Rental Property Opinion

[Capt.Brown]

Cash is king, Pay cash and you will be in a much better position. Also you make your money in the purchase, not the sell, get a good deal or move on to the next one.

[batmaninja]

Why not borrow money at 4-5% and keep cash reserves?

I get cash can help with market downturns, but so can levering your money over several properties.

[tps7742]

Looking back over the years I wished I would have invested in a few single family rental homes in the "right" community. Why not now for me because I don't want the possible headaches at this age. If loan rates are high such as in the 80's it would be best to pay cash if at all possible IMO. But at the same time, there was a home value crash in the Houston area that I am familiar with in the 80's, I should have dove in head first but didn't in fear of debt at the time. In today's world of low interest rates I would borrow the money on said single family home(s). Again in the right community with good schools. I know a couple of fellows I worked with that made allot of money as low rent land lords otherwise known as slumlords. That being said, just my two cents of where I missed out because I went the safe route.

[Buff]

Several reasons:

1. The less of your own money you have in a property the less your total risk. I don't like having money in a deal for more than two years, if at all.

2. Higher cash on cash returns with leverage. Without leverage Real Estate doesn't favorably compare to stocks and bonds and other zero effort investments. Why would someone work on an asset that makes them no more money than a mutual fund? The math doesn't work.

3. We are in an unprecedented era of low interest rates. This has already begun to change.

This is just my opinion but owning real estate with cash is 'hoarding cash' not investment.

I paid cash for several duplexes, so far they are returning 10%

If I could get that for a mutual fund I would be all over it

[TexasBob]

Thanks for all the thoughts and I appreciate the debate. Single family housing was how we are leaning anyway. It will be financed fwiw.


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[Captain39]

Single Family Homes!! Only problem is getting a good deal right now. Everybody has jumped on the real estate investment bandwagon. I personally do 20-25% on my houses. That way I still have enough cash to buy more. Most are on 30 year notes, a few 15. Look for houses with low tax rate, low HOA . Go to BiggerPockets.com

[Comanchehunter]

Make **** sure if you go the condo route that the condo association guidelines don’t have a limit on the amount of rentals, vacation or otherwise, that they will allow.


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[BuckSmasher]

So is this recommended for long term renting? Just curious what %cash max you recommend in a home to balance risk & be worth the income?

Yes, I only have experience with long term rentals. I've heard good things about vacation rentals for the right property.

I shoot for year one coc return of 10+ in value add small MFH. I made money on appreciation and amortization with SFH but very little cash flow. All MFH now, sold my last SFH rental last year.

BiggerPockets is AMAZING.

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[BuckSmasher]

I paid cash for several duplexes, so far they are returning 10%

If I could get that for a mutual fund I would be all over it

If you haven't been beating 10% the last few years in your fund you need a new one!

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[Sleepy]

Why not borrow money at 4-5% and keep cash reserves?

I get cash can help with market downturns, but so can levering your money over several properties.

Exactly. I can go pay cash for $150K home, net the cash flow, and wait on appreciation and renters to pay all my money back.

Or I could go buy (3) $150K homes with $50K down on each and have my tenants pay off my mortgage. Once it’s paid off, your assets have turned into $450K from a $150K investment. Plus the appreciation of each home.

Leverage

[Sleepy]

So is this recommended for long term renting? Just curious what %cash max you recommend in a home to balance risk & be worth the income?

The least amount possible

[Atfulldraw]

Exactly. I can go pay cash for $150K home, net the cash flow, and wait on appreciation and renters to pay all my money back.

Or I could go buy (3) $150K homes with $50K down on each and have my tenants pay off my mortgage. Once it’s paid off, your assets have turned into $450K from a $150K investment. Plus the appreciation of each home.

Leverage

The risk is simply not worth it, but most inexperienced investors are willing to completely ignore it.

[Sleepy]

The risk is simply not worth it, but most inexperienced investors are willing to completely ignore it.

Please explain. Honestly, just trying to understand what you mean.

[BBReezen]

Vacation rental!! But that may depend on the area of your property. The house directly across the street from me is lake frontage property with a large house, patio area and boat dock. A woman from California bought it about 1-1/2 years ago and she rents it out at $500 a night. It has been occupied about 5-6 days a week for the last month and will be that way until the end of fall. Then it slows down to 2-4 days a week during the no peak time of the year for a lake house. I know she also rents the boat for a couple hundred dollars a day and the jet skis for a couple hundred a day as well. So she could be pushing close to $1000 a day. She just bought another house behind me that will be more of a “family” rental investment home. But I would be willing to bet her ROI is higher on the rental house. Just my $0.02...

[Atfulldraw]

Please explain. Honestly, just trying to understand what you mean.

I guess the easiest way to explain it is that you have a greater chance of losing what you have invested in the properties if you have a mortgage.

Stolen: 100% of foreclosures happen on houses with a mortgage.

When the market takes a dive, you are putting your financial well being at risk by having taken on debt.


Disclaimer: We own investment properties both ways - with and without debt.

I FEEL differently about the ones that I own outright.

The calculations are also easy....Revenue - TI = Income

I'm always looking for new opportunities, and sometimes it is difficult to pass up purchases when I would have to go in debt to have them. Just this year I had to pass up a cabin for sale on the land next to me.....but it all worked out in the end because we saved the cash, didn't take on the debt and found an even better opportunity.


I'm not trying to re-invent the wheel here, nor am I saying that using debt is wrong (morally or otherwise). Studying people that have "made it" is just the simplest way I know to reach where we're going.

I just know what the numbers say AND what my emotions do when debt is involved.

If you look at the top 400 wealthiest people in the country, they aren't using debt to stay there. This year, it takes about $1.5 billion to make the Forbes 400 list.

There are 150 some odd billionaires that don't even make the list, but for the vast majority of all of them -- they aren't borrowing, they're lending.