Cash Vs Financing: What is better?

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When it comes to real estate, it is amazing for investing because it’s a way to generate wealth and passive income especially rental properties. Moreover, each Kenyan wants to own a house when you reach a certain age; pressure from spouse, partner or family pushes you to get a house. Most of the time you don’t actually have enough cash to buy a home. However, with a mortgage, you can purchase your dream home without worries.

We can get you your dream home

Nonetheless, with the fear of debt on our minds, we tend to shy away from making bank loans. But you still need the house and if your savings don’t reach the house price you will need financing help.

Although paying cash for the house is a better option but it has its risks. Because if the purchase flops you will be left without money nor a home. This also applies to a mortgage. You can be conflicted between the two.

Paying cash

Paying with cash eliminates paying interest on loans. Additionally, it’s an attraction to sellers as well because they don’t have to worry about the buyer backing out due to delay in financing. This also comes with the benefit of cash discounts, the buyer may find they have bought a house at a cheaper price than anticipated.

In addition, the home no leverage and can resale at any price despite market conditions.

Pros of paying in cash

You don’t have to go to the bank for a mortgage.
When you pay cash, you don’t pay interest to the bank.
All the cash flow from the investment property goes to you instead of the bank.
There is almost no chance that you will lose your entire investment.
When you have cash, you can act more quickly when you find a good investment property.
No risk of foreclosure.
Vacancies don’t put you in a financial hole.
The rent is almost all profits

Risks of paying in cash

No tax deduction for mortgage interest.
Less diversification- You can’t buy as many properties with the same amount of money.

Mortgage

On the other spectrum, obtaining financing has its benefits as well. If even if you have the ability to buy in cash, it might not be sensible to put a lot of cash in real estate. This can limit your options if other needs arise in the future.

For example; if your home needs renovation, it will be difficult to get a home equity loan or mortgage because you don’t know the value of your home later on or other factors to determine financing.

Furthermore, if you buy a home with cash ensure you have sufficient reserves to put down as a deposit for a new home when you decide to sell. As a cash buyer, you’ll need to leave enough liquidity, however, if you opt for a mortgage you are giving yourself room to be flexible.

Pros of financing

You can multiply your investment more quickly.
Using leverage lets you buy more properties for the same amount of money.
You can deduct mortgage interest from your taxes.
Potential to make a higher rate of return on the money invested.

Risks of financing

Your property will be foreclosed if for some reason you can’t pay the mortgage.
Vacancies put you in a financial hole.
Your loan could be called by the bank, forcing you to pay in full or the property will be foreclosed.
You pay interest to the bank every month, decreasing your profits.
If the property goes down in value, you’ll have trouble covering the mortgage if you need to sell the property.

In conclusion, when you decide to purchase a house with a loan, make sure you can easily afford the principal and interest payments each month. If you decide to go with cash, make sure you’ll still have enough to cover ongoing costs like property taxes, homeowners insurance, homeowner association, and other fees each month.