I don't get the obsession with buying houses honestly. The thought of being "stuck" Somewhere scares me! I see so many people struggling to pay their mortgages off.
They can't travel, They can't get a new job if they need to, Unless they can find something close by.
I've always seen home buying as a trap.
But I started to realize that part of my fear was because the people I watched struggle were paying for their home overtime instead of right away.
Buying a home in cash seems to be a dream for many, But something that seems impossible. The average home costs 177,000 Which is a crazy amount of money. That would buy you a few brand new cars!
No Uncertainty
There is fear and uncertainty when you go to get your credit score checked. You don't always know what kind of financing terms you will get as a result.
When you pay cash you can bypass this.
After buying the house, People don't realize that more comes with it...
If you lose your job and can't get another one, You can't easily relocate to where the jobs are. You're kinda stuck...
Your neighborhood becomes crap, And isn't as safe for the kids... Your stuck.
Sure, You can sell your home and move away, But it can be a hassle. And you have a lot to lose.
The uncertainty of paying in cash, Is, of course, market fluctuations! But if you plan to stick with your home long term, This probably won't be an issue for you.
Chances For A Better Price!
When you have cash, you can often talk down the price.
They'll get their money right away, instead of later down the road. This will save you even MORE money!
No Mortage Or Rent Payment
Rent or a mortgage tends to be people's largest bill month to month. It's funny really. You spend most of your time at a job, And then the place you sleep eats away most of your money! It doesn't make a lot of sense.
When you pay cash for a house you don't have that kind of monthly payment, So you can invest it, Or save it! Which will add up quickly overtime!
You can even rent out extra rooms in your house for the extra money! You can do this even if you're paying a mortgage. But owning the house will allow you to use the money for something other than a monthly payment.
No Interest!
Interest adds up so fast! I noticed that when I took out a small 4,500 loan when I was 18 years old. This is the same for houses, Even if you get a low-interest rate, The principal is so large it will add up incredibly fast.
Less Stress
The basic payment, Combined with interest has to be stressful!
Whenever I take out a small loan, I can't handle it. I go on a peanut butter and jelly/Ramen noodle diet so I can pound out the amount I owe as quickly as possible! With a mortgage, It may be years of what you earn. You'll have less flexibility on paying it off fast.
Disadvantage: Less liquidity
You buying the house outright will take a lot of your money! You will have less to Save, Spend and invest on other things.
With real estate investing, your money isn't always liquid.
If you run into trouble, you'll have less money to rely on. Which can be scary. So If you buy a house outright. It's important to have a larger emergency savings!
Buy that house with CASH
If you want a house consider it, Or heck try and save up as much as you can.
You'll live so much more comfortably if you aren't stuck in debt.
Good post! I would say paying full is a better choice comparing with financing or leasing, if you have that money. It is always better for your credit score if you carry less debt. But that is exactly the main difficulty we all have in this generation, everything became so expensive that it is hard to pay exerting in full.
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Agree 100%!
It has become harder, The price of homes seems way too high. Especially when minimum wage is 7.25.
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Love what you've written here. I have had a lot of the same views that you have had, and I also see that there are definitely benefits in buying a house with cash if you are in the situation to do so! Thanks for sharing.
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Exactly :) Thank you for your nice commment hehe.
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I agree, I don't intend to buy a house with a mortgage. Once you take out a mortgage you work for the bank, but then again working for a landlord you don't get along with can be equally bad
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Exactly!!
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The only place in the world where you can get a loan at a low rate is with a home. Interest is 3-4%.
If you fully mortgage your house 100% and take the money, say the $177,000 you say is average cost. Invest it at 12% you earn $1,770 in interest every month.
Your home mortgage is $877 at todays rate, Figure another $200 a month for taxes and insurance makes your house payment $1077.
By mortgage the house and investing the cash you get 1,770 a month - $1077 mortgage and taxes = FREE house and $693 profit each month you can use for repairs.
As you see, 100% mortgage and ivesting money instead, will pay for your home so you never pay a penny, PLUS you get to save money on taxes with the tax write off, PLUS you get $693 more dollars each month in the bank as opposed to paying all cash. You work hard for your money, now you have to let your money work hard for you.
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What makes you a secure and stable 12% pa after taxes and also pays you monthly?
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The way I would set it up is $200,000 in the brokerage account. It gets invested in something for 30 years. so the small ups and downs in your investment won't matter. UPRO has returned 36% annually for the last 9 years. but would not work in BEAR market. So you sit out those. The 36% you are making will cover the 1-2 years you make 0% during a BEAR market.
There is also SPY. For the last 20 years and through 2 of histories worst market crashes it has returned 7.2% annually which would more than cover cost of the mortgage and leave $250 month left over.
Now granted, these don't go up every month but if the account was set up to pay the mortgage each month from the accounts balance, there would be no worry. The extra $250 maybe cover taxes so you still come out ahead with the interest tax deduction. The savings on taxes can be invested at the same 7.2% which would come to around $140,000 after 30 years.
All this assumes SPY will average 7.2% over the next 20-30 years as it has always done in the past. No guarantee, but there is also no guarantee the sun will rise in the morning yet most of us live our life as if we will be alive tomorrow. We have faith that history repeats.
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My wife and I are looking for places outside of California. It's funny we pick the places to live by the cost of housing.
Good read Just Resteemed!
