The upside of financing a home today
Though typical home buyers commonly need to take out a mortgage to purchase a home, real estate investors often have access to capital that allows them to purchase properties mortgage-free. In today's market, that gives investors a key advantage.
Any time a seller accepts an offer that's contingent on mortgage financing coming through, that seller takes on the risk of a failed deal or countless delays. Mortgages can take time to finalize, and for sellers looking to move quickly, transacting with buyers who come in with cash is often advantageous.
As such, you might manage to easily smoke out the competition if you're able to pay for a home in cash. And if you make a cash offer, you might even manage to avoid a bidding war, which could save you from having to pay more for any given property you're interested in.
Paying cash is a tactic worth employing. But there are downsides -- notably, tying up too much capital in a single property. And given where mortgage rates are sitting today, paying cash makes even less sense.
As of this writing, the average 30-year fixed loan is sitting at 3.070%. The average 15-year fixed loan, meanwhile, is at an astoundingly low 2.328%. At these rates, maintaining added liquidity makes a lot more sense than sinking hundreds of thousands of dollars into a single investment property, even if the money is there.
While financing an investment property could mean losing your edge on the competition, there are other ways to regain it. You could go into the bidding process with a mortgage pre-approval letter in hand. Or, you could make a seller an offer that's too good to refuse, which would leave you putting some extra money into a home up front, but not nearly as much as its entire purchase price.
Though many real estate investors routinely make cash offers on homes, in today's mortgage rate environment, that makes little sense. For the most part, you're better off borrowing on the relative cheap and conserving cash for when other opportunities arise.