Long-term rental properties are the ones that you buy and hold for a long time. Then, while you are waiting for them to appreciate, you can rent them out and generate an additional revenue source for yourself. However, to obtain these buy-and-hold properties, financing is required. There are two ways for investors to finance a long-term rental property. They can either pay for it in cash or get a mortgage from a bank.
Both of these are viable financing options for property investment. However, they also have pros and cons related to the type of financing you choose.
Following are the brief details on both options:
Full Cash Financing
When you have the funds available to buy a property in full, you pay the whole amount in cash to buy it. It is the simplest and the most preferred transaction process for property investment. Any seller is going to prefer getting all the money upfront. However, it is also the least ethical way to purchase real estate.
Benefits of Financing Real Estate Investments in Cash
Following are some important benefits of buying properties in cash for long-term rentals, such as luxury apartment for sale in Lahore:
- It provides instant rental income and initiates the cash flow right away.
- Since there is no mortgage payment involved, all of the revenue becomes your profit and goes into your pocket directly.
- If a unit is vacant for a period and not bringing in any rental income, it does not cause any losses for you to cover out of your pocket.
- Since buyers prefer complete cash transactions, it leaves some room for negotiating the price further to your benefit.
Problems with Financing Real Estate Investment in Cash
Following are the issues that you may have to face while financing properties for long term rentals in cash:
- The most obvious issue of full cash financing is that it can dry up your coffers and opening you up to need mortgages if you suddenly require some cash for financial emergencies.
- With all-cash buy-in, you may not have enough left to spruce up the place to make it attractive for potential renters.
Financing through Mortgage
Sometimes as an investor, you come across properties that make perfect sense and indicate high profitability should you choose to invest in them. But you cannot invest right away because you do not have the financial resources at the moment. Under these circumstances, you have a serious decision to make. You have to let the property go or lose your chance to make remarkable profits, or you have to get a mortgage to pay for it.
Benefits of Financing Real Estate Investment with Mortgage
Following are the ways how you can benefit by buying properties for long-term rental investments, such as luxury apartments for sale in Lahore:
- It enables you to invest in properties for which you do not have the full budget
- When you finance a purchase through a mortgage, you get to leverage the real estate
- You only have to pay a small amount as a down payment to buy a valuable asset and take advantage of all the financial benefits it offers
Problems with Financing Real Estate Investment with Mortgage
Following are the issues that may arise if you buy properties through a mortgage for long-term rental investment:
- Mortgage payments take away a big chunk of your monthly revenue from rental income.
- If you have any vacant units for a period, you may have to cover losses, especially to make payments for the mortgage.
- Mortgages always have an interest which is an additional burden on the revenue that affects your profits.
Whether you choose to pay in cash or take out a mortgage to invest in long-term rental properties such as Union Luxury Apartments, it would be prudent to sort out your finances beforehand. It would be best to define a budget and then look for properties according to it. Then once you find the right property, you have to consider the best option for you. Whether it is cash payment or taking out a mortgage, take measures to protect yourself against the disadvantage they carry.