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Cash or Mortgage for Investment Property

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  • 09-10-2014 3:50pm
    #1
    marcus2000
    Registered Users Posts: 400 ✭✭


    If you had enough cash to purchase an investment property to rent out, would it make more sense to partly finance it using a small mortgage instead of putting all your cash into it....so you can write off some of the interest against your tax bill...and perhaps use your remaining uninvested cash in another secure interest bearing account.

    ...or am I completely looking at this the wrong way? Are mortgages too expenses to gain any benefit from writing off the interest on the tax bill?? If you can afford to buy something outright to rent out, is that the cheapest way to go?
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    #2
    spin777
    Registered Users Posts: 56 ✭✭spin777


    marcus2000 wrote: »
    If you had enough cash to purchase an investment property to rent out, would it make more sense to partly finance it using a small mortgage instead of putting all your cash into it....so you can write off some of the interest against your tax bill...and perhaps use your remaining uninvested cash in another secure interest bearing account.

    ...or am I completely looking at this the wrong way? Are mortgages too expenses to gain any benefit from writing off the interest on the tax bill?? If you can afford to buy something outright to rent out, is that the cheapest way to go?

    You should definitely borrow money if you are getting a good return on the investment, its simple maths and if the rate of return is approximately 10% and you can borrow money at 3-5% then its a no brainer. In effect, leveraging yourself in a market like this is key to making money. If your only getting a small return then its a completely different kettle of fish.


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    #3
    dbran
    Moderators, Business & Finance Moderators Posts: 2,094 Mod ✭✭✭✭dbran


    spin777 wrote: »
    You should definitely borrow money if you are getting a good return on the investment, its simple maths and if the rate of return is approximately 10% and you can borrow money at 3-5% then its a no brainer. In effect, leveraging yourself in a market like this is key to making money. If your only getting a small return then its a completely different kettle of fish.

    .......or indeed if the value of the property falls :rolleyes:


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    #4
    spin777
    Registered Users Posts: 56 ✭✭spin777


    dbran wrote: »
    .......or indeed if the value of the property falls :rolleyes:

    What do you mean? If the value of the property falls and you've borrowed half the cost of a property at an interest rate of 3-4% and a yield of 10% then you have LOADS of cover. A very low risk strategy.


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    #5
    dbran
    Moderators, Business & Finance Moderators Posts: 2,094 Mod ✭✭✭✭dbran


    spin777 wrote: »
    What do you mean? If the value of the property falls and you've borrowed half the cost of a property at an interest rate of 3-4% and a yield of 10% then you have LOADS of cover. A very low risk strategy.

    If the value of the property falls you have made no gain and you have lost a chuck of the cash that you have put in to buy the property.

    Its only low risk if you intend to hold the building for a very long time - say 20 to 30 years - and you wont have any need to liquidate in the short to medium term.

    dbran


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