As a real estate investor, you’ve undoubtedly heard of buying houses with cash. That isn’t an option for everyone, of course. However, if you have enough money to buy a property outright in today’s market, it will serve you well.
As of February, there was just a 1.7-month supply of existing homes on the market overall, according to the National Association of Realtors. That gives sellers lots of leeway to choose — and favor cash offers over those who need buyer financing –
However, as you may know, placing all of your money in a single rental property is a mistake that shouldn’t be made as an real estate investor. This might result in losing out on other alternatives to grow your portfolio. And so, while today cash offers are king, you might want to take a different approach when buying a home – one that investing giant Warren Buffett endorses strongly.
Go out and finance that purchase
Mortgage rates are presently higher than they were throughout the whole of 2021. But, historically speaking, they’re still quite reasonable. And that’s why if you’re searching for an income property, it may still make sense to finance one.
Warren Buffett, in fact, is a huge supporter of the 30-year mortgage. In a 2017 interview with CNBC, he went so far as to call it “the greatest instrument in the world.”
The appeal of the 30-year mortgage for everyday consumers is based on being able to obtain lower monthly payments than shorter-term loans might allow. Keeping your monthly expenses lower can also benefit real estate investors, since it increases the chance that you’ll be able to collect enough rent to cover your expenditures.
However, the convenience of taking out a 30-year loan is that you may refinance it if rates drop. Alternatively, as Buffett puts it, with a 30-year mortgage, you get one-way renegotiation. You can always refinancing to a lower rate if interest rates decrease after you sign your loan. If financing your house no longer appears appealing when interest rates rise, you might consider paying off your mortgage.
Listen to a man who knows his stuff
Warren Buffett is not widely regarded as a real estate investment expert. Rather, he’s known for his stock-picking abilities. But still, if a person like Buffett offers advice, it’s worth considering. So if you’re looking for another income property to add to your portfolio and you don’t mind taking on debt, it wouldn’t hurt to consider financing it.
Remember, any money you don’t invest in a house is available to you to use in other assets, like real estate investment trusts (REITs). In fact, financing your next income property purchase might help you build a more diversified portfolio as an investor, allowing you to make up the difference by paying some interest on a mortgage later.