Why does buying cash save you money

Many times as investors, we are always trying to diversify our portfolio.  After all if you have $60,000.00 & in the market you're looking at the average houses are between 60 - 70k, why not diversify?  

Here is a little known secret as a provider.  We do want you to grow your portfolio & we do wish to sell many houses.  However, if you choose to diversify you may get stuck with long loan docs, multiple inspections & appraisal fees, origination costs, interest & monthly payment.  

If you have $60,000.00 saved up, you have good credit & income you might be able to qualify for a loan at 20% down or $12,000.00, which essentially is 5 houses.  Did I say that correctly?   12 x 5 = 60, your probably thinking you can make money hand over fist, your rents will cover the house payment & you still might have a little extra to build up that savings.  But now, lets start looking at the added costs with having a loan.  Like origination fee or points, administrative fees, inspections, appraisals, document processing fee's & title fee's.  Lots of fee's here so now you are needing to decide do I want to do 4 houses or can I come up with essentially another 15k to cover all these fee's  that the bank will be charging.  I'm unable to give you exactly your fee not knowing who you will borrow from, your credit score but it's safe to say you will be out at least 3k minimum per house.

Should you buy cash as an investor I can tell you a little known secret.  CASH IS KING!  When I have a Cash Buyer, I can go to the owner of the company & tell him, I'm only selling John Smith one house, but he will be paying cash.  Do you know what the owner will do?  He will either knock a little off the purchase price or help pay closing costs, or help with the inspection or appraisal.  Why will he do such a thing?  After all isn't his goal to sell more houses?  In this business Cash Is King.  We know that the house will appraise & pass inspection.  The inspector will always find some minor fixes, but if he came back & told you that the house he inspected was perfect....would you really believe him?  The inspector gives a second opinion so in his eyes there maybe some "minor" things & most providers will fix them for you.  Buy why would a provider choose to sell 1 house as CASH instead of 5 houses as finance?

Simple, knowing that you as an investor is able to close on that 1 house in probably 2 weeks is better for the seller than trying to finance 5 houses in 45 days.  Now it is taking almost 45 days to get a loan process.

We know your end goal is to grow your portfolio & to have 5, 7 or 10 houses, but we find if you move slowly, buying 1 for cash, allows you to see the whole process, get a feel for being a landlord before jumping in, creating debt & then in a year realize this might not be for you...  Or worse, have multiple loans, lose your job & need your rental income for you to survive on, robbing peter to pay paul for a month or two.

Investing is a great way to create passive income.  But do it smart.  Inventory is always moving.  Take baby steps & grow as an investor.  If you do a house first as cash, find you are able to maintain it (either allowing a PM firm or self manage), then buy another one.  You can always refinance them later to help you get more finances if needed.