To buy for cash or finance?
I am considering buying an investment 4BR, 2Bath single family property for $140K, with 20-25% down in a small California town. Disposable money sitting in the bank is not earning much. The home would rent for about $1,000/month, is in a fairly decent area of town and in good shape. With good credit, I can get good interest rate and have positive cash flow even if I take a loan.
Buying all cash, I will have all the income as return on my investment. If I borrow,50-60% of income would go toward mortgage related costs. Which is a better alternative?
One thought says, leverage the down payment to realize almost the same rate of return and invest in more properties. Say, I could buy 5 properties with 20% down with the total I would pay for a single property and have the opportunity to collect 5 monthly rental payments.
Let's assume for the moment that the anticipated rental income has already taken into account cost of minor repairs, taxes, insurance and about 80-90% occupancy rate. Also assume that there won't be any appreciation for another 5 years.