Posted on 01/14/2024 11:49:06 AM PST by where's_the_Outrage?
Let's be honest: While I intend to buy a house next year, and have just met my savings goal to make it happen, I'm not capable of paying cash for the entire purchase. Instead, I'll be shopping around with the best mortgage lenders and financing my home purchase (except for my down payment).
But in some alternate universe where I have more money to throw at a home purchase, I still wouldn't buy a house outright in cash. Here's why -- as well as you might want to think twice, too.
1. A home is not a liquid asset While you may lose money in the process of converting stock shares to cash (if you have to sell at a time when values are down, for example), it's a fairly straightforward process to turn these into money if you need it.
2. I could likely earn a higher return by investing This point is much less effective given that mortgage rates are at their highest level in over 20 years, but it still bears discussing.
3. I might not have money left over The final reason I wouldn't pay cash for a home purchase is that I wouldn't want to tie all my money up.....
Sinking all your spare cash into a home purchase could have you scrambling for cash for emergencies and missing out on the chance to invest and earn a higher return. Consider all your options for buying a home, and make the decision that's right for you and your finances.
(Excerpt) Read more at msn.com ...
I financed my Primary home in 2020, but had it paid off in less than 5 months. I since bought 2 other homes for cash, just sold 1 for a profit.
Consider all your options for buying a home, and make the decision that’s right for you and your finances.
How old? Still working? How much cash is available vs the cash price of a house?
I agree. I bought a huge mobile home on five acres way out the country. (Twenty miles from the nearest grocery,) Thing is, I bought it for cash. I refurbished it to a point where I thought I’d never get any money out of it. All that time, the years I owned it, I put away the equivalent of a mortgage point. Then I started buying and refurbishing and renting distressed property. I own them all outright. Again, not only am I “taking home” the equivalent of mortgage payments, but I’m also getting rent. It occurred to me the other day, “Hey, I’m that evil landlord living the highlife!” (Well, my highlife is pretty low rent, but you get the idea.)
By-the-way, someone from out of state bought that huge, over-improved mobile home for WAY more than I expected. He wanted it more than I did. Which was a surprise to me. (Wow! I do have a price. Didn’t know that.) Now I’m living in paradise. (Of course, my paradise has a bunch of cows who mosey over to the fence line to munch the grass on my side, because...it is greener.)
You can always monerize your home, once you own it.
I suppose it may be valid if you are knowledgeable and competent enough to make more money by not owning one. However, that’s not about 99% of us.
“I could likely earn a higher return by investing”
A financial advisor with skin in the game (a percentage of your money) will say the same. All I can say is that my Financial Advisor hasn’t earned his keep and my mortgage balance is at a relatively low 4 1/8 percent. Same for the Fidelity Actively Managed account I have. Going on four years and I just got back into the black last quarter.
You view investments as “gambling” yet you bought investment homes?
That’s rather inconsistent.
Point 1 and 3 are essentially the same. And I agree. If you don’t have significant cash remaining after the purchase it is foolish to tie up all your liquid assets in an illiquid asset. Kinda of common sense, IMO.
With the current instability of the USD, the only safe “investment” IMHO are PMS that you physically hold.
And by “investment”, I do not mean it in terms of growth, but in terms of a store of wealth for the demise of the fiat green-ink-stained TP we refer to as dollars.
OTOH, better to hold wealth in big things - home, land, automobiles, boats, planes... than crypto and stocks and bank accounts.
Remember, if you have a mortgage, you must pay for insurance.
If you pay cash, you can simply choose to self-insure, if you have the discipline to sock away the money that would otherwise go to pay for the premiums.
Yup, being debt free makes retirement that much better (much less worrisome).
I advise everyone, young or old, to get out of debt. More work and saving up front but it's the definition of prudent money mgt and quite comforting.
We re-fi’d our mortgage during the last low interest rate cycle and got 2.5% 30 year fixed. Keeping that mortgage rather than paying it off preserves our cash for other things. AND, the interest fraction of the mortgage is tax deductible, so it’s an effective interest rate of 1.5%.
lets just say that the reason you dont cash out on the house is simply because you dont have the fkng money... why would any sane person willingly pay that amount of interest on a loan? all the rest is bull shit...
When I sold my father's house I had 6 offers. One lowball, two at the offer price and three with escalation which all hit the same maximum (I have no idea how they all picked the same number unless the realtor was prompting them). Of those three, one offer was cash, one was conventional financing and one was FHA. Cash won easily, just to be able to sell the house in a couple weeks rather than waiting for an appraisal and the loan being finalized. I might have even taken a little less for cash.
Buying a home at a good interest rate is simple investing 101. It is leveraging credit to buy more than cash can buy at the time. While the rest of the market is leveraged, those saying they will buy on cash are being left behind.
In 1929, many borrowed money to invest in the stock market. When the market crashed the lenders insisted on getting their money back. Because some borrowed money to invest, they lost their homes, farms and businesses.
The same could be said about borrowing money to buy a home and investing a lot of cash instead of paying off the home early or buying with cash. It’s like borrowing money (taking out a personal loan) to invest thinking that you could pocket the difference between the mortgage interest and the investment profit.
A problem develops when we borrow money for our transportation and homes and vacations and lifestyle and then invest, if something goes sideways, we are screwed homewise.
It’s not that I care what people do with their money I could care less. But the whole concept of middle class wage earners borrowing money to become financially independent is silly.
I say this as an individual that invests $60K/year, way more than the stupid person scrambling to put together a down payment on a home and planning on investing a few bux and holding on to a mortgage. The reason I can invest that amount as a wage earner is because I paid off my home and all the other debt I had. If I see a home for sale that is a good purchase that I might want to get as an income property I would do that with a mortgage because if it goes south I will still have my primary home.
If you have ‘white’ skin, think of yourselves as Jews in 1932 Germany.
What a crock! The best way for the average Middle class American to build wealth is through home ownership. There is no income tax on the profits when you sell until something like $1 million. Sell those stocks and see what that 35% capital gains tax does for you.
Real Estate most certainly is not a liquid asset. Its a hard asset like gold and silver and like gold and silver its never worth nothing. If you can afford to pay cash do it.
You forgot the other reason:
You get to SCREW OVER the IRS by deducting your interest. Specifically, for most mortgage takers, you get to pay your bank $4.50 in interest for the PLEASURE of screwing the IRS out of $1.00 in revenue.
(of course the above only fully applies IF your Itemized Deductions are otherwise beyond the Standard Deduction, something that likely applies to less than 10% of taxpayers)
Also. I didn’t buy my home as an ‘investment.’ I bought it to live in and not have to worry about a mortgage when I retired, period. Paid cash for it in 2003 and never once regretted doing that.
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