If you’re looking to buy an investment property, it’s best not to use cash for your purchase. Here’s why.
When I invest or help clients invest, I’m looking to increase the cash-on-cash return on investment and also reduce risk. The best way to do this is to use bank leverage or financing.
Let’s say you and I each have $100,000 and decide to buy rental properties worth that amount. You buy one for $100,000 in cash, and I buy four with $25,000 down payments on each. Now let’s say that in 15 years, the value of each property doubles. Your property is now worth $200,000, but my four are worth $800,000. Your profit is $100,000 and mine is $400,000. You’ve put all your money (and risk) into one property, but my risk is spread out over four.
Even though we each began with the same amount of money, I just made four times more than you and mitigated my risk at the same time.
If you’re looking to invest and have any questions or would like more information, feel free to reach out to me. I look forward to hearing from you.