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 ...
This makes sense, so long as you have the discipline to invest in something that pays a reasonable rate of return, and not be shaken out by every little panic in the marketplace.
For example, when you obtain a mortgage on a piece of property, it should be at a fixed rate of interest, which makes the entire payment stable over the entire life of that mortgage. Most people take a 30 year mortgage. So if you were making a $1000 a month payment in year one, you are also making that same payment at the end of year 30. Needless to say, even inflation at a meager 2% per year will seriously decrease the impact of that mortgage payment on your monthly budget. Compare and contrast to a basket of stable, dividend, paying stocks. As inflation decreases the purchasing power of every dollar, and makes their material and labor, cost higher, companies increase their prices. Usually, if they are reasonably well managed, they will be able to leverage things that their profits go up more rapidly than their price increases. What ends up happening is that they will increase their dividend payments by at least the inflation rate (2% in this example), and their stock price should, over the long-term, increase by approximately the same amount.
In this example, a 2% annual rate of appreciation will result in an 81% appreciation after 30 years. Thus, if you started out with $100,000 of principal, you would end up with $181,000. If you were dividends started out at $2000 per year, they would have risen to $3620 per year. Your $1000 monthly mortgage payment would have dropped to the equivalent of $552. Additionally, you get to deduct the mortgage interest every single year thus lowering the effective cost of the mortgage over time. You’re way better off with the mortgage.
Best point of the thread. You cannot put a price on the stress alleviated by being debt-free.
Multi-millionaires on up, who invest in real estate, know to use leverage for investing! If an individual has enough cash to put into one property - only to avoid a mortgage (even at 8%), then that person is likely giving up the opportunity to own 10+ properties that generate tax free income, equity building, with built in inflation hedge. Even if they only each produce $100 in positive cash flow, the C3X formula can be applied to pay off the first loan on Property #1 in 3 short years! Putting all of a person’s cash into one property, especially the one they live in, is a huge waste of potentially massive, life changing return. If anyone wants more information on exactly how to build vertically integrated wealth with passive income generating real estate, please message me.
Buy a home to live in. It isn't an investment. There are plenty of other and better things to invest in.
I hate making payments or loaning money.
#1 My home is a place to live.
pay cash.
Only real expense to worry about is property taxes.
I have a roof over my head, a pot to eat from, and a place to pee, regardless of what life throws at me.
From there I can invest. Win or lose.
People who think their house is an investment to get rich off of, are stupid. You only invest what you can afford to lose.
.
A mortgage is better than a rental.
Owning outright allows you to survive a much bigger financial emergency. BE debt-free or as close as you can.
And the house you own is a near-liquid asset. You can always sell it if you have no mortgage. Even if you lose money you still have the sales cash and no debit. With a mortgage, you have a hard time selling for less than the cost of the mortgage
I agree 100%. I bought a $272k new construction home 4 years ago with cash. But I had 5 times that amount in stocks and bonds which are highly liquid assets. In lieu of subsidizing closing costs, the builder threw in all appliances, ceiling fans in all rooms, screened lanai, blinds for all windows, crown moldings and painted garage.
And especially for young people, remember that Compound Interest is “The Eighth Wonder of The World”. Don’t wait until your 30s and 40s to start saving, every little bit you can save in your 20s, will make a huge difference.
It’s still cheaper to rent.
I have paid off the mortgage. I have a HELOC and if I use it, the interest is deductible.
You also didn’t have to worry about someone raising your rent. And when you leave your home, people will pay you money. When you leave a rental you take your clothes and furniture with you. Owning your home’s a great way to live - fewer unknowns.
We are debt free and always have been. It’s not easy at first but when you hit 30 with seven digits in the bank it pays off.
Agree...If house payments preclude saving money for emergencies/future, they are financially toxic. Youngsters should be made aware that a home can be the best or worst purchase ever made.
A livable house will rarely fall to zero value. You can live in it yourself, house family members, rent it out and so on.
Other investments may.
Junk bonds, crypto. You know, safe investments.
I will not seek financial advice from someone who admits that they are a fool.
“Cheaper” is a relative term. When you hit retirement, and you have nothing to add to your financial security except a pile of rent-paid receipts, then cheaper is not a savings or a long-term benefit. Home ownership is a money drain but also an opportunity to build equity.
The only way paying rent can be cheaper is if you can honestly figure the difference between paying rent versus owning a home. That difference, if any, should then be responsibly invested, not spent. Most human beings do not have that much discipline, especially as the bills of living get in the way. For those with lots of money, renting may indeed be cheaper.
It’s a house.
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