Buying with cash vs financing

[Robert Quiroz]

Hello All,

I will have around $1M in capital that I'm looking to generate 8-10% CoC returns for the purpose of replacing active income. I've decided to go the financing route to protect the value of that $1M against inflation over the next 40 years. However I wanted to get people's opinions here for discussion. I've listed some considerations below for financing vs buying in cash for multifamily home. I'm looking at MFH $450k and up in the Ohio markets (Dayton, Cleveland and Columbus).

Cash:

- Higher CoC returns

- No risk to being having negative cash flow with a loan (excluding capex)

- Buying/negotiating power with speed of transaction 

- No interest payments

- No risk of foreclosure

Financed:

- Possible exponential equity growth 

- Growth of initial investment is leveraged ~4x and most likely beat inflation in a decent area

- Mortgage interest tax deductions 

- Better financial efficiency from more doors

- Better diversification across more properties 

Are there other considerations I'm missing?  The ultimate goal here is to retire as soon as possible and not wait to grow equity over 5-10 years to be able to retire. 

[Timothy Hero]

Being a mortgage broker, I'm sure my opinion may seem bias, but I suppose it depends on your goals. If you want to scale, you'll need to use leverage.

I've seen many investors brag about their cash deals by saying things like "I make more per month than those with loans." Yeah, on that property.

$1M in cash buys you $1M in property.

$1M in cash and financing with 20-25% down buys you $3.5 - $4M in property.

Who do you think will have a higher net worth in 5 years?

There's a reason why even the wealthiest people in the world still finance.

[Sammy Lyon]

I wouldn't limit yourself so strictly on either/or. Let's say you are really, truly actively looking in the market. First, I'd suggest connecting with a good realtor (@Tal Tamir in Cleveland and @Anthony Petitti in Columbus are folks I've worked with and love) as well as a property manager in that market. 

Everyone's obsessed with "off market deals" but a realtor who knows their stuff will be your true guide in the market.

Secondly, I recommend asking those folks for good lenders, and also finding and connecting with other investors in the market (who have nothing to sell you). 

(I also suggest an in person visit to meet folks and get to know the areas, not to see a particular property but to build relationships.)

Once you are active in a market you will start to connect with investors who may be selling, wholesalers who have assignable contracts, and your realtor may also have access to off market opportunities. 

You won't be getting access to these if you are a tire kicker, so having some actual purchases under your belt will show you are serious. By all means, finance these initial ones!

But think of your capital like a fund - some purchases make sense to finance, and some you may get a screaming deal if you come in all cash with a quick close. So you may buy one property with traditional financing, one all cash for a BRRR, and one with seller financing with a lower down payment (for example). There's no reason to go ALL financing or ALL cash, but to be strategic about how to use your funds to acquire more properties as opportunities present themselves.

Hope that helps with your thought process. Above all, take action! :)