Investment Property: To Finance or Pay Cash?

I've been asked by a few people recently whether to pay cash for a second home or investment property or get financing to which I answer, both.

Interest rates are still at all time lows and are  expected to stay that way for quite some time. If you had a chance to finance a property or pay cash, my recommendation would be to get the financing for one property, and use cash for an investment property to generate cash flow.

Let's talk about the numbers. Let's say you have $150,000 to use for your property. You can easily pay the entire amount for a property and be done with it. 

Or.....you can put 20% down on a $150,000 property and mortgage $120,000 at about 4% or less, making your principal and interest payments $573 a month, leaving you with $120,000 to use for investment.

Then...let's say you find a foreclosure that's worth about $120,000 but you can buy it and fix it up for $100,000 and pay cash. That house could possibly rent for $800 a month. You have $20,000 in equity and are making more in rent than on your mortgaged home. $800 - $573 = $227 a month or $2,724 a year in potential rental profit. Of course, we have to factor in taxes and insurance which would bring your profit to be about break even.

But...you would still have $20,000 in cash, plus another $20,000 in equity in the rental property for a nice cushion.

Not bad to have a vacation home that another is paying for. Make some equity happen!

Chris Kavanagh - Sales Associate
Watermark Real Estate Group
843-655-0711 (cell)
843-353-1990 (fax)
ckavanagh@watermarkagents.com
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PS. Referrals are always appreciated. Ask your friends and family to visit MyrtleBeachHouseBuyers.com or give me a call anytime.

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