Pay cash for properties or finance them?

Question

My question is. Should I pay cash for my investment properties ($200k) or should I finance multiple doors and stretch my $200k into the selected properties only putting enough down on each property to make it cash flow? I currently own 8 rental doors with no debt or mortgage on them.

Travis Timmons · Answer

Of course, the math and return favor leverage, but what do you want? If you have 8 paid off units, you may be living off of the cash flow of your properties and more concerned with lifestyle than return. If so, that's an envious position that most of us want and aspire to achieve. If you are indeed living off of cash flow and more concerned with your month to month income than scaling a portfolio of properties, then pay cash and be happy. If you want to scale up, leverage is the way to do that, but dig a level deeper and figure out what you want to do and why.

There are many factors that go into this...I have a friend who has a very high level executive job at a Fortune 100 company. He pays cash for all of his rental properties - it is up to 11 SFHs now. He could have multiple times that if he financed, but he has a high stress job, great W2 income, and wants to pay cash. Be self aware, make the call that will be best for your happiness, well being, and finances. Your answer is somewhere along the continuum of cash for everything on one side and borrow the max against your paid off units and any other income/assets on the other...your risk tolerance and goals ultimately guide that decision. Good luck and let us know what you end up doing.

Eliott Elias · Answer

You could pay cash to be competitive and refi out later on. Leverage your cash as much as possible and think how many down payment you could put with your cash

Joe Villeneuve · Answer

Finance...always.  Paying cash means you are paying the maximum for that property.  You are paying full price.  Using leverage means your cost for the property is only the DP...the tenant pays the rest for you.  In order to profit, you must first recover all of your cost.  Paying all cash means a much higher dollar to recover than only 20% of that same cost.

When you increase your DP to offset negative CF, that's even worse.  All you're doing is paying for all that negative CF upfront.

Oh, and do you realize that those 8 properties you have 100% equity on, are all losing (and have been losing) money for you exponentially?

Brandon Beardt · Answer

Hi Blaine,

It somewhat depends on your goals. Are you trying to actively expand your real estate portfolio in the quickest way possible? If so, I would say leverage each property as much as you can! Why use your own money when you can use others! Just off of reading your post, it sounds like you have $200K cash along with owning 8 rental doors free and clear. I'd say it makes sense to cash out refinance these properties (or some of them) and use that equity to finance more properties. In addition there are many great DSCR loan options that we've helped clients utilize that allow you to purchase investment properties as long as the monthly rent exceeds the monthly PITI payment. No income verification needed! Hope this helps in some way. Don't hesitate to reach out if you have any questions!

Sasha Fukuda · Answer

It all depends on what you're going for. Financing will probably give you the best ROI, but theres something to be said for owning a small and easily manageable rental portfolio that gives you all the cash flow you need.

Account Closed · Answer

@Blaine Vollenweider If cash wins the deal, you could consider delayed financing to recoup your cash or a portion of it without needing to meet a seasoning requirement. This would allow you to pay cash and utilize financing.

Dave Skow · Answer

@Blaine Vollenweider- probably best best is to  leverage the cash you have for new properties  ...1) make sure you are  aware of what your loan  options are for the  amount  needed to  make the proeprty  cash flow   2) as  all your  other  rentals are  free and  clear  you  should be able to  get the  best  terms for the new loans  on any new rentals   3)  the min down payment for a SFH  rental  is likely 15% of the purchase price

Beth Johnson · Answer

@Blaine Vollenweider

Use leverage so your money is working for you. I prefer lower loan to values myself, to be more conservative in case of vacancies but I have around 55-65% LTV on all my properties. On the one I recently bought with cash, we got a 1st position heloc on it so that we can loan it out in private loans and arbitrage the interest income. We only have to pay what we draw on so when we don't have a private loan Auth someone, our heloc doesn't cost us anything. You could use the 200k to buy a couple properties and then get a commercial line against all your rentals to buy more or lend out as a private lender as well. This strategy helped us keep our second home to ourselves and still cash flow to cover our expenses without the hassle of turning it into a short term rental.

Theresa Harris · Answer

Where is that money going to give you the best return?  With low interest rates, I'd rather have my tenants pay down my mortgage for me and have multiple rentals.  However, if I was retired and using the rental income for my living expenses, I'd want them paid off.  I'd also start slowly selling them off (one every few years).

Pay cash for properties or finance them?

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