Pay Cash or Finance Real Estate Investments

Should I Pay Cash or Finance Real Estate Investments?

Do you want to purchase cash-flowing rental real estate?  Are you are asking the question: should I pay cash or finance real estate investments?

Assume that you have enough to pay cash and pay for the property outright. But do you want to do that?

In order to determine if you want to pay cash or finance real estate investments, let’s compare the return on investment.

When looking at the return on investment, you use a very simple calculation. You take what your earnings are divided by what you put in.

If I put in $1 and it turns into $2, my earnings are $1.  I made $1, divided by what I put in, which is $1, equals 100%.

Now if you follow that simple math, let’s carry this forward into a $100,000 property.

Where Does Real Estate Fit in the Cash Flow System?

Unique Ability Investing

We are evangelists for cash flow because cash flow is your ticket to time and money freedom.

Investing in cash-flowing assets is part of the third stage of the Cash Flow System.

Once you have a stocked emergency/opportunity fund, you now have a pool of capital that’s ready to invest. To accelerate your cash flow, you need to identify cash-flowing assets and develop an acquisition strategy.

Real estate has long been an asset choice of the wealthy to create cash flow income.

Pay Cash or Finance Real Estate Investments?

Imagine you were in a position to pay $100,000 cash for the property.  And you earn a return of $10,000 per year.  Now if you profit $10,000 per year, you get to keep all of that.  So let’s take the $10,000 divided by the $100,000 that you put into it.  That is a 10% return on investment.

What if instead, we finance? If you finance with a 20% down payment, you will have $20,000 in the deal.

But now you’re going to earn the same $10,000 per year in cash flow, but you will have to pay back a loan.  So that’s going to reduce the amount that you keep.

Let’s reduce that $10,000 down to $4,000 because you’re paying back the loan.

Now $4,000, which is what you made, divided by what you put in, which is $20,000, is a 20% return on investment.

This is an important factor to consider when deciding to either pay cash or finance real estate investments.

So you can either use all $100,000 that you have and earn a 10% return with that money, or you can put $20,000 in, which is only 1/5 of the cash, and earn a 20% return.

What if instead of only doing that, you bought five properties?  You’re going to earn a 20% rate of return on five different properties. That’s $4,000 of income per property, times five properties.

Now you’re making $20,000 versus $10,000 in the previous example.  You’re doubling your returns with the same investment.

Consider the power of leverage when deciding whether to pay cash or finance real estate investments.

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Rachel Marshall

Rachel Marshall is a devoted wife and nurturing mother to three wonderful children. Rachel is a speaker, coach, and the author of Seven Generations Legacy™, passionate about helping enterprising families unlock their true potential and live into the multi-generational legacy they are destined for. After a near-death experience, she developed a deep understanding of the significance of recognizing and embracing one's unique legacy As Co-Founder and Chief Financial Educator of The Money Advantage, Rachel Marshall is renowned for her ability to make money simple, fun, and doable. She empowers her clients to build sustainable multi-generational wealth and create a legacy that extends far beyond mere financial success. Rachel's expertise lies in helping wealth creators remove the fear of money ruining their children, give instructions for stewarding family money, teach financial stewardship and create perpetual wealth through family banking, and save time coordinating family finances. Rachel co-hosts The Money Advantage podcast, a highly popular show that delves into business and personal finance, including how to effectively manage finances, protect wealth, and generate sustainable cash flow. Rachel's engaging teaching style and practical advice have made her a trusted source of financial wisdom for her listeners.
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