Real Estate Investing: Buying Cash vs Getting a Mortgage

What’s up guys, in today’s video, we’re going to talk about the pros and cons of buying a property, all cash using cash to finance your deal versus buying a property with financing. So whether that’s a mortgage, whatever other type of financing you might be using, I want to talk about the pros and cons of each. And there’s all kinds of different lenders that you can get your mortgage from a lenders, B lenders, lenders that specialise in short term rentals if you’re investing in short term rental properties. But really I just wanted to answer this question because I’ve had a few people that I’ve spoken with recently that have asked me, Well, should I buy the property and cash I have $500,000? Should I buy a property all cash or should I use some of that money to put a down payment and closing cost larger property and maybe buy two properties with that same cash and just get financing on them. And so I want to share my insights on what the pros and cons of each are ultimately, there is no right and wrong answer to whether or not you should buy cash or use a mortgage, it comes down to the situation and comes down to the unique investor and what your goals are.

So let’s start off by sharing some of the advantages to buying a property in cash. Now, there are some small advantages that I don’t really think factor into the larger overall decision. Because when you’re investing your main goal is return on investment. But I will just mention here for the sake of it, that in a lot of scenarios where it’s competitive to buy a property, it is more desirable to put in all cash offer, because it gives the seller that certainty of knowing that nothing with financing is going to fall through. So there is a slight advantage where you’ll be able to be more competitive and bidding on properties if you are offering all cash. That being said, I wouldn’t recommend buying a property and holding it all in cash just for that, because you can get that advantage and then just flip it into a mortgage after you actually purchase the property. So there’s all kinds of different options there. But beyond that, we’re really looking at the long term, what are the pros and cons of owning the property in cash? Well, really what it comes down to as a pro is more than anything, just peace of mind, a lot of people want their real estate investing in their investing overall to be very stress free. And a lot of people stress out when they have monthly expenses. Now I’m someone who buys properties with financing, I don’t buy properties and all cash. And my rationale for that the reason it doesn’t stress me out to have that monthly mortgage payment is because I have huge amount of certainty from running the numbers. And from offering these properties, I know that I’m not going to be the one actually paying the mortgage, my guests are going to be paying the mortgage. But for some people, they just like the comfort of knowing that they don’t have a monthly expense to pay. So even if the property sits vacant, it’s really up to them, and it’s not going to be a burden for them. Now, for some people, I think that’s totally fair, especially if you’re later on in life and you want to be less aggressive, you want to take on a lot less risk, then there’s nothing better than just owning nothing outright and just being able to cash flow on it and share it you’re going to make sacrifices some of the downside is that you’re not going to be building as much appreciation over time, simply because you’re not going to be leveraging the money that you have with $500,000, you’re going to own $500,000 worth of real estate give or take a little bit, obviously for closing costs, things like that. Whereas you could take that $500,000 and buy a million or a million and a half $1,000 worth of real estate and obviously get a 2% appreciation on a million and a half dollars is going to be a lot more than 2% on $500,000. So you don’t get that leverage, you’re also not going to get the same kind of leverage with your cash flow. Ultimately, it means you are going to be leaving some money on the table, your returns are not going to be as significant. But that being said, you also get the peace of mind of knowing that there is not going to be a monthly payment due now, obviously, there are going to be things like property taxes, utilities, expenses, but you’re going to avoid the big one, which is your mortgage payment. Now, that’s pretty well the end of the advantages as I see it for investing all cash, it really does come down to peace of mind, you can expand on that to say that obviously it is less risky as well, because if you own the property outright, then there’s no chance you’re not going to be able to afford to carry it because there’s no carrying costs. You know, if you really need to, you can turn off utilities, sure there’s going to be property tax, but there’s really not going to be much of anything that you would that would cause you to have to sell that property. So it definitely does de risk for yourself if you’re not using leverage, but again, I kind of lump that in with that peace of mind factor. Now on the flip side of that if you’re buying a property using financing using a mortgage, the downside is that you are taking on additional risk. Obviously if you can’t afford to pay the mortgage or if your guests or your tenants are not paying the mortgage sufficiently, then that’s going to put you in a bad spot where you’re either going to be cashflow negative which is much less likely when you own the property outright. Or you also might just be forced to sell the property. If you’re cash flowing negative, and you can’t afford to pay that property that expense out of pocket and actually hold on to the property, you might be forced to sell it. That’s where a lot of problems come in. Because if you’re forced to sell the property at a time that isn’t optimal, when the market isn’t the right part of its cycle, it’s not an uptime to be selling, then you can be in a really bad position. So naturally, if you do want to use leverage, if you want to use financing to buy short term rentals, or really any other form of real estate, you just need to have absolute certainty that you are protecting that downside that you’re mitigating that downside and eliminating that downside. Now, how do you do that? You do that by investing in assets that have significant cash flow, that’s gonna be more than enough, even in a worst case scenario to cover the carrying costs of that property. That’s why anytime I analyse a property that I’m looking to invest in, the number I’m most concerned about is the worst case scenario number. Sure, it’s all great to be looking at how much money I could make if things go well, or things go exceptionally well. But really, what I’m more concerned about is what is the downside? And I want to make sure that on any deal I’m investing in no matter how lucrative The upside is that in a worst case scenario, I’m still going to be cash flowing, at least neutral in a worst case scenario, never going to be cashflow negative, because if I cashflow negative, it could obviously lead to me being forced to sell that property. So that’s obviously the downside is that there is more risk, but you can mitigate that risk and eliminate that risk if you invest intelligently and you do proper due diligence. So what about the upsides? What are the advantages that make it worthwhile to even take on entertain taking on that risk in the first place? Well, for starters, leverage, right, they’ve you know, it just goes without saying that having leverage has that advantage of you get more with the same amount of money. So instead of using that $500,000, to buy a $500,000 home, you use that $500,000 to buy a $1.5 million home or a $2 million home. So you can just get access to a whole bunch more real estate with that same initial amount of money, that same initial investment. Now what does that mean for you, it means that you’re going to be able to in a lot of cases, earn better cash flow, because obviously, a $2 million property is going to bring in more income than a $500,000 property. Now, that being said, you’re also going to have more expenses, paying the mortgage on a 2 million property, paying the utilities on a $2 million property than you will on not paying a mortgage and paying smaller utilities on a $500,000 property. But in most cases, you will see more significant cash flow by using leverage. And then the other element is that you’re also then it’d be earning, you’re gonna be earning an extra form of ROI in the form of principal pay down, you want to factor that in, you’re paying down principal on your mortgage every single month. And so you’re gonna also then be earning an ROI that way, so you’re gonna get better overall returns. But for me, the biggest component of why it’s so incredible to use leverage is the leverage you get on the appreciation, because obviously, that is in my opinion, in my book, that is the icing on the cake with real estate investing, I invest for cash flow, and then the appreciation is the icing on the cake. But it means that now instead of getting appreciation of let’s say the market appreciates by 2%. If we’re super conservative, well 2% A year on $500,000 worth of real estate is much, much less significant than 2% a year on $2 million worth of real estate. So you’re gonna just have that compounding effect that kicks in on growing your overall wealth much, much more significantly. Now, the other really big advantage that I’d be remiss if I didn’t mention it is the ability to start much sooner. If you’re waiting to buy cash, it means that you’re going to need to wait a lot longer to buy a really good solid asset. Versus if you’re willing to use leverage and you’re okay with it, you can do the due diligence to make sure that it’s not overly risky and that you’re buying the right property that does make sense, it just means you can get into the game a whole lot sooner, which to me is probably the biggest advantage over all of it using leverage as opposed to self financing and buying an all cash because as you know, time is the biggest thing we have on our side as investors, if you are have an extra five or 10 years to grow your wealth to have your money working for you as opposed to sitting saving up waiting to be deployed into an asset into an investment

