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Buying a Home In All Cash | Should You Do It?
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- เผยแพร่เมื่อ 1 ส.ค. 2024
- 00:00 Intro
01:37 Comparing Interest Rates
02:54 Investments
05:24 Retirement Accounts
06:00 Home Sale
07:02 Mortgage Interest Is Tax Deductible
07:41 Money Leftover
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Disclaimer: Please note that this video is made for entertainment purposes only and not to be taken as financial advice. Always make sure to do your own research.
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I’ve never heard somebody with a paid off house, saying “I wish I didn’t pay off my house “.
Yes, but people need to be careful not ignore investing at the cost of paying off your home. You can't bankroll your retirement with home equity.
@@jca7343 Yes, you can. It’s called a reverse mortgage.
I completely regret paying off my house. Missed my opportunity to participate in a 3x market. So you have now heard it.
Yeah, but I've talked to a bunch of folks in their 70s...paid off house and no money to pay for major repairs.
@@michaelswami your a 🤡
With record high interest rates, it doesn’t make sense to do a mortgage. It sucks because I worked so hard for the past 5 years to acquire an 800 credit score, but it still doesn’t help with 6.5% minimum interest rates. I’m actually considering renting until I have enough to just buy cash.
I saved up the money for 10 years and paid cash for my 2022 new construction house($330,000). Interest rates are too high...the CDs were only paying 2% and the loan for the house was going to be 7%...screw it, I just paid cash and no PMI, etc...cheaper insurance as I can keep less insurance on it bx I own it 100% and zero risk of loosing the house as long as I can pay the taxes and insurance... I didn't have to pay for an appraisal, no loan origination fees, no other closing cost bx I paid cash...
Great video!!
But without an appraisal, how would you know what condition the house was in? Or do you do your own inspection?
Back in summer 2013 I moved and bought my $225,000 house in cash when I could have gotten a 2.25% 15 year mortgage instead. Did I miss out? Well....a year later I gambled $100k in Energy stocks and lost most of it..... depends on how and what you do with your cash...I could have lost more AND have a few years keft on the mortgage....lol.....I am still very blessed and Life is still wonderful to be honest....
We paid off our home back in 2010, nine years after purchase. We had already paid off the home we had before and rented it out to pay the mortgage on the new (our current) home. We have since bought two vacation beach homes with cash.
A paid off mortgage opens so many opportunities to increase investments without worries of managing debt. We keep more in equities without concern for the next stock market crash. It’s easy to keep an emergency fund without the extra cash needed to pay the mortgage.
Debt free rocks!!
Don't assume that the money to purchase a house with all cash only comes from investments. A LOT of folks entering retirement will downsize their home, pull out the equity, and pay all cash. As a matter of fact, that's exactly what I will be doing with our next home purchase. This is actually the preferred way to do it since you will likely have minimal to no tax impact.
Home sales are discussed at 6 minutes into the video :)
One thing that's missing in this equation are the additional closing costs associated with a mortgage. I'll also add that a cash buyer is much more nimble and can make an attractive offer even before the property goes on market. Sure, you can do that with a mortgage, but it gets tricky when you have to include a financing contingency in an offer.
I would say that cash is a good choice generally, because debt can cause complications in your life. That is especially true with the current interest rates.
I’ve had this exact conversation with my family this week. