Do I Buy Cash or Finance my investment property?
Along with cash or finance, related questions I get frequently are: How do I finance my investment? What rates can I expect (if I finance it)?
Caveat: Although I have an active NMLS license (i.e Mortgage Loan Officer), I’m not a practicing loan agent; a precise answer to the questions above tailored to each individual are best given by a Mortgage Expert.. but, some principles I can point at from personal experience..
Firstly, the obvious answer: if you can afford to do cash, ALWAYS do so.. leveraging debt to do investments automatically adds risk to any portfolio, instantly becomes a risk-management exercise to account for market downsides and interest rate fluctuations, to name a few.. There is a more subtle angle to cash investments, especially for first time investors, that is to do with learning curve around valuation.. per my earlier blog, you want to get into income properties with a long term game plan, a dollar-cost-averaging mind-set; to develop a long term eye for IRR, cash-flows, or more sophisticated models you will encounter later on: Is LOT easier if you don’t get into the challenges of evaluating a second loan in your overall portfolio from the outset.. let’s chat more if unclear..
How do I finance, what rates can I expect?: Again, the most popular way to get an investment mortgage (similar to the home-ownership model). Typically you will need to have 25% or more as down-payment, pay a small premium on prevailing interest rates, depending on you credit risk, financial asset strength. There are other ways to finance your investment property, will get into it next time..
Let me know if you need recommendations for good lenders who specialize in investment property loans?
Happy to chat more.. call/txt me @510.676.1940
Till next time… I will answer another question: Does matter if I only have $50,000 to invest? What’s the minimum I need to invest?