Should I buy STR in cash or leverage with mortgage? Financial pros and cons

Category: Getting Started

By: Heather Barnes

Posted: 2026-01-18T02:10:04.286Z

I've saved up $300K and I'm debating between buying a cabin in Tennessee outright for cash vs putting $75K down and financing the rest. Cash = no mortgage payment, lower risk, simpler math. But I'd tie up all my capital in one property. Leverage = keep more cash, could buy 2-3 properties instead of one. But mortgage payments eat into monthly cash flow. What's the smarter financial move? What do most successful STR investors do?

Reply by Tyler Jackson:

Financial planner and STR investor (6 properties) here. **Leverage is almost always the smarter play for STR.** Here's why: **Cash purchase ($300K for 1 cabin):** - Monthly gross revenue: ~$4,000 - Monthly expenses (no mortgage): ~$1,200 - Monthly cash flow: ~$2,800 - Annual cash flow: ~$33,600 - Cash-on-cash return: $33,600 / $300,000 = **11.2%** **Leveraged (4 properties at $300K each, $75K down each):** - Each property gross: $4,000/month - Each property expenses (with mortgage ~$1,600/mo at 7%): ~$2,800 - Each property cash flow: ~$1,200/month - Total cash flow: $1,200 × 4 = $4,800/month - Annual total: $57,600 - Cash-on-cash return: $57,600 / $300,000 = **19.2%** Plus with leverage: - **4x the appreciation** (real estate typically appreciates 3-5%/year) - **4x the tax deductions** (mortgage interest, depreciation on 4 properties) - **Diversification** — if one property has a bad month, the others cover it - **Inflation hedge** — your mortgage payment stays fixed while rents increase **The risk with leverage:** if occupancy drops or rates decrease, you still owe 4 mortgage payments. Make sure you have 6 months of reserves per property ($5-10K each). **My recommendation:** Use leverage but don't go crazy. Buy 2-3 properties with 25% down each. Keep a healthy cash reserve. You get the benefits of leverage with manageable risk.

Reply by David Okafor:

Counterpoint: I bought my first STR in cash and I don't regret it. Here's what people don't account for in the leverage math: - **Stress.** Owing $900K+ in mortgages is stressful, especially during slow seasons - **Cash flow risk.** One bad month with no bookings and you still owe $6,400(!) in mortgage payments - **Interest cost.** At 7%, you're paying $15,750/year PER PROPERTY in interest alone initially - **Flexibility.** With no mortgage, I can drop my rates aggressively during slow periods and still be profitable. Leveraged hosts can't do that. I sleep well knowing I own my cabin free and clear. It cash flows $2,800/month with zero financial stress. After 2 years, I used that cash flow to save up and buy a second property — also in cash. Everyone's risk tolerance is different. **Leverage maximizes returns but also maximizes risk.** Cash is "slower" but it's sustainable and stress-free.