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

Man Holding Cash and Handing Over KeysThere are a lot of benefits in purchasing an Elgin 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, it would really be nice to not have any mortgage payments to make. Your rental income could be very profitable almost instantly. There would be no need to account for mortgage payments. At the same time, however, when you pay cash for a rental property, you still have other expenses to think about. There are other costs related to buying and owning an investment property that you still have to consider. Read on to learn about these and other things you need to consider before deciding to purchase a property with cash.

Benefits to Consider

First, let’s look at the advantages. More than just having no mortgage payment, buying a rental property with cash brings with it several other benefits. For example, many sellers would rather negotiate with a cash buyer. They may even accept a lower price, especially if you can guarantee immediate payment in full. With cash buyers, the risk of loan denial would be eliminated. There would be no mortgage approval process that could potentially delay the sale. This means the purchase transaction can move forward quickly and efficiently.

Another benefit to consider is having to pay less over the long term. This is because your property wouldn’t accrue any mortgage interests. Also, you can save some money from not needing to pay for appraisals, title insurance, and lender-imposed closing costs. And, because you will own the property immediately, cash buyers gain full, instant equity in the property. This is equity that you can borrow against or cash out when the time is right. Lastly, the thrill of a cash purchase can be enough of a reason for some investors to dive in.

Costs to Consider

Although buying a rental property with cash has its benefits, there are also costs that you will have to deal with, even if you have no plans to finance your purchase with a mortgage. For example, while you don’t have to pay certain loan-related fees, there will still be closing costs on cash sales. You will need to pay this out-of-pocket. 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 be something owners will have to deal with. This will be an expense that will never go away. There may be property taxes on the sale itself– which would be due at the time of the sale. Then there would also be an ongoing expense– a tax that would have to be paid every year or twice a year. In many places, you can access a property’s tax bill online 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, professional Elgin property management to make sure you get the best ROI. So, do look into these and other costs of owning a property, and then make sure they’re included in your monthly cash flow estimates.

To get the best out of purchasing a rental property with cash, don’t forget that you’ll need to prepare an amount greater 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 Midlands, 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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