Which is Better Cash or Lending?

[Quentin Mitchell]

I know this a topic that is probably 50/50 thoughts but which do most people think is a better option for investing.

Lending 

1. You can leverage more properties with the same money as you can split up cash and use it for multiple down payments.

2. You can extend the payment terms 30 yr fixed to free up money to get other deals by having lower payments.

3. Usually, you need less money as you are only paying a down payment as opposed to the full purchase price.

4. Lastly, once you have a good track record, you look more favorable to lending institutions.

Cash

1. Close faster

2. Can be easier to negotiate

3. Cash Flow is usually better because of no mortgage.

4. Easier to BRRR

Well, those are my 2 cents what are other people's thoughts.

[Greg Dickerson]

Leverage is the only way to scale. 

You can pay cash and close quick if that will get you a better deal but then pull the cash out to keep it growing.

[Quentin Mitchell]

Originally posted by @Greg Dickerson:

Leverage is the only way to scale. 

You can pay cash and close quick if that will get you a better deal but then pull the cash out to keep it growing.

I agree with you just was asking what other people thought.

[Chris Coleman]

@Quentin Mitchell

When I first started investing in RE, almost 8 years ago, I was using all my own capital. After a few year of doing this, I couldn’t understand why it was going so slow...why I couldn’t scale up quicker.

Then, after more reading, networking, learning from others, I realized the critical piece I was missing...leverage.

1. Cash Flow 2. Leverage

But definitely DO NOT over leverage. Secure long term, conservative debt.

[Ed Matson]

In addition to the ability to scale, the use of leverage should allow a higher return on capital albeit at a higher risk level.

[Quentin Mitchell]

Originally posted by @Chris Coleman:

@Quentin Mitchell

When I first started investing in RE, almost 8 years ago, I was using all my own capital. After a few year of doing this, I couldn’t understand why it was going so slow...why I couldn’t scale up quicker.

Then, after more reading, networking, learning from others, I realized the critical piece I was missing...leverage.

1. Cash Flow 2. Leverage

But definitely DO NOT over leverage. Secure long term, conservative debt.

I think with Lending you need to have a good source to get funding from so that you can scale faster and yes the main potential problem for lending is getting over-leveraged.

[Quentin Mitchell]

Originally posted by @Ed Matson:

In addition to the ability to scale, the use of leverage should allow a higher return on capital albeit at a higher risk level.

Are you saying that is a postive for Cash?

[Ed Matson]

No, a positive for borrowing/leverage.

[Bjorn Ahlblad]

@Quentin Mitchell It depends on your situation and your goals; at my age I'm not looking to scale just want to buy another 10-20 unit if one comes along to help fund my retirement. I'm making offers but so far no bites. Cash gives me the ability to take control of a deal and the seller knows I can close if it is the right deal; it keeps him focused on me. So if I ask to see the leases and rent roll he knows to cooperate.

Cash does not help your cash flow by the way-that would be fooling yourself because you are just moving money from one of your pockets to the other and probably buying inferior deals.

Ideally you should have both cash and ready access to cash. Set up your sources of money when you don't need it and never allow yourself to get strapped. Money solves most REI problems more quickly than anything else; have it available and never waste it.

[Mary M.]

This is a complicated topic that should be looked at individually as each situation is different. 

I bought my portfolio with cash and now want to grow. If i use leverage i will pocket less cash each month for the first few years - then in year 3 -5 the leverage really starts to pay off. 

never over leverage and always remember it is important to ensure you have enough cash reserves just in case .....

[Quentin Mitchell]

Originally posted by @Mary M.:

This is a complicated topic that should be looked at individually as each situation is different. 

I bought my portfolio with cash and now want to grow. If i use leverage i will pocket less cash each month for the first few years - then in year 3 -5 the leverage really starts to pay off. 

never over leverage and always remember it is important to ensure you have enough cash reserves just in case .....

Makes sense.

[Quentin Mitchell]

Originally posted by @Bjorn Ahlblad:

@Quentin Mitchell It depends on your situation and your goals; at my age I'm not looking to scale just want to buy another 10-20 unit if one comes along to help fund my retirement. I'm making offers but so far no bites. Cash gives me the ability to take control of a deal and the seller knows I can close if it is the right deal; it keeps him focused on me. So if I ask to see the leases and rent roll he knows to cooperate.

Cash does not help your cash flow by the way-that would be fooling yourself because you are just moving money from one of your pockets to the other and probably buying inferior deals.

Ideally you should have both cash and ready access to cash. Set up your sources of money when you don't need it and never allow yourself to get strapped. Money solves most REI problems more quickly than anything else; have it available and never waste it.

 You I think you need both especially to scale.

[Noah Mccurley]

@Quentin Mitchell

Of course as you said it is situationally dependant however I feel that leverage is more often than not the best way to fund real estate investments because it allows you to scale much faster than cash does and it also keeps large amounts of personal cash from being tied up in properties for extended periods of time.

[Michael Ealy]

Originally posted by @Quentin Mitchell:

I know this a topic that is probably 50/50 thoughts but which do most people think is a better option for investing.

Lending 

1. You can leverage more properties with the same money as you can split up cash and use it for multiple down payments.

2. You can extend the payment terms 30 yr fixed to free up money to get other deals by having lower payments.

3. Usually, you need less money as you are only paying a down payment as opposed to the full purchase price.

4. Lastly, once you have a good track record, you look more favorable to lending institutions.

Cash

1. Close faster

2. Can be easier to negotiate

3. Cash Flow is usually better because of no mortgage.

4. Easier to BRRR

Well, those are my 2 cents what are other people's thoughts.

 You need leverage to expand and scale.

And leverage does not ONLY mean borrowing money.

There are 2 forms of leverage - OPM (Other People's Money):

1) Debt; and

2) Equity

Depending on the deal, I sometimes have only debt, no equity and usually, a combination of both, specially for larger deals like bigger apartments and hotels.

I rarely have no debt, all equity deals but I do use my own cash, specially for smaller deals and speculative deals (like buying properties near developments) where I don't want to risk any of my investors' money.

[Tj Hines]

@Quentin Mitchell it really all depends on the deal. In my opinion why would you use all cash if you can leverage with OPM. You can go further much faster by learning how to leverage properly without over leverage. You want to stay as liquid as possible in the current state of market we're in.

[Quentin Mitchell]

Originally posted by @Tj Hines:

@Quentin Mitchell it really all depends on the deal. In my opinion why would you use all cash if you can leverage with OPM. You can go further much faster by learning how to leverage properly without over leverage. You want to stay as liquid as possible in the current state of market we're in.

Agreed I been doing all cash deals and it's hard to keep that up.