Do you have a large amount of extra cash lying around? Have you considered investing in a rental property? Yes? That’s great! It’s a wonderful business to be in. But purchasing an investment home in cash isn’t for everyone. How could it not be you ask? Well, we are going to go over the pros and cons of purchasing your rental property in cash in the article below.
First, let’s go over some of the reasons investors may choose a cash transaction.
- Can’t compete with cash: In such a competitive real estate market, cash offers will get sellers’ attention. Cash offers will generally close faster and will not come with the same restrictions as financed offers which can help beat out the competition. Plus if you have all cash you sometimes can negotiate the price down.
- Limited expenses: In such uncertain times, it may appeal to investors to not have to rely on monthly rent payments in order to pay the mortgage. This will help in the event a tenant leaves and quits paying rent or for extended vacancy times.
- Less hassle: Dealing with the bank can slow down the buying process, thus causing investors to lose out on opportunities. Cash sales are very straightforward in comparison.
- No interest payments: Even though current interest rates are relatively low investors who do not pay in cash will end up paying more for the home in the long run.
- Fewer properties to manage (normally): Generally speaking, if an investor is able to pay cash they will typically have fewer investment properties. Depending on the town/ city they are investing in, a home can range from 100k+ which means the property won’t be able to put cash on as many properties as those who choose to finance the home and put less cash down.
- 100% equity: Owning a rental property immediately means you (the investor) holds 100% of the home’s value in equity. Without having the monthly mortgage payment you are free to invest in upgrades to the home as you wish.
- Immediate cash flow: You will also be able to receive immediate cash because it will all be coming to you. Though there may be some bills that you as the property owner may still be tied to, such as lawn care if that’s included for your tenants and general maintenance upkeep you can typically depend on most if not all the rental amount coming right to your pocket.
- No leverage power: This means you will not be able to use other people’s money to invest in your rental properties. This will free up your own money for upgrades or investing in multiple properties.
- Fewer tax benefits: Come the spring it is time for taxes. Having a mortgage can actually work to your advantage. Any money that owners pay in interest towards a financed rental can be deducted against the income from the property. So, investors may not have much tax liability after all deductions.
Things to consider
- Benefits and Risks: There are benefits and risks to purchasing an investment property with all cash. While real estate can easily appreciate it can just as easily depreciate in value. One can result in a gain and one can result in a loss. Just something to always consider when potentially investing.
- Property Management Company: while there are many pros to purchasing your rental property with cash there are also some cons to consider as well. A savvy investor knows that managing a rental property is a lot of work. And with that extra monthly income, it is wise to consider hiring some help. That’s where we come in! All county property management company is here to help with everything from tenant applications and screenings, advertising and marketing, maintenance, paperwork, move-in and move-outs, inspections, and more. Give us a call today so we can help you get the most from your investment property.