Is Paying Cash Really A Bad Idea?

[Danny N.]

I keep reading these forums on here and I feel like Im doing it all wrong. I run a small business so my real estate investing is done more as a supplement than as an income. I have 6 properties and paid cash for all of them. This is the breakdown of all of them

$50,000 purchase - $800/mo rent

$50,000 purchase - $950/mo rent

$63,000 purchase -  $900/mo rent

$64,000 purchase - $800/mo rent

$130,000 fenced in land - $800/mo rent and tenant pays property taxes

$130,000 acre of land w/ small hair salon - $300/mo rent

I know the hair salon rent isnt ideal, but it was on the property when I got it, and I left it there bc it pays the property taxes while I figure out whatever I wanna do with it. 

Anyways my 6 properties I paid $487,000 cash for over the last 3 years since I began and they gross $4,550/mo. I dont have any mortgages and just reading this forum i feel like im doing it all wrong? How would you go about expanding future rentals from here? I have 2 mortgages, one on my personal home and one on my vacation home but those 2 mortgages are only around $430,000 combined and the 2 properties are worth around $2M combined so I have great equity there.

Im not scared of leverage but I like these cheaper properties bc they rent at over 1%/mo but when I spoke with my banker at chase he said they dont finance homes that cheap thats why I've been paying cash. Also I hate the entire mortgage approval process, is there any way I can open up some sort of revolving line of credit to buy these homes quicker than applying for a mortgage on each one if I wanted to? These cheaper homes I find rent out well and I dont mind making payment if somehow they were empty for a while.

[Roy N.]

@Danny N.

If real estate is more of a self-funding, capital maintenance venture while you focus on running your other business there is absolutely nothing wrong with buying properties using cash - particularly if it frees your conscience to focus on your other business and allows you to sleep better.

However, if you do decide down the road to acquire a larger property - one you cannot swing out of cashflow - then you may want to leverage your existing properties (perhaps only to an LTV of 50%). If you talk to your local lenders (smaller/regional banks or credit unions) about portfolio lending (sometimes called blanket lending), you may be able to finance the entire portfolio with a single note (registered against the title of all properties). There are pros and cons to portfolio lending: the pro being a single note; the cons being a little more work if you decided to sell a property (less if you add one) and you will most likely be dealing with commercial financing.