Do I finance or pay cash?

Here is something I have been trying to figure out for a while, and through my research it still is not quite clear what I should do with my money. I could potentially buy a couple, maybe three properties outright, or I could buy one and finance the rest, or attempt tkeeping is much cash in hand as possible. Number one I do not believe based on my current and past income that I’d be worth much to a lender without some sort of security and a large chunk of cash in my bank account at least would seem to me a less secure location for a lender than in a home that they could put a lien on no? This has been my impression so far. Am I far off from reality? How does this part work? Thanks

You should always finance rental property. If you buy a $100,000 house for cash and it goes up in value by $10,000 you make 10% on the money you have invested. But if you put $10,000 down and finance $90,000 on that same house and it goes up that same $10,000 you still get the same gain but because all you have in it is $10,000 you make 100% on your money. That is the beauty of leverage. Now if you started with $100,000 use the other $90,000 and do it 9 more times. So with $100,000 you can either have a rent house and control $100,000 worth of real estate or finance and buy 10 houses and control a million dollars worth of real estate.

Now let’s look at the cashflow. If you buy a house and pay it off and rent it out for $1,000 a month you make $12,000 a year. If you on the other hand buy 10 houses and rent each of them for $1,000 each and the monthly cost is $700 you cashflow $300 a month per house. That is $3,000 per month or $36,000 per year.

To compound the advantage if your lot is worth $30,000 and the structure is $70,000 when you depreciate each house for tax purposes you reduce your income by about $30,000 per year. That means that the rental income is tax free.

So pay cash and make $12,000/year or finance your enterprise and make $36,000/year.

thank you. that made sense. but do you think that the scenario you presented with me financing a 100k home for each 10gs in my pocket is realistic especially with my low income at present? or is it something that so long as I acquire performing properties financing becomes easier with each one as my income grows? for some reason I’ve had the impression it wouldn’t be so easy. thanks

My statement was general concept. Of course your specifics should be concidered. I would find a mortgage broker in your area that deals with investment real estate and get them to help you make a plan. These brokers are not the ones you find making loans in your neighborhood to families. You want investor grade mortgage brokers. All these investor grade professionals know each other. If find one he will be able to point you to all the others. If there is a real estate investors club in your area there is likely to be investor grade professionals there or sponsoring it. If you don’t have a club to attend find a house for rent and call the number. Tell the person that answe that you want to be an investor and was wondering if he could tell you who finances him. Most of us will be glad to tell you who our mortgage broker is.

Yes and yes. Maybe not a conventional bank mortgage, but there’s other ways.

For example, let’s say you see a triplex for $100K. You have $10K. You approach the seller with your statement of networth and a copy of your savings account to let him know you’re credible and won’t default on the mortgage and offer to buy it with a $95K loan from the vendor with $5K down and reserve the other $5K for closing costs–legal, title insurance, land transfer taxes, etc.

Another option is to offer a $60K first mortgage at around 9% from a private money lender, with a second for $35K from the vendor at maybe 4% and $5K down. It is a given that self-employed people are trying to write as much off as possible to pay the least amount of tax, which explains your low income. A lot of banks ignore that reasoning, but you don’t want to approach a bank–you want to deal with private money. Or you can have a relative with good income cosign it (which is probably not a option for most). Or you might be able to assume an existing mortgage if there’s one on there depending on the lender (which would give you a better interest rate). You need to call around different mortgage brokers and ask them which private money lenders they deal with, what kind of deals they put together, and what terms they are looking for.

Another option is mortgage insurance, but there’s limits on how many houses you can buy this way and the rules are changing. Have you served in the army? There’s vet loans.

And if the vendor is old school and doesn’t want to play ball, fine exit stage left and try again with the next building. Every vendor has different motivations to sell and what they want to do with the proceeds. You want to deal with a vendor that matches your goals.


I am taking a slow but steady approach and buying properties with cash. My total closing costs on last deal were $39.60

You can negotiate a deal when you are buying with cash.

If you owe something free and clear, its hard to have negative cash flow. Besides, if i really want to, I can always use it as colleteral to get a loan.

This is my path…:slight_smile:

Good luck!

thanks a lot. great info. still absorbing it.

People say bad things about get rich quick schemes but there are only 2 ways to get rich. Slow or fast. Get rich slow means you save up pay cash and by the time you are too old to enjoy it you are rich. Get rich quick is when you use leverage to get rich while you still look good sitting on the beach with the tropical drink in your hand. When you pay cash you restrict your own growth because when you run out of money you are done.

I always finance my rental acquisitions because I like the idea of having my tenants pay off the mortgage loans for me. Just another way of looking at using other people’s money.

Do your homework to make sure the rental property you buy will generate a large enough cash flow on your financing terms to support itself. The last thing you want to do is buy a property that takes money out of your pocket each month.

I think we need to slow down a little and get a clear picture. From your posts it sounds like you have a sizable amount of cash in the bank but a meager month to month income. If that is the case, then you need to weigh the risks with the benefits.

Whatever financial route you decide to take, you need to make sure that the risks are not too high. For example, if a tenant moves out and it takes 60 days to find a new tenant, will your current income allow you to make the mortgage payment if you get a loan. (This will be a lender’s primary consideration.) If you have a 6 month reserve, then you will look much more secure. Some lenders will use rental cash flow as a source of income towards the loan. Depends on the lender.

If I were in your shoes, here is what I would do. First, locate a lender and get pre-approved. This means checking around and comparing loan options, down payments, closing costs and their requirements.

Second, purchase an investment property with 20% down and finance the rest. Setup a 6 month reserve (great safety net even though tempting to see that amount of cash “sitting” in the bank).

If you have money left over, do it again. Same 20% down. Use the first 6 month reserve here too.
If you do not have enough money left over, use the positive income flow from your rental to build your down payment on the next property.

Do not buy investment properties with cash. You will have a much higher cash on cash return if you use bank leverage. It also frees up more cash to by discounted properties and increase your cash flow.

BTW, hard money loans (private investors) are going to charge a really high interest rate. IMO, it will eat up a very large portion of your profits and is a much greater risk.

Excellent advice all around!!!

I’m assuming you’re investing for cashflow and not capital gains. If so, I’d use as little of your own money as possible and buy a SFR as sellers of SFR are not thinking like investors but like 9-5 folk.
This allows you to get deals faster, better terms with debt service, and at better prices.

Ensure you run your numbers to ensure your investment will actually cashflow.


Leveraging borrowed money is, in general, the easiest way to really increase your wealth. The more you can leverage, the faster it goes. I don’t call this “get rich quick” because GRQ schemes are, well, schemes. But leveraging is the way to go to get rich faster than you would if you simply put your cash in a bank.