that is going to dramatically speed up your timeframe to get into your end goals of whether it’s financial freedom, being able to retire just having a certain amount of cash flow you’re going to be able to get that goal much much more quickly. If you can start having your money work for you a lot sooner. Guys just want to take a quick break here to say that for those of you watching who want to build cashflow and long term wealth by purchasing Airbnb and short term rental properties. There’s a link in the description right down below for a free training that will walk you through my exact strategy for investing successfully in Airbnb ease. Now, if you’re not ready to actually buy properties, and you want to get started managing other people’s properties on Airbnb the same way I got started and build a full time income managing other people’s properties, there’s actually another free training linked in the description down below as well, that’ll be a really great fit for you. So whether you want to invest in short term rental properties, and actually build amazing cashflow, and long term wealth by acquiring the assets, buying the properties themselves, or you’re looking to earn a full time income, managing other people’s properties on Airbnb, we’ve got some awesome trainings that are linked in the description down below. It’ll definitely help you out. When you sign up for the trainings, we’re also going to send you a few other tools and resources completely for free just to help you get started. Again, the links to sign up are in the description down below. And both trainings and all the tools are completely free. So make sure to register for the trainings, links in the description down below. So leverage mortgages financing that just allows you to do that it gives you more speed to getting into the game, which is a huge, huge advantage. Those are some of my thoughts. So I generally recommend for the vast majority of people to use leverage and use it like a tool in your tool bag. You don’t want to take advantage of it and be reckless with it, but you do want to use it it is an incredible tool for building wealth. That’s my thoughts. That’s my recommendation and most people I do see the merits to investing all cash for some people depending on the circumstance, but for most people I don’t think it makes a whole lot of sense. So those are just my thoughts though. I want to know yours. Let me know in the comment section down below. Give me a like on this video if you found this helpful, useful valuable to you. If this shed light on a question that you’ve been wondering about that I want to know just hit that like button to let me know. And last but not least, make sure you subscribe and check out the links in description down below for our free trainings, so you can stay up to date with everything else we’re up to. Thanks so much for watching, and I’ll see you in the next video.