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Me | Is it always advisable to take out a mortgage when buying investment property or not? |
When buying land as an investment property, is it advisable to buy it cash if one can afford to or is it alway better to get a mortgage? |
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KAREN B
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If you want to build a credit history, then taking out a mortgage is a better option. In addition, i believe that the interest on a "buy to let" mortgage can be off-set against tax.
If you have the cash, are only buying land for the future and do not need to build a credit history, i would always advise against any kind of a loan. Why pay interest when it will eat into your profit? |
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bidia
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why pay interest. avoid a mortgage. if the banks had their way they would take all you rmoney. |
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John Corey
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There is not simple answer as it can vary based on the person and the situation.
Assuming you are expecting to hold long term and you are renting the property. A mortgage that is no more than what the income can service (including allowing for expenses) can make sense. You reduce the amount of cash needed from your own funds. You can keep more cash liquid for emergencies or even for other investments. One way to computer the returns being earned is to look at the cash-on-cash return (return on equity). This measures what you are earning on the cash you are investing and not the return on the purchase price.
If you are buying to fix the property and then quickly resell you might want to pay cash. Maybe the property does not qualify for a loan. The problem is you are locking up your cash and maybe you need it later for unexpected repairs.
Some investors do pay cash. They prefer to not have the debt payments. They pay more in current income tax as they have income without the offsetting expense.
Historically most investors use debt as it improves the returns. Maybe the level of debt is less than a homeowner would have used but they still use debt. There are plenty of examples of investors that avoid all debt when buying property.
The choice is yours. |
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Ingenious
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If the property is worthy of investing in, it should be able to pay for itself and you only need to pay for the deposit. So yes, you will need a mortgage. |
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mmmkay_us
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If you intend to hold the property for a short term 24 months or less then no do not get a mortgage the fees origination and others don't make sense
If you have the cash then put it in a CD at your bank and get a interest only loan while you sell your property the payments are less and it gives you time to market your property |
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customtecfire
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The mortgage interest is a business expense and deductable against the income. |
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Bush Turkey
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If you can afford it outright I'd say to buy it without the mortgage. You will be charged set up fees, likely to get early repayment fees and of course the interest on the amount you borrow. |
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cooldaddyhot
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its is always best to get a mortgage
as an example if you have £100,000 and you buy and let an investment property, your income will probably be £5000 but you will pay tax on it and if prices increased by say 5% in a year you would have made £5000 on your £100,000 less purchasing costs. giving a total of £10,000 profit in year 1 less tax
However if you get a buy to let mortgage of 85% and invest 15% this will allow you to buy six properties with your cash as six deposits. The rental income should cover the interest costs, and if prices increase 5% your £100,000 grows by £30,000 (six lots of £5000 house price increase)
Your money will grow six times faster by spreading it over six houses |
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groovydude
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there seems to be a consensus that you should get a mortgage. however mortgage is borrowed money and you have to pay it back. it also increases your costs and may mean future restrictions. It really depends on what your ultimate goal is. if you are planning to build a portfolio of properties then you are not going to have much choice but to raise the money. it is easier to raise the money at the beginning then later. hope this helps. good luck |
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Free-As-A-Bird
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are you planning o holding the land hoping it'll appreciate? it might eat you alive, beware
"investing" in land is speculation unless you develop it. |
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bostonianinmo
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Take out a mortgage! You leverage your investment by borrowing and will substantially increase your rate of return. If your cash flow permits, borrow the money. |
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