Buying Real Estate with Cash. The safe snowball effect

[Samuel Iwu]

I recently watched the bigger pockets podcast with Brad Dantonio as the guest. Brad bought 5 properties with cash in order to maximize cash flow and retire early. After thinking about it, wouldn't it be wise to do the same but while you are younger. Basically use the cash flow and your income to keep buying properties in cash. In terms of numbers it seems reasonable. First save and buy a property in cash that will cash flow $1,000 a month. Now along with your income you will save to buy another house with the additional $12,000 a year from cash flow. Keep doing that till you have 5 properties that will cash flow $5,000 a month. After that, if possible, you will be able to add your income and the 60k each year in cash flow to buy two houses.After that year, your total monthly cash flow goes up to $7000 a month. Looking at how this can safely snowball, is this a bad idea?

[Spencer Cornelia]

@Samuel Iwu Nearly everyone on this forum (all 1.4mm individuals) had a starting point of less than $100k cash.  I would bet my bank account on 99% started with less than $100k.  The reason why people don't purchase with cash is they simply don't have it.

Looking back, having the ability to do rehab projects with all cash is the easiest way to get rich.  The catch?  No one starts with $250k.  Even lower priced markets where there is enough activity to justify flipping houses requires at least $100k - $150k of cash in order to complete a full purchase and rehab.  That's a lot of cash.  Something like 50% of Americans right now are a $1k expense away from financial turmoil so you can imagine how few people have $100k+ to invest.

I do agree that using cash is a great strategy.  I'm over-leveraged at the moment with two hard money loans at 15% and I can tell you that I will never experience this again.  I'm one economic decision away from potentially losing everything.  Using cash mitigates this.

Since there's potential that we've already reached the peak of the housing market, leveraging yourself to the max is probably not a statistically wise decision.  Jack's strategy is great on paper, but he just gave a scenario where there's 5 properties with $0 in reserves.  That's one unfortunate break away from losing all 5 (hello 2007).