Until recently, many of our La Costa, Carlsbad and Encinitas home buyers were acquiring real estate with cash. Money was being moved from securities, savings and the sale of other real estate holdings into what many consider to be “blue chip” real estate investments.
According to Market Watch and on a national level, 43% of homebuyers in 2014 so far have purchased with all cash. While some analysts believe that the cash-buying frenzy will not last (and it’s already moderating in San Diego), there is always more room for negotiation when the buyer brings cash to the table.
When it comes to buying a home in a hot real estate market–such as what we have in coastal San Diego, sometimes cash can net you a lower price than a mortgage. So, if you’ve just sold your home and are looking to buy a new one with cash or are otherwise planning your estate, here are some things to remember.
Reasons to buy with cash:
As an empty nester or retiree looking to downsize, you often have cash from the sale of your larger home to purchase a new home. This allows you to choose a smaller home, pay cash, and possibly have money left over. Or, you can buy into a better community for retirement. So while you may end up with a smaller home, the neighborhood amenities more than make up for the difference.
You may want to gift a home to your children as a wedding gift, or purchase as part of your estate planning. Although home ownership may be part of the American dream, gifting only a down payment may pressure your loved ones to purchase a home when they are not ready to be homeowners. A better option might be to purchase a home for them with all cash. The home is paid-for and their obligation would extend only to yearly taxes, insurance and potential HOA fees, but not the heavy burden of a mortgage. A paid-for starter house protects them from the ups and downs of the market as well, and gives them a basis for a mortgage when the time is right for them.
Investment property that is completely paid for can be a “cash cow” for your retirement. The ongoing income from a rental that does not have a mortgage can make your retirement a little more comfortable, and is less problematic in probate than properties with mortgages would be.
Reasons to have a mortgage:
If you have a financial instrument that might give you a higher rate of return than the mortgage will cost you, it might make more sense for you to invest your cash in the higher return and to take out a low cost mortgage on the property.
Should you need to improve your credit rating or FICO score, it might be better for you to take a mortgage. This type of “good debt” can improve your credit score and make it easier to borrow money for other reasons.
Additionally, there are tax benefits from holding a mortgage that, depending on your financial situation, may be more beneficial than owning the home free and clear. Of course, before you make this decision you should check with your tax accountant or financial advisor.
Negotiating with cash:
When you find that perfect property and you’re ready to make an offer, don’t start with the “all cash” offer. If the sellers know that you are able to pay cash for their asking price, they will be less willing to negotiate with you. Let your professional real estate agent help you determine the best time to reveal your cards. We know the right time to offer cash to get the seller to agree to your offer. Call us today and we can get started finding the perfect home for you and negotiating the best offer for your needs.
If you would like to discuss the advantages of buying with cash, give us a call at 877-818-8197 or email murphygroup@gmail.com. If you would like to explore mortgage options, give Jenny Nguyen with WJ Bradley a call at 858-799-0747.
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