Benefits to Consider
First, let’s get to know the benefits. On top of having no mortgage payment, there are other benefits to buying a rental property with cash. For example, more sellers would be inclined to negotiate with a cash buyer, especially if you can guarantee quick and full payment. They may even accept a lower price for the property. With a cash purchase, there is no mortgage approval process that could delay the sale. The purchase transaction can move forward efficiently since it would eliminate any risk of loan denial.
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 can save money from not having to pay for the fees related to the appraisal, title insurance, and lender-imposed closing costs. And cash buyers also gain full and instant equity in the property because they own it from day one. This means that they can borrow against this equity or cash out when the time is right. Lastly, the thrill of a cash purchase can be enough to convince some investors to opt-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 be free from loan-related fees, there will still be closing costs on a cash sale. These costs may need to be paid out-of-pocket. These costs can reach up to 3% of the property’s purchase price. These costs include real estate transfer taxes, processing, and filing fees levied by the County Recorder, a home inspection fee, and so on.
Property taxes will also be something owners will have to pay. This will be an expense that will always be there. There may be property taxes on the purchase transaction– which would normally be due at the time of the sale. Then there would be another property tax that would be an ongoing expense– one that should be paid every year or twice a year. In most places, you can go online and look at a property’s tax bill through the city or county website.
A few more ongoing expenses would be insurance, maintenance and repairs, utilities, and in some cases, homeowner’s association dues. You would be expected to pay all these expenses for your investment property. And lastly, the professional Spring Hill property management services 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 be able to enjoy the advantages of buying a rental property with cash, make sure that the cash you have is 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 Titan, 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.