Before you lay out cash for your next investment property or seek out financing, there is a great deal to consider. While each investor may find one method of buying investment property more favorable than another, both have drawbacks yet benefit investors.
Read on as we discuss the pros and cons of financing your Huntsville investment property.
Pros
Time
For beginners, financing your Huntsville investment property gives you the time to build equity and get started on building your real estate portfolio sooner rather than later. In real estate, the benefits realized from taking out a mortgage if you don’t have the cash far outweigh the opportunities and years of appreciation on the investment property that would be lost waiting until you saved enough money to begin.
Leverage
You can generate better cash flow by financing your Huntsville investment property. By taking on the risk of a mortgage, you benefit from higher cash-on-cash returns, cash flow as it relates to actual cash invested in a property, calculated on a pre-tax basis.
More Assets
By using other people’s money and financing your Huntsville investment property, you can purchase more properties and diversify your portfolio to build security. In addition, having several properties in different areas makes it easier to ride out a downturn in one sector.
Return on Equity
Financing your Huntsville investment property also amplifies returns as you pay down the debt and the property appreciates.
Taxes
Another benefit of financing your Huntsville investment property is the depreciation of the entire value of the house when you carry a mortgage, which can be very beneficial to your tax returns. You can also deduct the interest on the mortgage.
Depreciation
Financing your Huntsville investment property adds a buffer of protection from depreciation. If the property drops in value, you have lost your cash equity.
Cons
Delays
Financing your Huntsville investment property may make you come in second with sellers considering multiple offers. It’s only natural that sellers prefer cash, which is a fast track to the closing table and has no lender to satisfy to ensure the sale goes through in the fast-paced real estate market we are experiencing.
Less Cash Flow
Mortgage payments and interest eat into your cash flow when financing your Huntsville investment property. While other expenses add up, your mortgage and interest on the loan will take the most significant chunk of your rental income.
Qualifying
Building up your creditworthiness and saving enough for a down, and qualifying for financing your Huntsville investment property are all achievements that are much easier said than done. Although you may find the need for alternative financing options, speaking with an experienced investor like the professionals at Home Buyers of Alabama can help guide you over any hurdles you face in attaining financing or building your credit and savings.
Credit Risk
Financing your Huntsville investment property means extended problems with payments from tenants or even vacancies are a more significant problem; carrying mortgages carries a potential for foreclosure and damage to your creditworthiness.
If you’re ready to buy and considering financing your Huntsville investment property, the professional investors at Home Buyers of Alabama will answer any of your questions or concerns. Our focus is on you at Home Buyers of Alabama; we’ll stop and take the time to listen so we can help you take the steps best suited to your unique circumstances to realize your investment goals. You can count on the full-service team at Home Buyers of Alabama, from locating the right investment property to property management and everything in between. Don’t forget to ask about our current inventory of the best investment properties available in Huntsville. Contact Home Buyers of Alabama at (205) 379-8185.