Buy now with cash? Or wait to finance.

[Joey C.]

I currently have 50-60k to invest in my first rental property. There are many single family homes and condos for sale in my area listed anywhere from 40-70k. Here is where the question arises. I was discharged from a bankruptcy (chapter 7) over 2 years ago and have to wait the full 4 years before applying for a conventional loan. Should I be patient and wait another 21 months to get a mortgage or jump right in with cash and go for it. Currently very interested in a 3bed 2bth colonial with a huge lot and 2 car garage for 50k. Your opinions, comments and advice are greatly appreciated.

[Nathan Emmert]

Just to make sure I understand the question...

You have cash now in hand collecting little to no return (I'm assuming)...

And you're asking if you should invest it now to get some return understanding that this return will be less than if you could fully leverage it...??

So basically you're deciding between no return and a less than optimal return? That's easy, something is better than nothing!

What's the opportunity cost of spending the money? If it's less than the return you get on that $50k property, pull the trigger.

In 2 years when the Bankruptcy is fully aged, you can look to finance that home to pull some cash out of it to achieve the leverage you desire. You'll have 2 years worth of landlord experience and income on your tax returns which will help. On the flip side your risk is that the $50k home will only be worth $30k in 2 years (or some lesser value) which would reduce the amount you could pull out and leverage.

One last thing to remember, getting financing (as I mentioned above in 2 years) on Condos can be challenging due to occupancy restrictions and HOA issues. That is one of the reasons condos are often so cheap, they are at times only available to cash buyers. Just an FYI.