Cash or Leverage??? Should so use my own money or a Loan broker?

Question

Andrew Johnson · Answer

@Beverly Joseph So, if I were in your shoes, I'd stop reading this response and go talk to a lender.  In fact, I'd probably go talk to 2-3 lenders.  Get an idea of what you *could* qualify for if you wanted to go down that road.  Get comfortable with what your loan terms would be.  A lot of new investors think that commercial multifamily mortgages are the same as their 30-year fixed-rate non-recourse loans that they have on their home.  They're not.  I have a couple of commercial multifamily properties and I'm a fan of loans and leverage.  Why?  I get to write-off mortgage interest against the income of the property.  We both live in California and, let's face it, we're not a low-tax state.  And if you want to buy in California a ton of the purchase price (value) is in the land so there's less in the area of "improvements" to depreciate.  Not to mention that money is (at the moment) still historically very cheap.  That said, if you start talking to lenders and hear things like 5-year balloon, full-recourse, etc. and that translates (for you) into "it's hard to sleep at night with those terms" then stick to cash.  Real estate isn't a guaranteed return, there are risks, and while we all (including me) have our theories, successes, metrics, etc. it's not our debt at the end of the day :-)

Go talk to a lender, at least then you'll have some good "real world" loan terms to factor into your analysis.

Jon Lee · Answer

Hi @Beverly Joseph....Welcome to BP.

I definitely agree with @Jay Dean, @Shawn Ackerman, & @Shawn Ward about maybe wanting to partner up with an experienced multi-family investor for your first investment if you want to go that big out the gate.  I recommend starting to network with multi-family investors at your local REIA/Meetup group for investors.

Concerning cash or leverage...I'll always choose leverage so you can maximize your ROI and flexibility in acquiring more properties.  There are a ton of lenders (both private & commercial) that you can access through networking and a little focused research.

There are more considerations to take into account but that is my opinion on your question.

Best of luck to you!

Phillip Gant · Answer

0 to 5 is frightening to me too! My suggestion is first figured out exactly what type of investor you want to be and then start off small to make sure your processes are correct and perfected.

David Faulkner · Answer

Warning, thar be many sharks in these here waters ... no need to chum the waters with "I've recently received quite a bit of money" ... caveat emptor. If you don't already own property, then finding a good deal on a home that your family can use for a primary residence and where you can learn the ins and outs of property acquisition and rehab hands on may be the best at this point. As mentioned, you could buy and fix all cash and cash out refinance later if you choose to.

Account Closed · Answer

This depends on so many factors... what is your budget? That would sort of determine where you can afford to buy a 5 to 20 unit apartment and if to use cash, leverage or both.

Shawn Ward · Answer

@Beverly Joseph good question. If the pockets are deep enough and you can start on a smaller deal like @Jay Dean suggests (which I would to), then do it cash. I like leverage since it allows me to diversify and do multiple deals.

But, first thing I'd do is find a partner to do a joint venture or so who's very experienced. At minimum get a local mentor who can teach you the ropes. Work smarter , not harder.

Onwards,

sjw

Shawn Ackerman · Answer

@Beverly Joseph The basic thought process is when looking to scale, unless you will use bank leverage as it's low cost and fairly easy to acquire if lend-able.  However if your simply looking to park your money then that option is also good as real estate is a solid asset class.  I've built a real estate portfolio beginning from 1 SFR and I've used the banks money over and over.  Buy cash/Delay Finance/Repeat.  This strategy has been done mainly on residential properties 1-4 units however I'd imagine commercial will not be much different.  In the end it's all about the numbers.  Best of luck to you.  Always remember to persist and you will WIN!!!

Beverly Joseph · Answer

Thank you Jay!  I was thinking hiring a Property Manager.  I would not be able to manage this myself for sure.

Cash or Leverage??? Should so use my own money or a Loan broker?

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