time off of work to organize contractors for the light rehab that needs to be done. Check to see if there are any taxes or other expenses attached to the property before purchasing it. Hire a good property manager. Check the neighborhood (currently according to niche I live in a D+ area and I've been happy for the 2 years I've lived here. 

So I really just want to know is it worth spending my 25k, buying and holding. Then repeating the process by saving up money from my 9-5 and rental income to purchase another house in cash? Maybe this time upping the price to 35k. Then 45k. Then 55k etc. 

What do you all think? 

[Jim K.]

@Pedro Torres

I'd like to point out the glaring flaw in your proposed buy-and-hold business model that seems to have gone unremarked on so far in this thread, although it's been discussed many times on this website:

Long-distance landlording in a Rust Belt slum ain't easy.

This place is in MorningSide, Detroit. Do you know anything about the area? You're not going to find many property managers eager and willing to start with you on one cheap property and grow with you slowly. You're not going to find contractors willing to run out to MorningSide at all hours to take care of your D'class tenants in their 1923-built house. You, or your property manager, are not going to find high-quality tenants to fill this place reliably. You are very optimistic about the "light rehab" you mention here. I would not have quite the faith you evince in the veracity of a listing description of a property being sold for under $19,000. It's much more likely that the place has been patched up and rigged six weeks from Tuesday to get it on the market and once you have a tenant in there all kinds of expensive stuff will start to go wrong from Month 1.

I'm a self-managing DIY landlord with C/D rentals in a Rust Belt city running a small mom and pop operation. I know this sounds like a good idea when you look at the numbers and fail to consider the actual mechanics of how this could hurt you. You can be leeched dry on these properties from across a continent, death by a thousand cuts.

In closing, I know at least six other guys in my area who are making this work in properties like this. I don't know a single long-distance outfit that finds it worthwhile.