Ryan Daniel Moran answers whether to buy investment property with cash or a mortgage. He favors using debt when the investment’s ROI exceeds borrowing costs ("ROI arbitrage"), citing example spreads (bank ~4.5% vs property 9–10%), tax deductions on mortgage interest, and the ability to deploy down-payment capital into additional properties. Moran notes he personally often pays cash for speed but regrets not leveraging debt earlier in his career during the market crash and advises buying with debt when the projected cash flow covers debt service.
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Paul Carey asks, would you advise buying an investment property with a mortgage or would you wait until you had the cash already in the bank?
So first things first, I never recommend investing money that you can't afford to lose, but from a strategy perspective, I'm going to be a little bit hypocritical here, but I believe that debt, one of the most powerful things that you can do in a good investment strategy. Now, I buy real estate, I make my money in business, I park a lot of it in real estate. I tend to pay cash for the properties that I buy. The only reason I do that though is for speed of execution. I hate details. I'm really bad at details. So going and getting a mortgage on every property drives me crazy. So I'm more likely to pay cash for a property than refinance it later when I'm in the mental space of pulling that cash out. So I want to invest it somewhere else. But if you can get anything to ROI with debt, you're way better off getting the mortgage or getting the debt to buy the investment. We call that ROI arbitrage. You're going to pay 4.5% to the bank on your mortgage, but if the Property gives you 9, 10%.
You'Re benefiting from that spread. It's absolutely what you should do. You also get the benefit of an additional tax write off because you get to write off the mortgage as a tax write off. So you actually save some of that money on your taxes. Plus you don't tie up $100,000 in a house, you tie up $20,000 in the house as the down payment, which gives you $80,000 of potential money that you could put into the next property and the next property. So anything that you can do with debt, usually if you can make the ROI work, that's usually a better financial decision. But I'm speaking as a hypocrite because I usually pay cash for things, but only for the speed of execution. But anything that you can invest with debt, as long as you can predict the roi, it's usually a better idea to go with debt. So to answer your question directly, no, you don't have to wait till you have the cash at the bank. You can do it as soon as you can prove that the ROI will cash flow even with the debt in place. If I could go back in time and talk to my 22 year old self, the amount that I bought real estate during the crash, but I only bought a little bit and the reason for that is cause I waited until I had the cash. I did not go, I did not go out and utilize debt to buy real estate when it was down here and I wish I had. I mean if I could go back and tell my 22, 23 year old self look I know you have the cash but Instead of buying three houses or four houses with the cash go out and buy 15 and leverage some debt. Oh.
The net worth that would have created today. I wish I could go back and do that. In today's environment everything is so you know the market is here. I don't know that I would do that now but if I could go back when I could have really doubled down in my holdings I would be a much better position now. So I recommend going like leverage somebody else's money to make the investments you want to make because if I could go back six years and do that I'd do it all day long and twice on Sunday.
