That is, if you have the cash to purchase a property, is there any reason why you wouldn’t pay cash?
In today’s hot market, especially in the Oakland and Tri-Valley area, cash offers can be king but, there are reasons why you might not want to pay cash. I know that many sellers are more likely to accept an offer of cash, but the seller will get the money regardless of whether it is financed or all-cash. Cash offers can tend to close quicker but you really needs to look at all of the details of a purchase and sale agreement including terms and contingencies.
In 2016, 23% of US homebuyers pay cash for their properties. That’s still in the minority. There may be some good reasons not to pay cash.
If you just have enough cash to pay for a house, you may not have any left over for repairs or emergencies. If you have the cash, it might be a good idea to set it aside so that you have at least three months of housing and living expenses should something unforeseen happen was losing a job or having medical issues. If all of your money is tied up into the house, you might end up losing the house to pay for unforeseen items.
A great mortgage.
You might have qualifications for an excellent mortgage. According to a recent study by Money magazine, Generation X and millennial’s are considered to populations with the most potential for growth as borrowers. Taking on a little bit of debt, especially for tax purposes great terms might be a better option for your finances overall.
A better investment.
Buying real estate is an excellent investment that if you have all cash, you might make a better investment than putting it elsewhere. Maybe investing in the stock market, mutual funds or a personal business might be a better option for you in the long run.
Most homeowners will receive some sort of mortgage tax breaks on the interest paid to the lender. Depending on how much you owe and your terms, you could be deducting quite a bit on your taxes.
Home values have no guarantee of increasing even though overall, the trajectory is good. Home prices rise and fall with the economy so unless you’re planning on hanging onto the house for 10 to 30 years, you might be better off investing that cash elsewhere.
I’m not telling you to not get a mortgage or to not pay cash, but there are pros and cons to both. It’s important to talk to your financial advisor and even a lender about the best options for you at this stage in life.
Ready to get started looking at homes? Give me a call anytime.