Should I get a mortgage, or pay for my home in cash?

Asked by Dave G., Scottsdale, AZ Thu May 14, 2009

I am looking to purchase my first real estate investment. My income is not very high, but I have cash available. Would it be more beneficial for me to get a mortgage to purchase my first home, or pay for it in cash and collect the entire rent to supplement my income? (There are many other options I am sure! Any extra advice is much appreciated! Thanks)

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Shelly Nemeth, , Scottsdale, AZ
Wed May 4, 2011
There are many factors to look at. 1. Are you good with money? 2. Can your money make you more money else were? 3. How long are you keeping this? 4. Do you need the cash flow? 5. Taxes??? If you're good with money it is always better to use other people’s money. If you have good credit. Were your buying has a lot to do with it also. I can sell you a home in AL. for 29k and get you a $700.00 a month return guaranteed. Our I can sell you one in AZ. you'll pay 60k it will be in the sticks and harder to rent and get you the same return about $700.00 a month and no guarantee so you need to invest with numbers not your heart! That’s people biggest mistake this is not for you! It is a numbers game. You will never loss if you remember that! I have 6 in Az. and even with how the market tanked, I did not lose a penny! Investing is numbers, not gambling you make money from the day you buy or you don't buy! Never bank on equity that’s a bonus! Shelly Nemeth 480-703-8860 I do wholesale all over the US..
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Sean Heideman, Agent, Phoenix, AZ
Wed Apr 27, 2011
Hi Dave,

I am an investor and a Realtor so I completely understand your dilemma. Personally, I would rather purchase an investment property with cash rather than take out a mortgage. Over time, you will wind up paying substantially more for the property and a large percentage of your income will go towards interest. If you were able to pay off the mortgage within a few years, then taking out a mortgage would be worth it since you could purchase a larger property and possibly in a better area.

Overall, your cash-on-cash return would be higher with a mortgage but what really matters is the cash you take home at the end of the day. There are a lot of great rental investment opportunities today where you can find a property that pays an annual yield of 20% to 30%, depending on area, purchase price and if you pay cash. Scottsdale and Northeast Phoenix is a good place to start looking for these investment opportunities.

Please let me know if you would like some help with trying to find a high annualized yielding property.


Sean Heideman, Realtor
ZipRealty, Inc.
Office: 480-213-5251
0 votes
, ,
Wed Mar 23, 2011
Dear Dave:

The best money you will ever spend is on PROFESSIONAL ADVICE from a CPA. Get their advice before doing anything like buying a rental property.

Hope this helps.

Terry S. Smith
Scottsdale Specialist
45 Year AZ Resident
DPR Realty LLC
8341 E. Gelding Drive
Scottsdale, AZ 85260
Contact me Direct (602) 763-1858
Office (480) 994-0800
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Virg, , Scottsdale, AZ
Wed Mar 23, 2011
I also think you should ask a CPA and let him put a pencil to it. There are many factors that enter into the question that he can probably address.
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Jayne Combs, , Danville, CA
Mon Jan 24, 2011
I think your best bet would be to start with your CPA. You indicate your income is minimal. But you will still have expenses, such as repairs and maintenance, taxes, insurance, etc. What if the tenant doesn't pay you or the property is vacant for a while.

I think sitting down with a CPA/Financial Planner should be your first goal. They can best set you up in a manner that would place you in the best situation. I think to just throw out advice here without taking the time to look at your whole financial picture is really not in your best interest. Don't get me wrong, the advice here makes sense in general, but maybe not to your particular situation. There are so many ways to leverage your money. Sit down with a CPA/Financial Planner first. One that is referred to you preferably.
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Sarah Klamm, Agent, Wellsville, KS
Mon Jan 24, 2011
Paid for investments are NEVER foreclosed on. Part of the reason there are so many rental properties available is that people borrowed money and then things didn't work out and they lost them. Maybe the owners circumstances changed, maybe renters tore it up, didn't pay, and the list goes on.

Check out
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scott farmer, Agent, Scottsdale, AZ
Mon Jan 24, 2011
Normally I'd say borrow money to buy your first investment property but, In today's market there are decent properties that can yield a good cash flow for less than $40K (which can only be financed with hard money at higher interest rates). If you own the property free and clear then you don't have to worry about the payments when it's sitting empty or worse the tenant has trashed it and you have to get things fixed and find a new tenant. if your cash-flow is tight then eliminate the extra stress and pressure of a mortgage and make sure you sock away the rents for costly future repairs on your investment property. In AZ there are tenant rights that you as a future landlord must abide by. Do your homework and good luck.

