Does all cash always trump a mortgage?

[Erik Pilon]

I’m on the fence.

For rental properties, some books and podcasts say get as many properties as you can with as many mortgages as you can with $X. Others suggest to take the same amount of $X and purchase with all cash.

I’m sure people have succeeded with both strategies, but say I do have that $X, what’s generally the most successful path?

I’m on the fence between all cash for a single family, or a mortgage for a 4-plex.

The end-game for investors is to be all cash on multi-families, no?

[Jake S.]

@Erik Pilon It depends on what you want and your goals honestly.

I personally like using debt to acquire properties (as long as Im not over leveraged) due to the higher returns. You should never buy based on appreciation, but let's say you put $20k down on a $100k house. If that $100k house appreciates 4%, the value of the house is now $104k. You just made $4k on a $20k investment in one year. If you buy it all cash, you only made $4k on a $100k investment.

Another thing to consider is your tenant will pay the loan down, and with a long term fixed loan, you are inflation hedging. Let's say your monthly payment is $1k, well, $1k today is worth more than $1k 20 years down the road, so payments become easier to make as well.

Using leveraged to acquire properties also can help you diversify the locations. Instead of buying 1 property in 1 area, you can buy several properties in multiple areas, protecting against downturns in any specific area.

Some may also argue that keeping a property leveraged can also act as a form of protection against law suits and a few other things, but I won't touch on that subject