After paying off our mortgage in 2017, we have a lot more cash available to us as a family. We've used that extra dough to save up for our first rental property and we're pumped to make it a reality this fall!
A big question that we've been struggling with is whether we should buy in cash or take out another mortgage. After much debate, we've decided it makes the most sense for us to go all cash.
Honestly, I’m still learning so we could be dead wrong in our approach. I’ve never been a real estate investor before. All of my knowledge comes from things I’ve read, listened to or conversations I’ve had with other real estate investors.
On the podcast, I’ve interviewed around a dozen real estate investors over the past couple of years. I love those conversations because it’s like I’m a sponge soaking up knowledge from super smart real estate gurus.
I’ve probably read a half dozen books on real estate. We now have tons of motivating stories, examples and tactics to safely plan our first purchase.
With all the folks I’ve talked to and the books I’ve read, I still REALLY like buying all in cash … Here's 7 reasons why:
1. No Closing Costs
With a typical mortgage process, you’re paying lender fees, appraisal fees and sometimes points on your loan. With no loan, there are no loan fees.
We'll also have no bank to deal with and no application process.
2. No Mortgage Payments
With no mortgage process, there’s also no mortgage! I will never have to pay interest payments to the bank. There will be no principal I’m working hard to pay down.
Zero payments whatsoever.
3. Helps in a Competitive Market
The housing market where I live (and probably in a vast majority of the country) is HOT right now. People are putting in offers way above the asking price and getting in some cases less house for their money.
I want to have an advantage in the process. If I’m an all-cash buyer, I’ll be considered more favorably by the seller. They’ll be able to close faster. And they won’t have to worry about me getting approved by the bank.
I might even get a deal because I’m buying in cash. Who knows!?
4. More Cash Flow
Without a mortgage, more of the rent is going directly in our pockets.
Let’s say for example, we get a $80,000 house and we put $20,000 in it to make it nice and livable for our new tenants.
We’re able to get $1,000 per month or $12,000 per year.
Using the quick and dirty 50 percent rule, I can assume that we’ll have to shell out around $500 per month for expenses like property management, taxes, insurance, maintenance, vacancies, etc.
That takes our profit to $500 per month or $6,000 per year.
Now if we had a mortgage on the property, that might just wipe out most of our annual profits.
But lucky for “future us”, no mortgage, more cash flow.
5. Less Stress
I don’t want another mortgage. I’m done with them. They make me stressed. One of my goals in life is to continue to decrease the stress in my life.
Without a mortgage, I’ll be able to rest easy if we don’t have a tenant for a few months. I’ll be able to feel confident knowing that I’ve purchased an investment that will more than rise in value by around 3% per year or more.
6. My Mortgage-Free Rental Property Will Pay Dividends
No metaphorically … literally.
Each month, we’ll receive a consistent payment on our property. We can choose to reinvest the dividends or use them to fund our lifestyle.
In the first few years, we'll more than likely save this money to buy the next rental property in cash. So if we're able to stock away the $6,000 per year from our example above, that'll get us to rental property #2 in a much shorter period of time.
7. My Wife and I Are on the Same Page About It
This may be the most important one of all. Nicole REALLY enjoys the completely debt free lifestyle.
Since paying our primary home mortgage off in 2017, she’s gotten used to have more cash and zero payments. And I LOVE making my wife happy. She’s my partner and the love of my life.
We’re on this crazy ride together.
Admittedly, we're newbies. We're not sure if what we’re doing is smart, but it feels right for us. And at the end of the day, that’s really all that matters.