Investment property (condo): Is it wise to borrow or pay off? (rental, mortgage)

[vauser]

If you had a choice between borrowing about 70% of the property value as a loan vs paying about 80% off, which would you use from an investment standpoint? I've been breaking my head over the past couple of days as paying off doesn't seem to make a whole lot of sense as you lose the interest deduction which happens to be a significant amount. Even worse, you would then have to pay taxes on the rental income as the mortgage would be much lower than the income earned. Given that, does it mean borrowing is always better for a rental property and it doesn't make sense to pay it off??

[calitova]

It depends on how you would use the money. If you can invest it somewhere else and earn more than what you are paying in interest (after tax), then it makes sense to take out a loan. It also depends on your comfort level with debt (personally, my comfort level has gotten a lot lower over the last year or so) and the risk of the other investments you might choose.

[v2009]

I don't know all your financial details, but in general, I'd say borrow, don't risk your money. You don't want your money to be bound in a property. In case anything happens to it, it's the bank's money.
Of course, it all depends on how much cash you have after the purchase. If this transaction won't make much difference in your finances (if you are rich), then it's a different story.

Also, compare present values of the entire amount in different scenarios. Financial calculators have that option.

[austindoxie1972]

It depends on your financial situation. If you're using all your cash to pay off the condo, I wouldn't do it. If you have $2M sitting around, and the condo is only $150,000 -- paying it off might make sense. Particularly if you're getting a better deal for buying cash.

I have seen several friends pour money into a house, and then hit a financial or health hardship (job loss, husband had a heart attack). They were wishing they had the cash on hand to get them through those tough times.

It all depends on your personal situation.