Pay for house in cash, or put 50% down?

[jschmidt]

We are looking into purchasing an investment home for rental income. We have already paid off our home, have 215k in the bank and are looking to get the investment home for 105k. Eventually, we may get 1 or 2 other homes to rent out, but right now, we are just looking at this one.

What would you do?

Pay all cash for it, or put 55k down and finance the rest?

If financing, we will probably be hit with about $1,500 more in closing costs apparently, and it will be at a 4% interest rate which equals out to be $16,000+ in interest that we would pay over the life of the 15 year loan.

Several real estate folks have said to only put half down, but we hate debt, and can't stand that a few hundred dollars a month would be going to the bank just for the privilege of borrowing their money. Any people weighing in would be greatly appreciated!

[iris lilies]

We are looking into purchasing an investment home for rental income. We have already paid off our home, have 215k in the bank and are looking to get the investment home for 105k. Eventually, we may get 1 or 2 other homes to rent out, but right now, we are just looking at this one.

What would you do?

Pay all cash for it, or put 55k down and finance the rest?

If financing, we will probably be hit with about $1,500 more in closing costs apparently, and it will be at a 4% interest rate which equals out to be $16,000+ in interest that we would pay over the life of the 15 year loan.

Several real estate folks have said to only put half down, but we hate debt, and can't stand that a few hundred dollars a month would be going to the bank just for the privilege of borrowing their money. Any people weighing in would be greatly appreciated!

If you put half down and invest half, what percentage would you earn on the invested half? The stock market has been crazy good in the past year, but I'm not sure it's a good time to buy in since things are high. But if you can earn more than 4% sure, invest it.

Ther other factor is: do you have adequate living expenses for a year or so, and/or do both of you have stable jobs?

Personally, I always make the irrational decision here and pay off the debt, it's the emotional decision. I hate debt, too.

[spirit]

Debt-free is simplest.

[Float On]

Dave Ramsey just yesterday told someone to never mortgage rental property. One or two bad tenants (for example taking 6-9 mts to evict someone not paying their rent or tearing up your property) and you are losing money.

[Gardenarian]

If you can pay cash, do it.

[oldhat]

Pay cash. Even though interest rates are near historic lows, if you invest the money in the hope of beating the interest rate, you might win and you might lose. (I personally think the stock market right now is overdue for a correction.)

Besides, think of the satisfaction of knowing that you own that house--outright.

[awakenedsoul]

Do you have an eight month emergency fund? Have you saved what you need for retirement? I know you said you have $215k in the bank. How old are you? I would also pay cash. (As long as I had my emergency fund and retirement funded. Oh, and my deductible funds for health insurance and auto insurance...)

It sounds like you want to pay cash for the home. You already own your house outright, so you know what repairs and property taxes cost. I budget about $3,000. a year for maintenance on my cottage. Property taxes run me another $1,400. a year.

Could you still afford the second home if one of you were to lose your job or have an accident? At one point in my life I owned my home outright, but had a cash flow problem, that's why I'm asking.

[catherine]

Dave Ramsey just yesterday told someone to never mortgage rental property. One or two bad tenants (for example taking 6-9 mts to evict someone not paying their rent or tearing up your property) and you are losing money.

+1

We've had rental property (not by choice) and that situation Float On talks about mirrored what happened to us. We had a drug-dealing squatter, and we lost probably 9 months rent due to that totally unforeseen circumstance.

[jschmidt]

Do you have an eight month emergency fund? Have you saved what you need for retirement? I know you said you have $215k in the bank. How old are you? I would also pay cash. (As long as I had my emergency fund and retirement funded. Oh, and my deductible funds for health insurance and auto insurance...)

It sounds like you want to pay cash for the home. You already own your house outright, so you know what repairs and property taxes cost. I budget about $3,000. a year for maintenance on my cottage. Property taxes run me another $1,400. a year.

Could you still afford the second home if one of you were to lose your job or have an accident? At one point in my life I owned my home outright, but had a cash flow problem, that's why I'm asking.

I'm 34, and I think it takes perhaps $40k a year for us to live on, so we would probably be set for 2-3 years if nothing catastrophic happened, and never drew a dime of income from anywhere else if we bought the house outright. I put this thread on a real estate investing forum as well, and everyone is basically saying borrow like there is no tomorrow so you can free up cash to buy more property. This is all so very confusing!

[catherine]

I'm 34, and I think it takes perhaps $40k a year for us to live on, so we would probably be set for 2-3 years if nothing catastrophic happened, and never drew a dime of income from anywhere else if we bought the house outright. I put this thread on a real estate investing forum as well, and everyone is basically saying borrow like there is no tomorrow so you can free up cash to buy more property. This is all so very confusing!

I guess it depends on how risk-averse you are. If you are happy living simply and are just doing this for another stream of income, I'd just pay cash. If you're trying to be some real estate mogul and won't mind having to potentially claim bankruptcy or go to foreclosure when things go bust, then borrow.

I've been burned in real estate, so I'm listening to DR, who has also been burned in real estate.