Pay cash for an investment or finance it?
A few weeks ago, I saw a discussion on Facebook that asked the age old question, is it better to purchase an investment with a mortgage or all cash? I decided I should ask the REAL experts on the subject.
The totally fictional scenario is:
- A married couple, with excellent credit,
- Has $100,000 in savings and
- They are looking at a $90,000 house (this is their final loan amount and, for the sake of math and the story, all other costs are covered by the seller).
Do they pay all cash for the house or put a 20% ($18,000) down payment and take out a $72,000 mortgage, then invest the rest?
@Vince Williams I personally would get financing if I can and use the rest of the saving as leverage for the next deal that comes along. Unless the owner will take at least 10-15k different in price, which I don't see why beside fast closing or property needs significant repairs, I won't pay cash. If you are buying a house to live in and it's move in ready condition, take advantage of the low interest rate. Good luck
I would Never recommend Anyone spend All of there available monies. What if you need to make repairs...need to renovate or simply have an emergency. Depleteing all of your funds is not wise. My suggestions would be
1) use a portion of the money as a down payment
2) use additional money to renovate & upgrade property
3) use additional money to buy additional properties & increase capital beyond $100K building wealth over the long term
I think it depends on the couple and what they are comfortable with. Ofcourse, paying cash for the property will allow for better monthly cashflow, but only leaves you with $10,000 in savings. Based on their lifestyle, that may be ok with the couple, but $10,000 can go very quickly.
I would personally make the downpayment on the home, and if you want to generate a little better cash flow, they could always put $50,000 towards the property, which makes the monthly payments go down, and makes the monthly cash flow go up. This way you have $50,000 left in savings should something go wrong, or you have vacancies, or you could even buy another property with 25% down.
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