[USER]

Is it better to buy a rental house outright and avoid interest rates or finance a rental house and get depreciation?

When investing in a rental property, is it better to purchase it outright with cash or finance it through a mortgage?

What factors should be considered when deciding which approach is more beneficial in terms of returns, risks, and overall financial strategy?

[Dion]

If I purchased properties all cash I would almost be able to buy my first property now.

Instead I used mortgages. Have 18 units. Profit over 200k a year and have been retired since 2022 after 12 years of investing.

It may feel better to buy properties without the bank making money. But I prefer the bank to make money as long as I get the return I was wanting, the freedom cash flow gets me.

Then add the asset protection from having the bank in first position. I don’t ever want to”paid off” properties.

I want cash flow.

Most people who want paid off properties don’t understand equity. Levered appreciation. Levered depreciation.

[George]

Stock grows faster than rental houses.
Mortgage is the way to go when it comes to buying real estate.

[Robert]

As someone who owns rental property, I can tell you that there is simply no one-size-fits-all answer to this question.

I understand your desire to seek the wisdom of the “ hive mind”; but your best bet is to take all of your numbers, and sit down with a good tax CPA; and look at your options; and develop your strategy from there.

Bear in mind that the interest costs on a rental property are deductible against the rental income. Good luck and let us know the outcome.

[Bethany]

You get depreciation either way.
You can even do a cost segregation study if it’s an STR and depreciate things pretty much immediately.

[Boris]

From my experience and calculations if you pay for the house all cash the ROI is less than investing that sum into a stock market even with house appreciation factored in.

But you should do a math in your area.

The cash-on-cash ROI does get better when you finance. Also, some will invest in real estate as long as they can break even monthly and bank on appreciation but for me the asset has to cash flow to make sense.

[Scott]

You get depreciation either way. Choosing whether you want to take depreciation all depends on your personal tax situation.

With respect to finance vs. not, is also specific to running a profit and loss forecast on the property.

My rule of thumb is anything less than 5% finance rate, finance it. Anything more, pay cash for it.

[Derrek]

Don’t try to time the market. If rather have higher rates and refinance thrn pay more for a hous with lower rates

[Author]

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