what are the pro's and con's of paying all cash for rental property?

In Buying Property - Asked by karen c. - Jul 13, 2014
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Answer(s)

Richard F.
Broker/Agent
Albany, NY

The major reason to invest in real estate is leverage - the use of financing - especially in times when interest rates are as low as they are today. With $200,000 in cash, you can control a $200,000 property with no mortgage, or a $600,000 property with a mortgage. The larger investment will yield a much higher return on your cash.

Jul 14, 2014
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Glen W.
Lender/Mortgage Broker
Atlanta, GA

Being a lender, we frequently provide financing for people buying and refinancing rental properties. The underlying question is what is your objective for the rental property. If you are risk averse and don't want to worry about a mortgage, cash could be a good fit. If you are looking to buy multiple properties, using leverage can help. One word of caution, leverage is great when the tenants are paying, when there is another downturn make sure you can float the payments so you don't end up in a bad situation

Aug 4, 2014
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Sam P.
Redlands, CA

The decision on whether to pay cash for income property or to use the cash as a down payment rests on a lot of factors such as your tax situation, whether you want immediate income or future appreciation, or your aversion to risk. Investing in real estate is actually two incomes: rents and future appreciation of your equity.
Assume, as other have, that you can buy Property A for $200,00 cash or finance Property B for $600,000 with a $200,000 downpayment. What is the income and expenses of the property? Supposedly, Property B would have a higher income, but also a higher expense for a mortgage. You should calculate the case flows in each situation. If each property goes up in value by 10%, you'll make $20,000 on Property A for a 10% return. However, for Property B, you'll make a $60,000 profit for a 30% return.

May 11, 2015
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