Recently Laid Off / Am I Crazy to Buy FL Investment Property All Cash?

Question

Hi!

I was recently laid off from my tech sales job in SF. It's been my goal for the last year to buy a small real estate investment property in Florida (where my family lives) but I've been too busy to look properly. Is it mad to consider buying a $150-$200K house all cash now?

My situation:

* I have no debt, a large amount of cash and stock and this would only represent a 5th of my portfolio.
* Currently I rent in SF where I'm not interested in buying due to high cost
* I'm aware I'd need at least one year of cash buffer to support me finding another job through realistically I expect it will take between 3 months to a year (if we get hit with a recession).

Would love to hear any initial feedback, pros, cons but I plan to run this by a financial advisor prior to pulling the trigger.

Thanks!

Allan C. · Answer

@Jane Prince how stressed would you feel if your rental property went vacant for a few months, or if you had to reduce rent if market continues to slow? Would selling some stocks to make ends meet be regretful in that scenario? Would you have any reserves for unexpected capex items?

If you’re uncomfortable with the hypothetical above then buying all cash is likely not the best option. In this market environment maintaining liquidity is important, and it’s doubly-important if you don’t have stable income.

Adrian Chu · Answer

1/5 of your portfolio is fine IMO. You will still have sufficient reserves.

V.G Jason · Answer

Put your money in a HYSA, and spend your time finding a new job. Once you do that, go buy your house. Focus on the job, worry about the house later.

James Wise · Answer

Yea probably a bad idea. No job and no primary residence...Should not be looking at buying a rental right now.

Jake Andronico · Answer

@Jane Prince

I'm sorry to hear about your job, but the good news is you're in a phenomenal spot!!

You're not crazy for paying all cash IMO. Cash is extremely strong right now and you can get great deals even on turnkey inventory (at least here in Reno, NV, assuming it's probably similar in parts of FL).

It's much lower risk, higher cash flow, and you have LOTS of negotiating power in this market.

Jane Prince · Answer

Thank you very much for all this feedback! Digesting.

Mindy Nicol · Answer

Hi Jane,

This is not a stupid idea.  If you are buying a rental property for LTR it would be an asset that will PAY YOU every month instead of paying someone else for rent.  I know SF well as I used to live in the Bay Area!  Another idea is you put 30% cash down and do a DSCR loan.  We do those all the time for investors.  This is based on the LT appraised rent for the property not your W2.  That way you keep some of your cash in reserve and then buy a better asset ie better location, larger home, better quality home with less repairs, etc.  I am in Northeast Florida.  Real estate pricing varies throughout Florida and this area is still more affordable than if you are looking further south.  Many options depending on what you want to spend! Let me know if you need to talk this through.

Best, Mindy

Bob Ebaugh · Answer

It's not a crazy idea.  Even where I live in Tampa/St Pete it's hard to have positive cash flow on a newly financed property.   And the last thing you need is a cash drain if unemployed.

Paying cash is a way to reduce risk if selling prices decline, that also reduces potential returns for the same amount invested.   Financing uses other peoples money to make up what you don't have.  For comparison, the traditional 80% financing requires buying 5 similar houses.  Home prices rarely decline, hence the traditional advice.   This analysis represents the complete investment lifecycle from buy to rent to sell.

During the holding period, income is maximized by paying cash.   You're basically paying yourself instead of the guy/financial institurion with money.

I think the question you must answer is are you interested in pursuing real estate as a significant part of your investment strategy?   If so, it's a way to get your feet wet and learn more about it.  You have to start somewhere, but a single house doesn't provide enough diversification, financed or not.

Denis Ponder · Answer

So you are saying this $200k purchase is 5% of your liquid assets?  Why not put less down?

We don't know if this is even a good deal.  Are you getting a good discount on the equity?  Are you getting good cash flow/cap rate?  Does it need any work?

It seems like you are liquid enough and if you possess the skills to be successful in a tech sales job, you will likely land on your feet and pretty quickly.

I wouldn't necessarily push you to do it, but if it's a good deal, I would certainly understand your pursuit of it.

Doug Smith · Answer

I'm not sure I would. Perhaps you should consider keeping some of your powder dry until you're sure you have a stable new role to support your day-to-day life. Buying all cash is possible, but if you decide to borrower you'll run into issues with conventional financing without a job and DSCR financing because you don't currently own a home. If I didn't have an income, I think I would tighten the belt and stabilize your income first.