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?
comments
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.
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 ;)
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!