When it comes to financing a rental property, there are a TON of options (which we'll discuss more in the future). But, a couple common methods (and the two that I personally weighed when deciding to invest) were CASH vs. MORTGAGE. Now, if you can't afford to purchase a property in all cash, then that makes your decision a little easier, but if you can...that adds to an interesting decision. Here are my advantages and disadvantages of buying a property all Cash vs. getting a Mortgage.
Advantages of Cash
-No Interest Payments: one of the most obvious advantages of buying in all cash, is that you won't pay any interest. Yup, with no mortgage, you're not paying interest.
-Negotiating Power: Sellers often prefer an all-cash offer, and this can be a huge advantage when looking to close a deal. If your competition needs financing, you'll most likely have the upper hand and can potentially get a property for less than their offer.
-Peace of Mind: Not having to worry about monthly mortgage payments or a vacancy was one of the biggest reasons I went for the all cash strategy.
-Not Having To Deal with a Bank or Mortgage Broker: You don't have to worry about a bad credit score and you don't have have to worry about having the necessary income to qualify for a loan. You also won't have to pay lender fees, lender's title insurance, underwriting fees, etc. which saves you money!
-Faster Closing Process/Quicker to Rent: Not having to deal with financing, means you take out a time consuming piece of acquiring a property. You can generally get the property available to rent quicker and start bringing in cash flow faster.
Disadvantages of Cash
-Cash Poor: buying a house all cash dramatically eats into your savings. You could be very cash poor right after a purchase, which can be very risky depending on your overall financial situation.
-Poor Diversification: if you're just starting off and only have 1 or 2 properties all paid in cash, your money is not diversified. If one property is destroyed and not properly covered by insurance, you'd take a huge hit.
-Cash Out: real estate isn't always quick and easy to sell. It also costs money to sell (ie getting a realtor). If you need money quick, selling your property will take time, and might put you in a desperate situation.
Advantages of a Mortgage
-Write Offs: you can write-off mortgage interest as long as you itemize deductions and they exceed the standard deduction.
-Mortgage Rates: mortgage rates are very cheap compared to just about every other loan out there. And as of this writing, you can probably get something between 3%-5% right now.
-Scale Faster: without a large chunk of your money locked up in a property if you pay all cash, you can distribute funds elsewhere (into additional properties...or completely outside of real estate).
-The Power of Inflation: inflation should make your monthly payments "cheaper." For Example: a $1,000 monthly mortgage 20 years ago (1997) now has an equivalent buying power of almost $1,500 in 2017.
-Less Risk: having a mortgage means you have more liquidity and less risk. If a housing crash hits and your house value plummets, at least you don't have "all your eggs in one basket."
Disadvantages of a Mortgage
-All That Interest: on a $200,000 loan set at 4.5%, the total amount in interest due over 30 years is close to $165,000. Not cool, right?
-Mortgage Insurance: if your down payment is small (like with an FHA loan), you'll be subject to paying mortgage insurance premiums.
-Qualifying for a Loan: plain and simple...not everyone qualifies for a mortgage and it can be a challenge for some. If you don't have a full time job with consistent income, that could throw a wrinkle in everything. Ultimately, the lender will dig through your personal and financial life to determine your investing fate.
So what's it going to be? Cash or Mortgage?
Weigh your options, think about the pros and cons, and decide what's best for your investing future. Share your strategies in the comments section below!
Whether you're looking for your first property, your next property, or just trying to accelerate your voyage to financial freedom, you're going to need some cash. Here's where a good Side Hustle comes into play.
We're in the age of the Side Hustle. Or the Gig Economy. Our generation is finding more and more ways to bring in revenue. We're diversifying our revenue streams. I love it! So, what exactly is "side hustle?"
It's a way to make some extra money, outside of a full-time job, that either allows you flexibility to pursue a passion, or it could even BE your true passion.
Take a look at these great side hustles that will accelerate your income and help you purchase your next property:
My primary side hustle in 2016. Basically, I was a personal grocery shopper...I'd drive to stores, pick up specific items, check out, and deliver them. A couple times a week, I'd leave my office job for the day around 5:30pm and work from 6pm to 8pm. No, I didn't get rich off of Instacart, but an extra 40 bucks here, and an extra 50 bucks there definitely helped. Check it out and SIGN UP HERE.
Lime Scooter Juicer
Ever see those electric scooters zooming around town? They are EVERYWHERE in Oakland (where I live). Well, someone has to charge them at night. And that someone is ME.
I'm a Lime Scooter Juicer! Yup, after work on my way home, I pick up a couple scooters here, and a couple there...bring them back to my place, plug them in, let them charge overnight, and drop them back off on the sidewalk in the morning. I get paid on a per-scooter basis and am pulling in $8 minimum per scooter. So, the 4 scooters I charged last night brought me $32 this morning...all for about an hour worth of work. I plan to make $500+ a month on this side hustle....and this money is going straight toward my next investment.
To become a Lime Scooter Juicer, DOWNLOAD THE APP HERE and get $3 credit from me! I'd recommend trying a scooter at least once before signing up to become a Lime Scooter Juicer to increase your chances of getting the job.
My girlfriend's primary side hustle. She loves dogs, so naturally, taking care of them, walking them, and getting paid for it is a natural fit. She's built numerous relationships with local dog owners too, so you could (if you want) skip the middle man (Rover) after you build your network and keep 100% of the revenue.
This is a shopping rewards app, so I wouldn't technically count it as a side hustle. But, it's a vehicle to bring in extra cash. How does it work? Earn points by walking into specific stores (it uses GPS technology), and scanning certain items. You can then redeem these points for rewards such as Amazon, Walmart, and Target gift cards. Here's how I use the app: if I head out for a little lunch break at work, I'll stop by a store and scan a couple items. That way I'm making some extra cash on my lunch break! DOWNLOAD THE APP HERE.
I can't personally speak on life as a rideshare driver, since I've never been one, but the thought of it has ALWAYS been intriguing. Partially because I feel like I'd get a chance to meet such a wide variety of people. Life's all about connections. And you'd be paid for it! My thought though: make sure you have a fuel efficient car.
Also can't speak for using Airbnb as a side hustle, but if you have an extra room at your place...why not consider renting it out and making a little extra cash? Sign up to be a new HOST HERE. And if you just want to use Airbnb for your next trip, SIGN UP HERE for $40 OFF!
Are you creative and can create a tangible product? Maybe it's time to start selling it online. Start your mini-business today!
Go through your closet, look under your bed, take a peek in the garage, and get rid of all the crap you haven't touched in a year. De-clutter your life! And add some digits to you bank account. Also - if you're at a garage sale, try to bargain down items that you can later flip for a higher price on Craigslist. Believe me, some people do this for a living.
Basically, people will post a job (such as...I need help constructing my Ikea table!) and you'll take on that task for a set price.
Write Content and Start a Blog
What questions do your friends always ask you? What skills or experience do you have that are unique? Answering these questions could be the foundation for a new online business. Take this blog for example: people still find it crazy that I buy real estate 2,000+ miles away from where I live. So, what'd I do about it? I started writing content, providing value, and building community. With consistant writing and an engaging audience, you can monetize your website through advertisements, affiliate links, ebooks, and online courses.
This list of Side Hustles could go on forever...
Bottom line: if you are struggling to save for a rental property, or want to accelerate your savings as I did, finding a side hustle can be critical in your investment career. So get yourself a side hustle! And check out this solid list of 99 side hustle ideas HERE!
Do you have a unique side hustle? What is it? Leave a comment below!