Ep 150 “Buying Income-Producing Properties: Do I Pay Cash or Finance?”

Welcome back everyone to “The Really REAL Real Estate Podcast!” As we continue through the month of April, we continue our mini-series on the difference facets of being a landlord and owning income-producing properties. This week, we are discussing the process of actually acquiring incoming-producing properties and diving into the argument that is as old as time which is whether or not an investor should pay cash for their rental or use debt to finance the property. TALKING POINTS (3-5): - Introduction First, this is the debate that has gone on for YEARS between many famous real estate/financial/money personalities!!! Second, we have already discussed why cash is king when it comes to making an offer – that’s not the discussion we’re having today. Today, we are simply looking at cash vs. debt service as it pertains to the income-producing side of the real estate investment business. - Pros to paying cash: - Every property becomes a cash cow! - Easier to address issues that arise with a property. - Allows you to save up quickly for another rental property. - If a tenant doesn’t pay or you have a vacancy, there is no debt service that needs paid! - If you own properties in retirement, it either becomes great income on a monthly basis or a large chunk of cash when you sell a property. - Cons to paying cash: - It eats up a great deal of available cash and you can’t buy as many properties at one time. - It takes longer to grow your real estate portfolio, especially if you want to own larger, more expensive rental properties. - Lower yield on the investment. - Pros to using debt: - Less money is required up front. - You can acquire more properties at once. - It’s easy to acquire more expensive properties. - You increase your yield. - There are tax incentives when you have debt on income-producing properties. - Cons to using debt: - If you have a tenant that doesn’t pay or a vacancy, you still owe the debt service. - There is less cash flow to cover vacancies, maintenance, emergencies, property management fees, etc. - Are you really making a profit at this point??? - Interest rate is higher for non-owner-occupied homes. - How much debt will the bank allow you to carry? - Watch creative financing!!! - Final thoughts - First, there is no right or wrong answer in this debate? - How much money do I have to play with for purchasing investment properties? - What kind of risk do I want to take? - What is my end goal with owning in