financing vs. cash purchase

Some of my clients invest in our properties for cash, other’s want to use finance.

What does this mean?

does it mean a cash buyer is wealthier? No, course it doesn’t…

Our mantra has always and will always be ‘to invest in property for high cash flow.’

So if your paying cash for a property that nets you £350 a month, and the property only costs £16k, the return is simply phenominal!

If you use finance to buy the same property your cash flow will be less as you have a mortgage to pay, lets say £200 a month – not bad!

However, your entry costs are massively reduced – by 80% in some cases. Using finance to buy property is a process called gearing in other words maximizing your buying power with your existing capital to buy more property.

Lets do an example with a investment fund of 19k:

Cash purchase:
Purchase Price: £16k
costs to buy £3k
total 19k

Monthly cash flow; £350 (less than 4 years to repay your entire investment capital!

Gearing:
Purchase Price: £16k
costs to buy £3k
Mortgage at 80% LTV (loan to value) deposit; £3200
total £6,200

Monthly cash flow; £200

Using your 19k investment capital you could now buy another 2 properties and increase your cash flow by £400 (£200 per property)

NET income a month = £600

And now you’ve got appreciation on 3 properties!

That’s the power of gearing or leverage…

So what’s the conclusion, which method is better?

Well…both! It really all depends on your own personal wealth, your lifestyle, whether or not you want to be a seasoned investor or just buy 1 to leave the kids in later life.

So first figure out what you want, get a calculator and do your sums. If that fails contact us and let us help