Investing in real estate is a substantial financial decision, and how investors fund their real estate investment can also significantly impact their overall returns and risks. While many assume private loans are for cash-strapped beginners, in reality, experienced investors leverage private financing to unlock more opportunities and enhance their bottom line.
Below, we’ll discuss the pros and cons of purchasing an investment property with your own cash and why so many real estate cash investors turn to private financing to grow and succeed in today’s markets.
Below, we’ll discuss the pros and cons of purchasing an investment property with your own cash and why so many real estate cash investors turn to private financing to grow and succeed in today’s markets.
The Pros & Cons of Buying with Cash for Real Estate Cash Investors
The Pros
Many investors using cash to finance real estate view their personal financial backing as a sizable advantage over the competition. By eliminating the middleman, there are certain benefits, including:
Less Risk of Purchase Delays
Although certain private lenders can approve and distribute financing within 10 days, cash transactions have a more immediate transaction closing. And, by eliminating lender approval processes, real estate cash investors avoid requirements and underwriting processes that could delay financing options.
No Interest Expenses
One of the more obvious advantages of buying a property with cash is the avoided interest payments on a mortgage. For the novice homeowner turned investor, investing in real estate while avoiding the debts and burdens of mounting interest rates seems ideal. After all, more cost savings mean higher overall returns on investment (ROI).
The Cons
While there are certain benefits to real estate cash investing, they can also significantly hinder the average investor’s opportunity to diversify and grow. Let’s look at some of the more glaring downsides to investing in real estate with cash:
A Lack of Leverage
Although financing a project comes with certain costs, using a capital provider to fund an investment property creates leverage for investors. For starters, investors can keep a line of liquidity to bid on and purchase more properties. Additionally, unlike real estate cash investors, those who finance a project can realize returns on the cash invested much quicker–making financers’ money work for them.
Reduced Buying Power & Missed Opportunities
Tying up all your money in one or two investments significantly reduces your buying power. When investors take out a loan, they maintain cash to bankroll other investment opportunities. A lack of liquidity can quickly lead to missed opportunities and fewer chances to grow for real estate cash investors.
Fewer Tax Benefits
When it comes to long-term rental investing, a mortgage on the books, rather than funding your own project like cash buyer real estate investors, unlocks several tax benefits. Any money that an owner pays in interest towards a financed rental can be deducted against the income of the property–significantly reducing end-of-year tax liabilities.
Vulnerability
A big reason to not pay cash for a rental property, fix and flip, or new build investment, is the vulnerabilities created by draining your savings and emergency funding. All too often, cash-strapped real estate investors, with money tied up in their assets, run into unpredictable issues (water damage, structural issues, etc.) and stand to lose their investment and all of their money.
Experienced real estate investors know having cash readily available for emergencies or unexpected obstacles is critical to success and peace of mind.
Experienced real estate investors know having cash readily available for emergencies or unexpected obstacles is critical to success and peace of mind.
Why Real Estate Cash Investors Should Leverage Financing
How do real estate investors make real money? As you can see, when it comes to succeeding in real estate investing, paying cash can slow growth, lead to missed opportunities, and leave investors vulnerable to losing all their money. That is why so many investors form partnerships with private capital financing partners. In doing so, they create several avenues to increase profits and business growth.
Let’s look at the top reasons savvy real estate cash investors leverage financing to win in today’s markets:
Let’s look at the top reasons savvy real estate cash investors leverage financing to win in today’s markets:
Enhanced Business Opportunities
With a business loan through private lenders, real estate cash investors unlock the liquidity and flexibility to chase new opportunities and scale exponentially.
Increased ROI
By leveraging loans as a tool to take on more opportunities, real estate investors can grow their portfolios and businesses faster. More properties equal more returns, which lead to higher profits.
Improved Credit Score
Traditional lenders and long-term business loans for rental properties come with credit requirements. While credit scores may not be as significant for short-term business loans through private lenders, a higher score gives investors leverage at the negotiation table–which can lead to lower interest rates and high cash amount approvals.
By opting into financing options, real estate investors create avenues to grow and improve their credit scores to help ensure long-term success.
Real Estate Investor Networking
By partnering with a reliable private financing partner, you create a relationship with a team of industry experts. While a capital partner’s first priority is ensuring you have the funding necessary to secure your investments, they can also help introduce you to new opportunities and partnerships within the industry.
Growing your real estate investor network and gaining the benefits of a capital partner can be a significant advantage for current and future endeavors.
Growing your real estate investor network and gaining the benefits of a capital partner can be a significant advantage for current and future endeavors.
Choosing the Right Private Capital Partner
There’s a reason the best real estate investors turn to private lenders rather than traditional financing institutions, like banks and credit unions. Conventional mortgages through traditional lenders have strict governmental and institutional oversight and stringent guidelines. These burdens create longer application processes, lower approval rates, and less peace of mind for investors.
Business purpose loans for real estate investing through private lenders, on the contrary, equip entrepreneurs with the speed, flexibility, and freedom to outpace the competition and succeed in today’s markets.
By operating outside of governmental and institutional guidelines, private lenders can provide real estate investors with financing options that have:
Business purpose loans for real estate investing through private lenders, on the contrary, equip entrepreneurs with the speed, flexibility, and freedom to outpace the competition and succeed in today’s markets.
By operating outside of governmental and institutional guidelines, private lenders can provide real estate investors with financing options that have:
- Flexible terms;
- Fast approval times;
- No pre-payment penalties;
- Little to no downpayment;
- And, eligibility for low credit borrowers.
Private lenders, like CIVIC, make lending a real estate tool, rather than a burden, for real estate cash investors. With some of the most reliable and flexible loan options on the market, our team of industry experts makes our money work for you, helping to streamline business growth and success.
CIVIC offers both short- and long-term real estate financing options, including:
CIVIC offers both short- and long-term real estate financing options, including:
- Ground-Up Construction Loans
- Fix and Flip Loans
- 1-4 Unit Bridge Loans
- Rental Loans & Rental Portfolio Loans
If you’re a real estate cash investor looking to make the most of your money and grow your investment portfolio, reach out to a CIVIC professional today. CLICK HERE to schedule a FREE consultation.
