Is Paying Cash for a Rental Property a Good Idea? What to Consider

Most of the time, real estate investors secure financing when purchasing rental properties. Many obtain a conventional mortgage from a lender, others get hard money loans or use asset-based lenders, and still others borrow against other properties.

Is it Better to Pay Cash for a Rental Property?

Paying cash for a rental property comes with extra benefits. Namely: 1. Cash payments tend to lead to much quicker purchases and closing can often take place directly after an inspection.  2. Further, cash offers typically carry more weight with sellers, thus making you more competitive. 3. Finally, your closing costs are lower as well. 

How Much Cash Flow is Good for a Rental Property?

To calculate a rental property’s cash flow, take the following steps: 1. Determine the property’s gross income. 2. Subtract all of the property’s expenses. 3. Subtract all of the property’s debt service.

What is the 1% Rule in Real Estate?

In real estate investing, the 1% Rule states your monthly rent should equal a minimum of 1% of the rental property’s purchase price. This rule ensures the monthly rent will exceed the property’s monthly mortgage payment (if bought with a mortgage).

What is the 2% Rule in Real Estate?

The 2% rule uses the same idea as the 1% rule, but this rule says a rental property is only a good investment if the passive income every month is equal to or higher than 2% of the original purchase price. It’s calculated the same way as the 1% rule, but with 2%.

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