Property Investment Advice (II) – Loan or Cash?

Following my previous post on Property Investment Advice (I), this part II focuses mainly on home financing part. I have touched on this topic in the previous post but I elaborate more on how you should finance your acquisition.

Property Investment Advice (II) – Loan or Cash?

Property Investment Advice

Loan or Cash to Finance Your Acquisition?

A lot of people ask if it is a good move to maximize your home loan (as much as 90%) to finance their acquisition.

Getting a full home loan from a bank may look silly but experienced property investors would advise doing so if you are planning to rent the properties out for tenancy.

This may look crazy as you wonder if you are going to pay it back one day or how are you going to pay for the monthly repayment with increasing commitments.

By doing so, it allows you to have additional funds and lesser interest to pay.


With the income from the tenancy being able to pay for the maintenance and the monthly repayment loan, you actually do not have to worry about earning extra money to pay for the 35-year home loan as this has been covered with the monthly rental that you receive.

The interest lessens over time and you have already your  tenants to pay for it.

That simply means you only need to fork out 10% of the property value for the down payment and the rest will be taken care by the rent. Not to forget too that property value increases over time.

This means the rent will rise due to appreciation and demand. The rent will on day provide additional income – net income exceeds the amount of mortgage payment and expenses that you need to pay every month.

Before engaging a home loan, try to plan and estimate the amount of return on investment that you will potentially get from it.

Consider also how soon you will be able to get back the capital.

So the rule of thumb is:-

  • Opt for the maximum amount of loan that you can get; and
  • Longest loan duration;

Note that the loan amount that you can get from banks varies from country to country.


Property Investment Advice (II)

If you already own a property and would like to get your second or third property for investment, you may opt for mortgage refinance on your existing property.

This allows investors to increase values of properties as well as getting yourself additional funds to help pay the loan.

As mentioned many times in my post, property value appreciates over time. You may apply for mortgage refinancing after some time, say five years.

Refinancing allows investor to obtain different or better interest term and rate. The existing loan will be paid off and allowing the second one to be created.

If you are paying off your existing property with flexible interest loan, you may consider switching it to fixed loan rate (which is normally lower interest rate). By doing refinancing, you could do such conversion and start off a new loan with a better interest rate.

Refinancing is a good way to earn you additional cash to invest in the second or more property.

From the new property, you can then get additional income which will help pay for the other properties.

If you understand the process, it is simply a cycle that allows you to reap the most benefits from the investments. This is the power of compound earning.


Bear in mind that you should not make investment loan on the house that you are staying. Houses do not generate income and interest rate should really be taken into consideration when you are planning to get your own home. It should be treated differently from the properties that provide you with cash flow.

If you missed the first part of the article, please read it here on Property Investment Advice (I).
I have also posted a few more:-

I hope you enjoy reading this.Regards,



Property Investment Advice (II)

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2 Responses

  1. Joel Ng says:

    HI Alex,
    Great post you have got there and thanks for the informations. Yes I do agree that on the house that we are staying will be more of a liability rather then investment.

    Only thing is that we do need to also take into consideration that current day not all property rent can cover the monthly installment to the bank. Thus owners should take into consideration that they might need to fork out some amount of money into repaying the loan towards the bank.

    Nevertheless it is still a good investment and as we have more cash with us due to the loan taken we can actually diversify our portfolio or get another house for investment in days to come.

    Overall I do agree with you and in future hope that there will be more post regarding these topics.

    • Alex Y says:

      Hi Joel,

      Thanks for your comments.

      I fully agree with you. It is therefore essential to evaluate the property values, locations, potential net income grow as well as the amount of loan that you are going to apply.

      It is also advisable to start as early as possible so that we have the time to allow the property value to appreciate and get the second and the third ones over time.



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