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Are You Planning to Buy Your Next Investment Property with Cash?

Man Holding Cash and Handing Over KeysThere are plenty of benefits you can enjoy when you buy a Republic investment property with cash. But you have to consider some important things before you decide to pay cash for your next rental property. On one hand, not having to pay a mortgage would be so appealing. Your rental income could instantly become lucrative without the need to account for the mortgage payment. At the same time, however, you don’t get to dodge other expenses just because you paid cash for a rental property. There are other expenses related to the purchase and ownership of an investment property. Continue reading to learn more about these and the other things that need to be considered before buying a property with cash.

Benefits to Consider

First, let’s talk about the advantages. On top of having no mortgage payment, there are other benefits to buying a rental property with cash. For example, many sellers would prefer negotiating with a cash buyer– even to the extent of accepting a lower price. Even more so if you can guarantee prompt and full payment. Since there is no mortgage approval process, then the risk of loan denial would be eliminated– reducing any potential delays. This means that the purchase could be executed swiftly and efficiently.

Another good thing about cash purchases is that you would end up paying a smaller sum for the property. This is because you wouldn’t have to add mortgage interests to the cost. Also, you get to save money from not having to spend for costs related to the appraisal, title insurance, and lender-imposed closing costs. And, because you will own the property right from day one, cash buyers gain full, instant equity in the property. You can borrow against this equity or cash out when the time is right. Lastly, the thrill of a cash purchase is reason enough for some investors to jump in.

Costs to Consider

Although buying a rental property with cash has a lot of advantages, there are also costs that you will need to account for, even if you’ve decided against financing your purchase with a mortgage. For example, while you may avoid the loan-related fees, you will still need to pay, out-of-pocket, the closing costs on a cash sale. These costs can go as much as 3% of the property’s purchase price. These would include things like real estate transfer taxes, processing, and filing fees levied by the County Recorder, a home inspection fee, and so on.

Property taxes will also always be a cost that needs to be dealt with. All property owners will have to pay for this expense. There may be property taxes on the sale– which would usually be due at the time of the transaction. Then there’s the ongoing expense– a property tax that you would have to pay every year or twice a year. In most places, you can go online and search for a property’s tax bill through a city or county website.

Other ongoing expenses that you may have to deal with would be the insurance, maintenance and repairs, utilities, and in some cases, homeowner’s association dues. This would come together with the ownership of your investment property. And finally, you’ll need professional Republic property management to maximize ROI. So, be sure to look into these and all other costs of owning a property, then include them when you’re making your monthly cash flow projections.

To get the most out of buying a rental property with cash, remember that you’ll need to prepare more than just the property’s purchase price. You’ll also need enough cash for closing costs, taxes, insurance, and the repairs you’ll need to make to get the property ready to rent.

At Real Property Management Momentum, we help rental property buyers find good deals and off-market properties. Whether you want to pay cash or finance your next rental, we can help! Contact us online to learn how.

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