• June 2018
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When buying commercial property should I pay cash or take out a mortgage?

There is definitely not a “one-size-fits-all” answer to this question. However, there are a few considerations that may help you determine what the best solution is for your particular situation discuss the perks of each strategy.

Advantages of paying in cash may include:

  • Faster closing time

You don’t have to wait for a bank to process your loan so you can have your business up and running in a matter of days rather than weeks or even months.

  • Potentially more options

Sellers prefer the straight forward option of cash transactions because they are not left hanging in the balance as the buyer works through the loan process. If you are an all-cash buyer, many sellers will prefer to work with you over others just because you are a simpler option. Plus, some sellers will offer a discount if paying in cash. This could save you thousands of dollars.

  • Less long-term risk

When you purchase a property with cash, you don’t have to worry about interest vs. return quite as much. Even if the property loses 10% of its value over time, you will not be stuck with that 10% loss plus another 30-40% loss because of what you had to pay back in interest on your loan. Likewise, if your property gains value over time, that money will be a total return rather than having to factor in how much you also had to pay in interest.

Advantages of taking out a loan:

  • Higher cash flow

Depending on your financial resources, choosing to leverage your property may be a much better solution than putting a substantial amount of your money up front. You can use the money you earn from the property to pay back the loan and make a profit. Also, if the commercial property ends up being a poor investment, you don’t run the risk of depleting your personal funds.

  • More properties=more equity

As an investor, if you pay cash for a single property then you run the risk of only gaining equity from that one property. If you choose to take out a loan that covers multiple properties, then you could potentially make thousands more from the equity of several properties instead of just one.

  • Potential tax benefits

There are quite a few tax breaks available for mortgage interest and depreciation deductions. This can go a long way in protecting your income from the property.

Many factors will determine the best solution for you. Your best bet is to speak with a commercial real estate attorney. If you are interested in discussing your options further, please contact us at LawTrades. Our marketplace makes it easy to hire and use top notch attorneys. Best of luck w/ the acquisition!

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