Cash vs. Loan for first investment property

[Kalubalu Shah]

Hey All,

I am new to the RE investing space and would appreciate some thoughts on paying all Cash for a property vs. taking a loan out.

Some basic information:

Property sizes would be between 750-3000sq. Usually buying distressed properties and looking to remodel and sell. I know that taking a loan out would help with tax deductions through interest payments and cash wouldn't.  Could someone please explain the pros and cons. Thank you in advance.

[Alexander Zurn]

@Kalubalu Shah This is a classic question not only for beginners.

Cash Pros: no mortgage, ability to take it all out in refinance, can leverage (finance) House 2 b/c House 1 is all cash

Cash cons: the cash is temporarily (or permanently) gone, not leveraging the most out of your dollar, if the property doesn't refinance where you think it should - you can't get all your cash back

Loan Pro: potential to maximize your leveraging ability, tax incentives, experience in going through the loan process

Loan Cons: holding costs/mortgage payment, acquire debt, interest rates rising make it tough to refinance (for the time being)

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Depending on the amount of capital you have, I might recommend the BRRRR strategy. Further detail below but start researching the BRRRR strategy.

BRRRR

Step 1: Buy - buy distressed property all cash

Step 2: Rehab - Rehab the property using cash

Step 3: Rent - Rent the property

Step 4: Refinance - Cash out refi the property to take out the money you spent on buying the house and the rehab (make sure the rent covers your new mortgage & expenses - this is part of your up front analysis)

Step 5: Repeat - repeat the process

Good luck!