As a real estate investor, you may be familiar with the idea of buying properties with cash. Of course, that's not an option for everyone. But if you have enough cash on hand to purchase a home outright, in today's market, that will serve you well.
As of February, there was only a 1.7-month supply of existing homes for sale across the residential real estate market, according to the National Association of Realtors. That gives sellers the right to be picky -- and favor cash offers over those who are reliant on buyer financing.
But as you may know, tying too much cash up in a single income property is a mistake you don't want to make as a real estate investor. Doing so could mean losing out on other opportunities to build your portfolio. And so while cash offers may be king today, you may want to take a different approach to buying a home -- one that investing giant Warren Buffett is a strong advocate of.
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Go out and finance that purchase
These days, mortgage rates are higher than they were throughout all of 2021. But historically speaking, they're still pretty competitive. And that's why if you're looking for an income property, it could still very much pay to finance one.
In fact, Warren Buffett himself is a huge advocate of the 30-year mortgage. In a 2017 interview, he actually went so far as to call it "the best instrument in the world."
For everyday buyers, the appeal of the 30-year mortgage stems from being able to snag lower monthly payments than what a shorter-term loan might allow for. As a real estate investor, keeping your monthly payments lower could benefit you too, as that makes it more likely that you'll be able to command enough rent to cover your costs.
But the benefit of signing a 30-year mortgage also lies in the flexibility to refinance it as rates fluctuate. Or, as Buffett says, with a 30-year mortgage, you get a one-way renegotiation. If rates fall after you sign your loan, you can always refinance to a lower rate. And if rates climb and financing your home no longer reads like an attractive option, you could try paying your mortgage off.
Listen to a man who knows his stuff
Warren Buffett is hardly known as a real estate investing guru. Rather, he's known for his stock-picking prowess. But still, when a person like Buffett dishes out advice, it pays to take it. And so if you're in the market for another income property for your portfolio, it wouldn't hurt to consider financing it even if paying cash is an option for you.
Remember, any money you don't tie up in a home is money you can invest in different properties or other vehicles, like REITs (real estate investment trusts). In fact, financing your next income property purchase could help you maintain a more diverse portfolio as an investor, and ultimately, the wealth-building opportunity that gives you could make paying some interest on a mortgage more than worth it.
