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! :)

[Robert Ellis]

Quote from @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. 

At Pink Development and Construction, we focus on smart strategies that balance risk and reward. Here’s what I recommend:

Cash Investments:

• No Debt, No Stress: With cash, you avoid third-party control and loan vetting, giving you full control of returns.
• Equity Builders: Partnering with builders often reduces your property entry cost by up to 20% below market value.
• Consistent 10% Returns: With an all-cash approach, achieving 10% ROI is realistic and efficient.

Financing Strategy:

If cash isn’t feasible, consider a balanced financing model:

• 40-50% Down Payment: Keep leverage manageable while maximizing returns.
• Lower Debt Exposure: A conservative loan-to-value ratio (LTV) reduces risks and keeps returns stable.
• Work with a Builder: Collaboration with builders can lower acquisition costs and increase your ROI.

Key Takeaways:

• If possible, prioritize cash for simplicity, control, and consistent returns.
• Financing can work well with a disciplined approach to debt and a strong underwriting process.
• Partnering with builders offers opportunities to reduce costs and enhance your portfolio’s profitability.

[Tanarat Bunchom]

Both financing and paying cash have their advantages, and the choice depends on your goals. With cash, you'll enjoy higher CoC returns, no mortgage payments, and no risk of foreclosure. It's a simpler, lower-risk approach with immediate cash flow. However, financing allows for leveraging your capital, which can accelerate equity growth and provide diversification across more properties. You'll also benefit from mortgage interest tax deductions, and it's a good hedge against inflation, especially with a fixed-rate loan. The downside is the risk of negative cash flow if the market shifts, but it offers liquidity and flexibility to deploy capital elsewhere. If your goal is to replace active income quickly, financing could give you the ability to scale faster and grow your portfolio. Ultimately, balancing cash flow with long-term growth and risk tolerance will guide your decision.

[John Morgan]

If you want to be wealthy and create generational wealth, the fastest way is to leverage your way there putting 20% down on as many properties as you can get. You’ll get there a decade or two sooner by leveraging and using OPM. Paying cash is fine, but plan on using that equity to scale up with a cash out refi or 1031 exchange. Let your money work for you. Numbers don’t lie.

[James Hamling]

The question of all-cash or use financing, which is "better, is a fundamentally flawed question. 

What a person is stating when saying this is: Hammer or Saw, which is better for building a home? 

The answer is both and neither, all depending on what you're trying to do and which tool is best to complete that job. 

[Ashish Acharya]

@Robert Quiroz Financing allows you to leverage your $1M to acquire multiple properties, increasing diversification, cash flow, and long-term equity growth while preserving liquidity. It offers tax benefits, such as mortgage interest deductions and depreciation, reducing taxable income. However, it comes with risks like higher complexity, cash flow pressures during vacancies, and interest rate exposure.

Buying with cash simplifies management, eliminates interest, and increases immediate CoC returns but limits scalability and diversification. A balanced approach, combining financing with a cash reserve for stability, maximizes tax efficiency, inflation protection, and aligns with your goal of retiring sooner.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

[Bryan Stengel]

Hi Robert, I think it all depends on your investment goals. Debt is leverage and with that you could be able to jump into way more deals that way at once. Unless of course, you want to perform a BRRRR strategy in which case you could do that too. Higher percent down though might actually help slightly reduce the interest rate for you, but also allow you to keep some of your cash as well for other potential deals.