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2018-08-14 10:57:27
Why Buying Turnkey Investment Property With Cash Is Better Than Financing
As the cliché goes, “cash is king.” It’s true in almost every financial investment and business endeavor. For a turnkey real estate investor, there are some large benefits to using cash for purchases rather than financing. The biggest pro of turnkey real estate investing is cash flow; the single biggest drain on your bottom line with a turnkey property very well could be a mortgage. But cash purchases offer other big advantages as well in terms of security, flexibility and more.

No Risk Of Foreclosure

When you purchase in cash, the property is yours free and clear. No banks, no lenders, no mortgage. If your investment were to hit a rut at any point in ownership, you would avoid the risk of foreclosure that you most certainly would endure with a loan. If the property happened to be in your personal name, along with the mortgage, this could impact your personal credit long-term.

Not Paying Any Interest

Ideally, the amount of incoming rent covers your mortgage and other expenses. However, the amount of interest you can pay on a loan is astounding. Over the course of a 30-year loan on a $100,000 purchase, with a 4.25% interest rate, you’re going to pay over $77,000 in interest alone. Some may argue that you aren’t likely to keep a rental property for the full 30 years — a fair statement. But if you plan to sell in 10 years, you will still owe about 80% of the principal because many payments, in the beginning, go mainly toward interest.

 

Own The Property Free And Clear Immediately

Beyond the pride of owning a piece of property, there are a few other advantages here. One, if you needed to sell the property soon after your purchase, you will likely be able to recoup most of (if not more than) what you originally invested. You also don’t have any mortgage payments to worry about. Second is the ability to do a cash-out refinance. Yes, this would mean you have a mortgage now. However, with cash, you have the ability to take up to 75% of the value of your property out in cash.

Vacancies Won’t Hurt As Much (And Can Even Be Positive)

The dreaded vacancy is a pain for almost any rental property owner. However, if you bought your property with cash, it won’t hurt your wallet quite as hard. Why? No mortgage payment. If you have a mortgage and the property is vacant, the bank doesn’t care — they still want their payment. But if you don’t owe the bank, you won’t notice that much of a pain, just the lack of cash flow for a month. Plus, if you need to make upgrades to the property, you can take the time you need and not be rushed trying to get a new tenant in to cover your mortgage payment. In addition to that, you are able to spend a bit more time finding the perfect tenant and not just any tenant who may or may not pay their rent on time every month.

 
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