Better 2 finance to add more props or buy fewer but buy with cash

[Shannon Bresnahan]

Hello BPers- I'm selling a investment property that has been a profitable airbnb rental in Venice, CA but now with the new city legislation has passed I'm selling it and plan to move my equity out of state. Is it better to use the proceeds to by less properties in all cash or finance and acquire more? curious on the BPers opinion on either of these positions. Thanks! Shannon

[Brent Paul]

You first must ask yourself what is your goal for cash flow and how many years do you want to take to get there.

Buying a property for cash allows you to have higher cash flow right away.  Whereas putting 20 percent down on a property means you take home less cash flow.

For example.  Say you have 200k to invest.  Now you could take that 200k and buy a house for cash that would cash flow right way.  More than likely you break even in 10 years or less depending on rent collected.

Or instead of buying 1 house for cash you buy you put a down payment on 4 houses. Lets say the monthly rent was 1600 per month and your cash flow was 400 dollars each. With the 4 houses you bring home the same amount as 1 house. Fast forward 20-30 years. The property value goes up on each of those 4 houses and you have them paid off. Your property net worth is at least 800k and your cash flow is 6400 a month if rent is not raised at all during that time. More than likely it will have been raised over the years. So long term I personally would go for more houses. The other nice thing about having a house paid off is you can take out a HELOC and use that as needed too.

 There is absolutely nothing wrong with paying for houses in cash if you can do that.  For most of us it ties up too much of our money in one house.  You can definitely make do with fewer houses if your goal is to have everything paid off and some people find that works for them.  If you do plan on paying cash for 1 house I highly recommend having 5-10k in reserves for anything that does break.