Sandy Farmer
Realtor, GRI, CSSN
John Hall & Associates
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Jeff McDowell, Agent, Scottsdale, AZ
Wed Jan 19, 2011
I have run the returns on cash versus leverage many times and leverage always wins.....especially in the interest rate climate we are experiencing.
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Spirit Messi…, Agent, Tucson, AZ
Mon Jan 17, 2011
This is just an opinion but pretty sure you can find a much better investment than tying your money up in a house. The exception might be a Trustees sale, auction on the County Court House steps. These are usually bought site unsee & must be paid for in CASH. Since 99% of people can't afford to do this, for those of you that can, can be a great deal and is only available in cash.

The market is not done declining yet and I will be happy when it simply stops and flat lines. Historically homes should have a 4-5% return a year, where as stocks are an average return of like 8%. You can do the math. For example look at the return you would have received if you had invested $100K in a house 10 years ago here in Arizona OR bought $100K worth of Gold. No question the gold would have far, far, far out paced the house.

Again, great question and this is just one pGood luck

Spirit Messingham
Tierra Antigua Realty
Tucson, AZersons opinion.
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Rick Leforce, , Tempe, AZ
Mon Jan 17, 2011
Hello Dave,

I have some good information for you on this and it is also good to run this by your C.P.A. - even if it is a 10 minute conversation. If you have a personal financial consultant this would be a good idea too.

There are a lot of decisions to weigh here, if you drop me a line, we can go over this and look at the different variables as well as your liquidation or resale strategy. If you want low interest rates on a loan and itemize you should definitely call me on this and I have an excellent C.P.A. and financial planner too if you want to go over this.
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Jayne Combs, , Danville, CA
Wed Jan 5, 2011
Yes the old school of thought is to let your money work for you. But one thing you must consdier, if you finance the property, are you able to make the payments on that mortgage when your tenant doesn't. That could go on for months as well if they refuse to get out. If you are just getting by now, chances are you could not afford to make the payments should the tenant not pay you rent. Then you are jeopardizing your investment and your credit.

But all in all, I wouldn't move forward until you have met with two very important people that can help you make this decision. First, a Mortgage professional who can give you an idea what the payments would be based on 20% down and 25% down. Then a tax professional who can review your situation and advise you best on how to leverage your money. Then, and only then you can make an informed decision.
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John Shinners, Agent, Scottsdale, AZ
Wed Jan 5, 2011
Hello Dave,

,There are various factors to consider in making this decision and it is difficult to answer without knowing your total income and tax background. Since I am not a Tax professional, my first recomendation would be to seek a good tax advisor; I can recommend a few in our area if you do not have one. They are not expensive and can save you thousands of dollars over the long run. Additionally he/she will be a trusted member of your Real Estate investment team.

My general opinion is to avoid debt for this initial investment. This assumes you have enough money to purchase the property, pay for any cosing expenses and maintain a fund for expenses. I can share with you formulas my investor clients have used for their decisions. While it sounds complicated; a sound buying program is easy create and will deliver solid rewards...and there has seldom been a better time to be a buyer than today. Please feel free to contact me for more questions or how I can help guide you to the right people.
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Sarah Reiter, Agent, Scottsdale, AZ
Wed Nov 10, 2010
Hi Dave, It is probably wiser to keep your cash and put down the 20% on your first investment property unless of course you want to buy wholesale (30% below market value) at the trustee sale which many of my investors do and for that you have to go cash only. I am available at 602.751.9478 or if you want to learn more about the trustee sale or foreclosure purchasing process. Also, if you are interested in Scottsdale you can visit my site at The video blog from that site is dedicated to investors looking for Scottsdale properties and it will be launched soon. I look forward to hearing from you!
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Chris Fretla…, Agent, Scottsdale, AZ
Wed Oct 27, 2010
With todays interest rates you should get a loan.
Just put enough down to be comfortable with
your payments.
It will be leverage for the future since rates will
climb which means your cash will make money
in the future.
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Carmelle Ber…, , 85254
Tue Oct 26, 2010
Hello Dave,

My beloved husband always told me to keep my cash and to borrow for large purchases. In this Economy I would keep my cash and borrow now that the interest rates are so low (a little higher for investors). I don't know about about your job situation but I would keep my cash in case your hours are cut at work or you get laid off. Owning investment properties myself allow me to be the devil's advocate...Food for thoughts... It will be your first investment and being a landlord is not as glamorous as it's sound, there are good tenants and not so good tenants and you will have to learn to deal with it. You are also concern about your income so be prepared to be a handyman as invesment properties require maintenance and a property manager to advertise your property for lease,etc.

I hope this help. Do not hesitate to contact me with any questions or concerns you may have.

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Shawn Shacke…, Agent, Scottsdale, AZ
Thu Oct 21, 2010
I agree with Stew! Although as an agent I can give you my opinion on this it is just that, an opinion.

