Deciding whether to pay cash outright, or to finance your secondary residence or investment home, is key to financial success.
In this step in our Orlando Home Buyer’s Guide, we take a look at the pros and cons and at the same time, offer some suggestions on how to make the best decision.
Either mortgages or cash works well, but which works BEST can depend on a few important factors!
Example Borrowing & Using Leverage to Your Advantage
Smart borrowing can create ‘leverage’.
In basic terms, this allows an investor to use the available funds, plus a borrowed amount to reach a higher value of invested funds.
The enhanced value is referred to as ‘leverage’.
A recognizable leverage example would be to buy bottles of water to sell for profit at a music festival.
Buying one tray of bottles for $3 and selling the pack of 24 bottles for $4 per bottle makes a total sale value of $96 (a $93 profit).
The leverage model would show your $3 purchase, plus an additional purchase of 9 more trays of water by borrowing money from a friend.
With 240 bottles sold, at $960, there’s a much more notable profit of $930.
Even accounting for returning your friend’s money, with even a hefty interest rate, your day has been very, very productive.
Using Leverage For a Vacation Home Purchase
The example above, makes perfect sense for bottled water.
For vacation homes, it needs more careful consideration.
It only works if;
- The added investment amount generates a proportionately higher nightly rate
- The home can yield great occupancy (target 50% plus at the very least!)
- The home can keep up with the future needs of Orlando visitor tastes.
Advantages and Risks of the Leverage Model
- For a small deposit payment (typically 20-30%) you might be able to pay off your mortgage and utility bills and never put a further penny of your own money into the project.
- Some investors, who can easily afford one home in cash, end up buying 3 on finance instead.
- If you don’t furnish your home well enough to attract bookings, you can end up paying further money to keep the home running.
- You can get a much higher return % on your invested funds (ROI)
- If you have the full cash amount, but still use finance, you have kept 80% of your asset ‘fluid’ in your bank account.
Advantages of Cash Purchases
- The Cash buyer pays no interest rate.
- With cash, you can usually close on a home contract much faster.
- Cash buyers can occasionally command a lower purchase price
Orlando Home Buyer Guide Articles – Click the titles to read more
- Decide what the home will really be used for! It pays to be open minded!
- Top 10 Considerations for an Orlando Vacation Home!
- Choosing the right floor plan and features!
- Homes Close to Disney, an insider’s views about location!
- Finding the right community for you, your family, your guests.
- Renting your home, an emotional but wise decision! Free vacations forever!
- Don’t buy a home unless these features are included!
- Furnishing and decor, are the key to lots of bookings!
- Should you pay cash or get a mortgage?
- Mortgage advice for US Residents and Overseas owners
- Choosing a good property manager to take care of your home
- What could possibly go wrong – Being prepared makes a difference!
- Things to Worry About When Buying an Orlando Home!
- Dealing with the taxes and other boring but essential stuff!
- Buy an Existing Home or Build a New Home Exactly to Your Needs?
- Getting A Visa Or Green Card to Live in Orlando!
Contact Our Realty Team Now and Let us Find You Your Dream Home!
407 973 1456
7345 W Sand Lake Rd
Orlando, FL 32819
Reunion Resort Homes For Sale
If you are looking for a high level of financial return and an outstanding vacation experience for you and your guests, check out the Reunion Resort Homes for Sale.
There’s simply nowhere like Reunion Resort for a luxury vacation rental.
If you are searching for vacation rental homes to book, then visit our Reunion Resort Rentals Booking site here!