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Author: footsox Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127815  
Subject: Paying Cash for an investment property Date: 6/9/2013 3:14 AM
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I think this was touched upon in the previous thread but I wanted to start a new thread and toss this around. Here is our situation - we are going to retire in less than a year. We are hoping to buy a couple or rental properties (one of them, we have already made a cash offer and it has been accepted). Here is our reasoning - we have about 60% of our funds in the stock market and basically just wanted to diversify a little. So, we can either take money out of our credit union (which of course pays almost zero interest) and just buy the house with it. Or we can get a mortgage. We have been pre-approved for a mortgage on this investment property. Our credit scores are in the 800's, so no problem there. Interest rates on this mortgage will be in the 4% range, because it is an investment property (we have been told). If we buy it with a mortgage, there will be some additional closing costs - points, and appraisal, etc.

So, toss this around -- if we just pay cash for this house, it would be like getting 4% interest on our money (since no 4% mortgage) right?

So, where else would we get 4% on our money (if we are not putting it in the stock market). So, my question I pose, is why get a mortgage at all? This is almost like finding a CD that pays 4%... isn't it?

Well, I am sure I am missing a multitude of things here, so wanted to hear your thoughts. Some would say we should get the mortgage, so we could deduct the mortgage interest.. but if we are not paying any mortgage interest, there would be no need to deduct it. Can't wait to hear some thoughts on this. Thanks.

Footsox
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