Buying Investment Property without Finance

tooblue on 10/12/2015 - 22:09

What's your opinion on purchasing investment property using full cash instead of finance? Any pros and cons?

My two cents:
Pros:

  • No fees and interest. Every dollar after the maintenance and bill is profit;
  • No risk of foreclosure and falling behind payments;
  • It improves the credit score and borrowing power if need to obtain loans in future;

Cons:

  • No tax benefit at all;
  • Opportunity cost: if there are investment opportunity that delivers high than mortgage rate, you are not able to do it as all cash are locked in the property;
Financial

Comments

  • mick123 on 10/12/2015 - 22:21
    +1

    wow… good on you if you can pay up front for a a property.

    If it were me, i'd borrow 80% (20% deposit) and just put the funds (80%) in the offset account linked to the loan.

  • CyberMurning on 10/12/2015 - 22:26
    +3

    even if i have enough to pay in cash, i will borrow, and buy more than one (how many, depends on your risk level preferences)

    • BigTed on 10/12/2015 - 23:15

      ^^^
      If you have the cash to buy one outright, why not buy 5 and finance the 80% for the tax benefits.

      • CyberMurning on 10/12/2015 - 23:31
        +2

        Bank will not easily lend money to one person to buy five properties without very good stable income, even though you have enough cash for deposits

  • danield on 10/12/2015 - 23:20

    I agree with both of the above. I would I only pay more then the 20% if it was my Primary Residence. With that much cash I would defintly look at spreading it across several properties.

  • AMLagonda on 11/12/2015 - 00:12
    +1

    Is there any point in buying an investment outright?

    Better off buying your own home and borrowing for the investment or buy shares/put it into super but the Equity loan seems like another idea if you ever need the money.

  • mskeggs on 11/12/2015 - 07:52

    All the above are reasonable comments. I would suggest matching your level of risk comfort to the financing.
    For example, if you bought 2 properties the chances of being unable to find tenants for both for a long period so that you defaulted on the mortgage is very, very low. But with 5 properties you need to keep them all occupied and have more risk.
    If you need the rent as income now, I guess a single property makes sense. If you will be reinvesting the rent, then it makes sense to use it to accumulate more assets.

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