Cash or Mortgage for Buy to Let Property Investment?

You’ve decided to invest some of your wealth into residential property but you are undecided as to whether to buy for cash or with a buy to let mortgage.

Buying with cash can make you a stronger buyer with someone looking for a fast sale and completion. Distressed vendors and builders are good targets for cash deals. But cash won’t make you a stronger buyer when buying from an auction or from many relaxed private vendors.

Clearly buying residential property outright for cash has some large attractions including not having a bank or lender to talk to or the exposure to future higher interest rates. But buying for cash reduces your ability to make your money work as hard as it can.

If you are buying a property to maximize annual income spreading your cash over a number properties will generate more income as a proportion to the amount you’re planning to invest.

Spreading your cash over a number of properties will also enable you to benefit from capital growth. Spreading you cash also reduces your exposure to a defaulting tenant. A defaulting tenant with only 1 property purchased for cash will mean all of your rental income has been affected.


Someone with up to £120,000 to invest with a typical annual gross rental yield of 6%.

Option 1: cash deal

Buy 1 property for £120,000 cash will give an annual gross income of £7,200

Capital amount £120,000

Option 2: mortgage deal

Buy 4 properties each for £120,000 using 75% buy to let loans (with 5% interest only loans)

Annual rental income after mortgage deductions for all properties is £10,800

Capital amount £480,000

You can see from these 2 examples that the capital amount in Option 2 is £480,000 even though you only own £120,000 of it. So when values double you will have £960,000 of capital as against £240,000 if you had purchased just 1 property.

For detail on what to buy and how to protect your investments I recommend you find a mature experienced ARLA Licensed (Association of Residential Lettings Agents) letting agency. Using an ARLA Licensed letting agent will protect you. It is a requirement for an ARLA Licensed agent to be a member of the Property Ombudsman scheme. ARLA is the only membership body that requires a comprehensive audit of its members accounts and financial procedures. If you are considering using an agent that isn’t ARLA Licensed think would you buy a holiday from a travel agent who is not a member of ABTA or IATA?

Try to avoid rushing into deals or offers that sound to good to be true. If someone is planning to charge you for finding or buying a buy to let property walk away – you don’t need to pay search fees and discounts are usually an illusion as they are most often wrapped up in the price. Select an agent who you feel will be your partner protecting and managing your assets and avoid making your assets into a liability.

This article was prepared and written by Terry Lucking owner of Belvoir Lettings Agency Cambridge and Peterborough. Terry offers free advice and free property visits to all investors who are considering buying.

For more information or to ask Terry a question send an email to