Cash or credit for buy and holds.

[Eric Martinez]

My questions to the community is would you recommend paying cash if you have it for a buy and hold property or finance it. I see positives to both sides and wanted other people's experiences and input on the pros and cons.

[Rob Myers]

I'm relatively new at this with only two rentals, but I see myself sticking to the buy-fix-hold model and purchasing with cash with intent to refi after the seasoning period.  

With a cash purchase, you can go after a property that a bank might not be comfortable financing which seriously limits your buying competition. It also allows you to purchase property via auction. Spend some money fixing it up and find a quality tenant. Do a cash-out refi after the seasoning period when the lender will base the LTV off of appraised value versus purchase price. If you work the numbers correctly, you'll find that you may actually have little cash into the property after the refi.

Example:  Purchase a house for $50k.  Add $25k for repairs.  Total cash in = $75k.  6 months to a year later (seasoning period), house appraises at $100k.  Assuming the lender wants 25% down for a non owner occupied property, take a mortgage for the remaining 75% = $75k.  Total cash outlay = $0.  Caution - this works if you know your market and can reasonably anticipate what the property would appraise for after repairs.  You also tie up your capital for what seems like a long duration of time.