Cash versus Financing for Investment Properties- What is Better?

When it comes to purchasing an investment property, there are multiple ways to do it. You can get a loan, you can use equity, or you can use cash. There really isn’t a right or wrong way to do it, it mainly depends on your goal for the purchase.

Often times, investors may use cash for a property that needs a lot of work. If a property is really bad, a bank may not finance it because it is not a secure investment. Therefore, you will need cash for the investment. The benefits of cash offers are they are not contingent on financing, so they tend to move along faster than a financed offer. You will also have fewer closing costs, since you are not dealing with the bank. Cash offers may also be more appealing to sellers. The downside of cash offers is - it is cash and often times you need a lot of it. This isn’t always feasible to people just starting off, and it is a quick way to deplete your assets.

Now if you were looking to purchase a fairly turn key investment, you could choose to use cash or you could finance it. Personally, we prefer to finance. My lender once told me its always better to use the bank’s money and keep your cash. It took me a while to really understand what he was saying. But ultimately, the more cash you can hold onto the better off you will be. The last thing you want to do is spend all your cash on a purchase and then not have any money if things go wrong. You just have to be careful.

We like to finance the purchase up front and then use whatever cash we need to do remodels or repairs. Once it is rented we can either double up on payments or stash the extra money to use for future investments and repairs.

Once you get a couple properties under your belt and you start to build some equity, you can use that equity towards the down payment of new investment. You will have a slightly higher monthly mortgage when you do this because the purchase is 100% financed, but you will be able to keep you cash. In my opinion this is ideal and only takes one or two properties to be able to reap the benefits of equity.

I’d love to hear what others think or what your experiences have been! Its always helpful to share ideas and knowledge. Never know what you might learn. Enjoy!