Cash vs loan to purchase a commercial property. Which one is more prudent?
What are advantages and disadvantages of buying a commercial property with cash vs loan? If I can afford to pay cash, why shouldn’t I buy with cash
[{"id": "j0djalc", "text": "Leveraged returns? Ultimately a personal preference, but a big part of RE investment strategies center on leveraging equity. It\u2019s the wealth multiplier.", "replies": [], "depth": 1}, {"id": "j0doig9", "text": "1. Using debt artificially increases the returns, relative to the amount of equity you have in the deal. \n2. You retain more personal/firm capital to put into other deals instead of just 1\n3. If you are able to obtain a non recourse loan, the risk of project/deal is placed on the lenders capital not yours. \n\nYour welcome :)", "replies": [{"id": "j0dpxgv", "text": "Interesting why Dave Ramsey says ALL CASH investments!", "replies": [{"id": "j0dq5wx", "text": "I mean you save on financing costs and interest.\n\nHowever, I forgot to mention you can deduct mortgage interest to save on taxes", "replies": [], "depth": 3}, {"id": "j0drr7q", "text": "Because Dave Ramsey's market is people who make $35k a year and buy consumer goods on credit cards. Leveraged returns are going to beat unleveraged returns the vast majority of the time on an appropriately underwritten real estate deal.", "replies": [{"id": "j0dtbt8", "text": "\\+1\n\nDave's brand is based on fixing people's consumer debt problems. His advice is not geared for investment.", "replies": [], "depth": 4}, {"id": "j0e7zfx", "text": "This. Dave\u2019s advice is great for the average Joe who doesn\u2019t know anything about financial decision making. His methods will ensure that you aren\u2019t bankrupt. However, his strategies for building wealth are not necessarily optimized.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "j0dt1xg", "text": "Kind of dated concepts given the rapid rise of cost to borrow and generally slow pace of market cap rates catching up. Lately, borrowing hasn't been the big cash on cash benefit. In a lot of cases borrowing brings down cash on cash as of late.", "replies": [{"id": "j0e0dzf", "text": "If you\u2019re doing interest only bridge acquisitions loans at 12% sure.\n\nPerm senior loans at 5.5% rn aren\u2019t hurting anyone", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "j0dw1e1", "text": "Look at your levered and unlevered IRR returns.  When the world was good with cheap money, it might have been 8 unlevered and 15 levered.  The world today is a 10 unlevered and a 14 levered.  That\u2019s risk adjusted economics due to low leverage driven by dscr constraint and high cost of debt in the 6 percent range if you are expanding cap rates.  This is the main reason cap rates are going up, the cost of debt is too darn expensive!", "replies": [], "depth": 1}, {"id": "j0et487", "text": "Three words: cost of capital", "replies": [], "depth": 1}, {"id": "j0f2jtl", "text": "If you don\u2019t understand this concept you have a lot more to learn tbh", "replies": [{"id": "j0hi8bw", "text": "Obviously, that's what they're trying to do. Don't be a hater.", "replies": [], "depth": 2}], "depth": 1}, {"id": "j0f605b", "text": "Why would you want to pay cash for real estate? \n\nWhy?\n\nA cash down payment is enough of an abomination!", "replies": [], "depth": 1}, {"id": "j0hr5yp", "text": "I think everyone covered the advantages of loans pretty well. The advantage to all cash would be freedom and security. Freedom meaning as long as the building's tenants, AHJ, development covenants, county, state, or feds don't say you can't do something, then you don't have a lender to tell you no - like renting to a Cannabis business. Security in that you could lose a chunk of income from tenants during hard times and weather out bad markets and stay afloat. Leverage goes both ways.", "replies": [], "depth": 1}, {"id": "j1151i7", "text": "Borrowing institutionally at today\u2019s rates is expensive- relatively. \n\nIf you buy the asset priced correctly, finding private money to finance your purchase won\u2019t be an issue at all. \n\nDo use the private money as a mortgage with a fair return and that will benefit all parties involved.", "replies": [], "depth": 1}]