All cash or conventional loan?

[Kent Depwe]

Hey BP,

First post in here, short intro: I’m 25, Technical recruiter living in Austin Texas, just bought my first house in Austin July 2021.

I'm keen to get into REI, not necessarily in Austin or even in Texas for that matter.
I have about $70-100k cash to play around with for my first property.

Since interest rates are horrendous currently, I got quoted 6.3% on 30 year conventional with a 750 credit score and great debt to income. It would be very difficult to cash flow doing a regular 20-25% down mortgage, so I’m considering buying a $70-100k house in all cash in a secondary market to avoid the high interest. But then I wouldn’t be able to leverage my money as well.

So should I pull the trigger now and buy a $100k house in cash, or get a $250-300k house using mortgage loan risk low or no cash flow, and refinance when rates go down, or just wait until rates go down before buying?

I appreciate any input, thanks!

[Joe Villeneuve]

Quote from @Kent Depwe:

Quote from @Joe Villeneuve:

Option D...none of the above.

Never buy a house with all cash. The cost of a REI property is only the cash that comes out of your pocket. That means if you are paying only the DP on a property, say at 20%, your cash is worth 5 times its face value. When you pay all cash, the PV is equal to the cash paid.

Never buy a property with negative CF.  As that negative CF adds (or subtracts,...depending on how you look at it) up, it adds to the cost of the property.  When the property has positive CF, that positive CF pays back your cost, and when the CF has completely paid you back for your cost, you have nothing in the property anymore...and the rest of the CF is pure profit.

Option D is find a different property in a different market.

Thanks for the response, my preference would be to leverage my cash, however with interest rates being upwards of 6% it’s difficult, many of the properties I’m finding would have maybe $100-300/month cash flow and that’s without including maintenance issues so could be little to none.

Interest rates being at 4-5% make cash flowing properties a lot more common it seems. So was curious given the high interest rate environment we are in would justify going all cash.

No.  Your goal isn't to collect properties...it's to collect money.  None of the options you have given satisfy any positive goals...so don't do it.  It's far better to walk away and make no deal, then it is to make a bad one, just for the sake of making a deal.