The reduced time, paperwork and effort can put you at an advantage over buyers who need to finance their purchase and get you a good discount. A non-leveraged property is also much easier to sell. Mortgage, on the other hand, is a very expensive loan considering its amount and tenure. You end up paying a lot more than you intended to as interest. You also need to qualify for a mortgage and that is a task in itself.
Investors should also be wary of acquiring a mortgage loan with a speculative risk, which involves buying a high-risk property against a mortgage with an intention to sell it soon after hoping to make a quick buck. Without a thorough understanding of market conditions and buying trends, an investor can end up losing a tremendous amount of money to speculation. Moreover, one needs to make certain they can easily afford the mortgage payment along with operating costs like property maintenance fee each month.
Advantages of Mortgage Over Cash
A mortgage loan leaves comfortable cash flow and gives you flexibility in terms of expansion or additional investments in other assets. If you work out your calculations carefully, your mortgaged property may even pay for itself. Additionally, paying in fixed installments for a property whose value appreciates, in a currency that degrades over time, is also a good idea. If you’re considering taking out a mortgage, be sure to shop around and compare mortgage rates in the UAE. Buying a property with cash, on the other hand, is equivalent to putting all your eggs in one basket. It is not financially prudent to tie up all your cash in one place or sponge up all liquidity.
The Best Option Based On Individual Buyer Situation
Which alternative is best for you also depends significantly on your individual situation. Your mode of employment, age and reason for purchase all factor into the decision. For instance, mortgage is better suited to young investors buying properties for their own use because they get a longer mortgage tenure. Also, maintaining liquidity at a young age is essential for wealth creation.
On the contrary, an investor who dabbles in property investments would prefer all-cash transactions because the turnover will be faster and cash can earn greater than what a mortgage would get. For such a buyer, the mortgage loan term will only be a hindrance.
The Bottom Line
Besides your individual situation, it pays to educate yourself on the market trends, state of the economy and interest rates before making a decision. At the end of the day, the option that would make the most sense is the one that gives you the biggest bang for your buck.