Mortgage Versus Cash
I am thinking of buying an investment property cash versus going through a financing. The reason I am doing that is that I need the revenue right away and that taking 50 % or more financing would eat my yearly revenue. I also am not sure I am qualified for a commercial mortgage because my…
I am thinking of buying an investment property cash versus going through a financing. The reason I am doing that is that I need the revenue right away and that taking 50 % or more financing would eat my yearly revenue. I also am not sure I am qualified for a commercial mortgage because my current business has been loosing money for 2 or 3 years.
What are the disadvantages of paying cash here???
I am hoping that this property bringing more 100’000 net revenue will also help me get future mortgages on future investments. Does that make sense? Of course taking a mortgage would allow me to buy three properties in one shot instead of one with the price I am willing to pay cash but I am not sure I am ready this year anyway to get three mortgages for three new investments.
Just need advice here.
Hi, I am an investor and I’m not sure I understand ur question. You need the revenue right away then why are u buying it? Sounds like u have a good amount of liquidity which is excellent in this market. Why not just put the money in a high yield bond or something like that and have a solid return with no hassle of tenants. It sounds like ur other business is not doing as well as u would like. Can we get more info?
The only way you should look at the mortgadge as at the low interest loan. It has nothing to do with the rental income. So if you need this loan for something – get mortgage (rates are low and in 10 years from now it could be really sweet deal).
Also if you really live of your business and rental, you probably need to learn about TVM and NPV. First CFA book goes though this.
BHO, I gotta love ya but you are starting to sound like The What.
You really think in your heart of hearts that we are heading into a deflationary period and a greater depression or are you just trying to have a one man campaign to depress brownstone prices so you can get in at a lower price point?
Hey, I personally think we are going to see a pullback in equities; maybe a 10%-20% correction but the sky is definitely not falling and I wish I threw more money at equities back in March but alas I didn’t. I think we have about hit bottom but of course some properties will go lower and some higher. I don’t see RE appreciating significantly in the short term but the numbers definitely make sense for a lot of people.
I can tell you from first hand experience I have been seeing a ton of activity from both first time buyers as well as existing homeowners. The vast majority are putting 20% down or more. A great deal are putting closer to 30%.
As to the OP post about Cash vs Mortgage, hey if you have the cash more power to you. It makes life a lot easier. If I were in his/her position I would totally purchase straight cash since you have more bargining power and then evaluate my position once I have been in the property for a few months to really gauge the expenses and any unforeseen issues that may arise. You can at that point refinance to the best LTV that makes sense for you and your tax position.
OK, that’s enough for me tonight. Time for some Scotch 🙂
“People that leave money in the bank at these rates as long term investments are fools.”
Not during deflation which is where we’re likely headed (Total US debt issuance is deflating). Even cash under a mattress earns effective interest in such an environment. Unless debt issuance heads back upward, cash will be KING.
In a nut shell, lock a rate (while low) and finance < 50% LTV. Keep some cash for rainy day and watch it grow in earning power as all or most asset classes deflate down to prices that give you more than before.
Welcome to the Greater Depression.
***Bid half off peak comps***
OP,
Some really good comments here – but without fail, talk to an accountant as well. Issue here is AFTER TAX loot, which doesn’t have much to do with what happens before the tax man cometh.
Generally we landlords really benefit, but the real cost of your mortgage may in fact be far lower than the percentage rate. Good luck!
The other side of this is how comfortable are you with your cash position? I’m assuming you’re OK because you’re contemplating doing all-cash, but if you need liquidity for your business of whatever, also need to take that into account.
hannible, ES&D. I said nothing about whether or not the property was a good investment.
Plus, can’t you always put a mortgage on it in the future? You will start out with a ton of equity which I think you could borrow against in the future, if you wanted to purchase more investment properties. Cash is king – go with the cash and be done with it and don’t let the bank make money off of you. Good luck!
I think what you are proposing is a great idea. I know, I know: everyone says “Other people’s money.” Well, there is a cost for doing that. Also, if you are weighing whether to buy one building for cash or three with mortgages, paying cash will offer something hard to find: peace of mind. You won’t be sweating the mortgage payments every month, so you can wake up every day feeling good about your situation. If the market for some reason tanks, you’ll be less exposed, and if it starts to take off, you’ll be able to use that property as collateral for others. Plus, having experience as a building landlord, making it easier for a bank to lend in the future. By paying cash now, you’ll expedite the whole buying process, since you won’t be beholden to a bank that bails on you at the last minute. Plus, as others have said, you’ll get nothing for you money in a bank (although the stock market might be a different story, MIGHT be, that is….).