Keep reading to learn the benefits and drawbacks of paying with cash, what cash on cash return to aim for, how much cash flow a rental property should bring in, and more.
Is it Better to Pay Cash for a Rental Property?
There are several reasons buying a rental property with a mortgage can be a smart idea. For one, mortgage interest is a tax-deductible expense.
It’s also easier to save for a down payment than buying an entire rental property outright with cash.
To calculate a rental property’s cash flow, take the following steps:1. Determine the property’s gross income.2. Subtract all of the property’s expenses.
3. Subtract all of the property’s debt service.
In real estate investing, the 1% Rule states your monthly rent should equal a minimum of 1% of the rental property’s purchase price. This rule ensures the monthly rent will exceed the property’s monthly mortgage payment (if bought with a mortgage).
The 2% rule uses the same idea as the 1% rule, but this rule says a rental property is only a good investment if the passive income every month is equal to or higher than 2% of the original purchase price. It’s calculated the same way as the 1% rule, but with 2%.