When it comes to investing everyone's situation is different so getting some specific advice from a professional that has all the information is VERY important.

From there you can share that professional advice with an agent and they can help you find the right thing for you and your goals.

Good luck!
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Gene Hacker, , Lake Isabella, CA
Wed Oct 20, 2010
If you plan on buying multiple rentals over time than you should look at the option on financing to leverage the cash you have.

Eg: Buy 1 $100k and put down $100k; or buy 5 $100k houses with $20k down each.

Leverage works both ways. If you make good makes them pay that much better. If you make bad investments...your losses will be that much greater.

I recommend you read a few books on basic real estate investing. They will give you a basic overview which will be very beneficial as your start this endeavor.
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Gloria MacKay, , Scottsdale, AZ
Wed Oct 20, 2010
Hi Dave,

As an investor myself and an agent that works with many investors, I can tell you that most experienced investors are paying cash for their rental properties. Interest rates are at an all time low, but it is much harder now to get the loan. Also, for an investment property, rates are a bit higher and they do require more of a down payment. Find a property in a good area, do research on the amount of rent you could get for the home,and as always do consult with your accountant and financial advisor. Be prepared to manage the property allowing for repairs, taxes and maintenance to keep up the value of your asset. This is a personal decision so take the time to weigh all the pros and cons that apply to your situation.

If you have any additional questions, please feel free to contact me anytime.

CDPE Certified Distressed Property Expert
Certified Luxury Home Marketing Specialist Million Dollar Guild
Keller Williams Arizona Realty
602-315-2402 mobile
480-223-1266 e- fax
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Jon Griffith, Agent, Scottsdale, AZ
Wed Jun 3, 2009
If you have the money to pay for your home with cash, then why wouldn't you? There is absolutely ZERO benefit to you to have a mortgage. The benefit is to the bank. You obviously have a good income, and you can save money, and if this is a prospective rental property, then the question you should be asking yourself is, "will this home rent, and how much will it rent for."

When you pay cash for your home, all of the income is GRAVY. I would also add that the argument for tax write-offs comes from people who can't do math. Those who believe borrowing money for the sole purpose of writing off interest payments is good economics simply don't know what they're talking about. If you were in the 30% tax bracket, would you be okay sending the lender $10,000 in interest so that you can avoid sending $3000 to the IRS? As much as I hate the IRS, I'd rather partner with them for $3000.00 than the lender for $10,000.00.

Pay cash for that house. It will increase in value over time and it will generate income!!! No brainer.
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Luke Allison, , Asheville, NC
Thu May 14, 2009
The best advice I can give you from a lending perspective is this: right now it is difficult if not impossible to pull cash out of an investment property on a refinance. Paying cash for a home, while not at all an unwise move, will officially tie up your cash in that property. Even if you get a small mortgage for $30-50k, that is still that much money still in your bank account.

Take my advice with a grain of salt (My job is to sell mortgages after all) but my suggestion would be go ahead and get an investment mortgage for what you can qualify for and just go ahead and pay it off if you don't like carrying the payments. At least you will have attempted to protect your assets from the get-go.

If you have any questions, feel free to contact me.
Luke Allison
Bank of America Home Loans
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Stew Keene, Agent, Scottsdale, AZ
Thu May 14, 2009
Hi Dave,

You need to speak to your accountant and tax or financial advisor. They will fully have the details and outlines on what is best for you and as Realtors we don't practice investment strategy and financial consulting. It's outside the boundaries of our licensing.

Your are likely to get mixed responses here on why you should and why you shouldn't so I would be very cautious.

We all have our own "personal" reason for financing or paying cash so the reality is that its also "personal" for you.

If you aren't working with a Financial advisor, you should be.

Right now the NAR is fighting off a movement to eliminate the interest write off you apply on your tax return.

Things could change here quickly so it's even more important you seek out a great financial advisor.

Good luck with your investment properties.


Stew Keene
Inspire Realty Group
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Tobie Ward, , Phoenix, AZ
Thu May 14, 2009
That is a very good question, and one I am asked frequently, I guess the answer depends on your personal situation. Obviously , if you pay cash then you have no monthly payment so you cash flow immediately, and when your property isn't occupied you have minimal outgoing expense, but if you need immediate cash accessing it could take time. However there can be some tax advantages to mortgaging your properties, and with interest rates being so low this is very tempting, it can also allow you to purchase multiple properties with the same investment. It would also be possible to keep some funds in reserve for emergency exenditures, but you would be responsible for those monthly payments when they are unoccupied. Also your long term appreciation is impacted when yo take into consideration the interest you will be paying. All of these things, as well as others, should be taken into consideration when you purchase an investment property. Good luck and don't hesitate to contact me if you have any other questions.
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