If you have the money on hand to buy a property outright is there any reason, or what are the reasons to take out a bank loan?
Hi @James Morand . It really depends. If your goal is to own just one property at a time, then purchasing with cash is generally a better bet than a bank loan. (Unless that bank is offering a ridiculously low interest rate on the loan. Or unless inflation is rising. Or a bunch of other factors.)
Since you're here on BP, I'll assume that you aspire to own more than one property.
So, yes, cash is king. But, once you've sunk your $100K on a $100K property, you're done. Game over.
Bank loans allow leverage: Put down $20K cash, get a loan $80K, and then make payments on the debt out of your rental income. Repeat four more times, for a five-property portfolio from the same $100K initial investment.
Let me be clear: I am not advocating for you getting a bank loan. Other than for a primary residence, I think most new investors should avoid banks as much as possible. There are plenty of investment strategies (owner financing, subject-to, lease-option) that don't involve getting a bank loan. (They do involve serious training and study, though.)
I just wanted to make the point that there are legitimate reasons for getting a bank loan even if you have 100% of the cash needed to purchase.
Thank you Mitch, I am obviously just getting started but I do have the funds to invest. I plan on taking my time and finding the perfect deal ( said with humor ). My ideal would be to find two, 3 unit multifamily homes to begin my portifolio.