Should you buy a house in all cash if you can?

May 3, 2020 93 Comments

I jusy dont see why its better to pay interest if you can avoid to do so. stock market gains on average are around 5-7% year. if you subtract the interest from that at 4% + taxes and adjust for risk ratio you are unlikely to outperform the stock market risk adjusted. more likely because of the cost of risk likely to severely underperform. so why do people still think paying interest is a good idea and not buy all cash?

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TOP 93 Comments
  • Apple

    Go to company page Apple

    If you have the cash why not mortgage and dump on the principle for a couple years and pay off.
    May 3, 2020 17
    • New
      c35c

      New

      PRE
      Microsoft, Amazon, News Corp
      c35c
      Exactly, it varies from lender to lender, contract to contract. My mortgage allows up to 20% of principal per year without penalty. The penalty rate also differ.

      On the broader question. Will I buy cash or pay off mortgage. That depends on how good one is at picking investments. In last few years, I’ve gained roughly 30% per year, interest rate is under 3%, the math is pretty straight forward.

      Above is an investment property in a different city. I rent the house I live in. I won’t even buy because net cost of holding (interest, insurance, repair and income tax) is higher than rent. Money that I will potentially use for down payment is returning 30%. So holding cost will be even higher.

      However I were to buy, I will keep down payment as low as possible. At 5%, one is 20x leveraged; using $1 to buy investment of $20. Stocks market only allow 3-5x. So essentially it’s a low interest loan to invest.
      May 14, 2020
    • Google / Product
      Gooooogle

      Go to company page Google Product

      Gooooogle
      Have paid off two mortgages early without prepayment penalties. Some people just can't brain.
      May 14, 2020
  • The interest is deductible and that level of cash is likely to generate better returns elsewhere. Putting 20% or less down let’s you get the same goal while freeing up cash to make money rather than just sit in non accessible home equity.
    May 3, 2020 10
    • If you’re that bearish about the stock market I don’t know why you’d be bullish about real estate
      May 5, 2020
    • Sephora
      175bdyo21

      Go to company page Sephora

      175bdyo21
      If we’re looking at a 7% return in stocks over the last 30 years then we should also adjust the return on a 3% mortgage to 1-2% or so after adjusting for tax deductions and inflation. You have a pretty grim outlook if you don’t think the market is likely to beat that return over the next 30 years.
      May 5, 2020
  • Apple
    benny lava

    Go to company page Apple

    BIO
    gPTe27
    benny lava
    Yes. Always buy with cash when you can
    May 13, 2020 15
    • New
      covidiots

      New

      covidiots
      Real estate is definitely one of the best wealth creators but it takes a lot more work and luck than just investing in the index. But like you said, nothing is foolproof. I'm glad it worked for you and I hope the covid wfh situation doesn't hit you with people relocating to lower CoL areas, or a housing bubble. For me, I would rather buy in cash. I'm actually waiting for prices to come down.

      And hold on, please correct me if I'm wrong because this is new to me. You're saying if you are unable to make your mortgage payments you won't get foreclosed? That nobody can kick you out? You can just stay forever?

      I'm really fortunate to have been able to leave my city. I became a professional touring musician in Nashville and then I cofounded a tech startup overseas that took my career to a whole new level. None of this would have been possible if I was tied down.

      This was a good debate, hopefully informative to anyone if they read it. Good points made on both sides. But for me, I'm still set in my ways ;)
      May 16, 2020
    • Google / Product
      Gooooogle

      Go to company page Google Product

      Gooooogle
      No no, I said "as long as I could purchase it outright if I wanted." Because I'm fortunate enough that I could, I do consider it my house. Not everyone could, and each person needs to define what "ownership" means to them, whether it's being able to remodel or modify it, or whether it means there are no liens against it.

      Thanks to you as well. The only universal truth is that it's one of those topics that has no right or wrong answer. It's up to each individual to evaluate and make the decision that fits them and their circumstances, risk, and lifestyle.

      Sounds like you've had an amazing life for sure!
      May 16, 2020
  • Intel
    pDhw55

    Go to company page Intel

    pDhw55
    I bought my condo in all cash. That helped me to negotiate like 10% extra on the price plus I didn't have to pay any closing fee which saved me around 30k easy. If you don't have anything better to do with your cash go for it! And if you need cash for next investments you can get home equity.
    May 3, 2020 7
    • Intel
      pDhw55

      Go to company page Intel

      pDhw55
      Or you can get a home equity for usually lower than 3%. I bought my condo in 2016 and for first year my home equity interest was 1% and second year it was less than 2%. Try to read the whole comment "bro".
      May 4, 2020
    • Amazing, untrue but amazing! Your comment didn't mention anything about a home equity line of credit. Equity lines have higher interest and few tax deductions but generally speaking we won't agree on much here because I would also suggest to never buy a condo lol
      May 4, 2020
  • Becoz you can take a risk and use the cash to leverage for 2nd and 3rd properties.
    May 3, 2020 0