Best Way to Use Cash

[Stephanie Jones]

My question is basically, " What is the best use of cash when purchasing real estate (to hold)?"

My husband and I started investing in real estate about 15 years ago. We purchased four 4-plexes, managed them ourselves along with working full time and thought we'd hit our limit. About 5 years ago, we purchased 3 SFR (two 2bdrm and 1 bdrm homes) and again decided we were done. In this last 2 years, my job became very time consuming and I decided that I'm ready for complete passive income. Heard the phrase at some conference that "Time is Freedom" and that's what I want. So we've refinanced our 4-plexes and pulled out $170K. Now I'm trying to decide if it's better to spread out the cash and purchase as many properties as possible, or to purchase with cash and then use cross collateral financing to help us purchase other properties (Not sure if I phrased that correctly??) Our goal is to grow our portfolio- focusing on cash flow primarily, then after a certain point, building longer term wealth. Wondering what others suggest or think. That's for your insights!

[Frank Wong]

Hi Stephanie,

First, you have built an amazing portfolio for yourself and you are doing great.  You have 4 quads and 3 SFRS and at this point, I would be careful on how to scale.  You don't want to be overly aggressive and put yourself in an over leverage position but I am sure you already know that. 

To me, this is an easy one. You pulled out $170k from your quads.  Now you want to know what to do and buy with that money.  Take the money and buy in cash a few more SFRs the same that you have already done and proven to yourself that works. Just repeat it.  

I would not take the cash and then buy SFRs and then finance the purchase. Why?  Because you already pulled the cash out of your Quads and you would then be essentially financing all your purchases at 100%. That is way too much leverage.  That is when people go broke when the market turns or whatever happens to rents.

More is not better in many cases.  I like to net more with fewer properties but first growing the portfolio then owning them free and clear.  I want to create more money along with more time for myself to fully enjoy it.  That's the end goal, right? More money and more time.