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We know this is right in my wheelhouse so I suppose I should throw in my 2 cents.
Agreed, buying cash certainly does have advantages:
Those are just a couple quick ones. However, some disadvantages are:
I do suggest, if getting a loan, putting at least 20% down when buying as you won't have to pay PMI. You also have an equity cushion in case you do need to sell it in a shorter time frame. You may take a hit, but you won't have to come out of pocket after the fact at least.
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Good added insights @scaredycatguide, I just heard from a friend that is a realtor the fees of buying and selling a home are after 10 transactions will pay for the price of the home. I thought that was a market ripe for disruption.
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Yeah, that makes sense if you think about it. You are paying roughly 10% between the closing costs when you buy and the real estate agent's commision when you sell (around 4% for the former and 6% for the latter) so after 10 deals on 100K properties you have spent 100K.
I suppose there is a reason I decided to do buy and hold rentals..lol, who knew!
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I will have to check out more of your finance blogging that is something you can't get enough of!!
So much to learn to stay ahead... just imagine if you were unaware of the crypto world at what a disadvantage you would be at.
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Yes, agreed!
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This post received a 2% upvote from @randowhale thanks to @kaylinart! For more information, click here!
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I agree its great to buy house with cash but reality is not everyone has $600,000+ to buy house outright, mortgage is the only viable option, atleast here in canada
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True! But people should always try and pay extra, or ahead of they can.
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I completely agree, never buy anything on credit, unless you plan to pay it off almost immediately! :)
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Great article, btw!
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Great post!!
I agree with more parts however would it not be more beneficial to put a small amount of cash down on a deposit and then the rest of the cash into investments? Assuming that a person has the full amount of cash to buy a house.
Here in the UK interest rates for mortgages are far far lower than interest you can gain on investing money.
There's risks to this strategy I admit but it's worth debating.
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Great post. Inflation in Australia is causing house prices to sky rocked in inner city areas.
Over 15-20% per year.
People are forced to over extend their borrowing power and are left struggling week to week due to such large repayments!
The days of buy a house and live happily ever after are all but gone to many.
Would love a follow too, all health and fitness related posts :)
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Agree 100%. Great post
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And when you pay with cash, you know that you have that whole shelter thing taken care of.
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You are right, buying a house in cash is a form of security but in my country if you are going to buy a house with a glaring price, tax bureau will be on your tail. :)
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good post..
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yes! don't let your mortgage eat you alive!
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very nice
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1st off, I must state that houses are way overvalued.
The average house costs = what the average person can afford each month -> which equates to how much they can finance. And this has gone up and up and up because banks lowered interest rates and extended terms and lowered down payments.
But, to talk about what to do if you have cash.
Foreclosures, or people who are about to be foreclosed upon are hot sellers, but you basically need to have cash.
You can buy houses at auction. Again you need to have cash to pay for it that day.
You can buy houses for the property taxes. (I hate this one, but you can basically end up owning someone's house because you paid their property taxes.)
And once you own the house, swapping your house for another house when you want to move is actually a lot easier (less paperwork) than financing a new one.
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Hopefully I can buy one with STEEM. Is not really about a house but a basic human need for refuge.
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There are also tax benefits (if you live in the US) with buying and carrying a loan, versus renting. There is also the option of buying a house, but with a 10 or 15 year mortgage instead of the "traditional" 30 year mortgage. It is eye opening when you see what small amount of your mortgage payment actually goes towards the principal in the first years of a 30 year mortgage.
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I want to play with steem please!
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This post has been ranked within the top 50 most undervalued posts in the second half of Jun 10. We estimate that this post is undervalued by $40.77 as compared to a scenario in which every voter had an equal say.
See the full rankings and details in The Daily Tribune: Jun 10 - Part II. You can also read about some of our methodology, data analysis and technical details in our initial post.
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If the housing market takes another dump like it did in 2009, there should be plenty of bargains. In those time cash is truly king. You could possibly get 2 or even 3 houses for the same amount of money compared with todays prices and with renting 2 of them you would have plenty of cash flow.
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Upvoted and followed. Yes, homebuying can be scary. But even if you have a mortgage (like i do) it's better tha renting. I've also been a renter, heres my problens with it:
Goid things about renting:
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This is such a helpful post for people who really want to purchase a house, but are struggling with either negative credit scores, the uncertainty of what will happen once they sign the paperwork, or even those who are wondering if purchasing a house is right for them, or if they should just stick to an apartment. What are some good ways for people who are looking at the housing market to save extra money each month so that they can afford to purchase a house outright with cash? Followed :)
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Great post, I'm am curious of something. Right now, do you own your home or rent?
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There are peanut butter and jelly RAMEN NOODLES?????? oh joy!
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Yes, good points. To some it is hard to come up with cash to buy a house. Another thing to do is pay more than the monthly payment. That would would be to paying down more to the principle. Of course your contract better include, No penalty for prepayment. Then if an emergency comes up go back down to the regular payment. Then go back up again when emergency is being taken care of. Depending on how much more to give monthly you make cut your time in half.
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you can always cut a better deal when you have the money up front
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Good post! The way that I see it, you are going to pay the money for shelter either by paying your mortgage or someone else's. That's why you should pay for your own and get something for it in the end. If you have to move suddenly, another option is to rent out your house and your mortgage is still being paid.
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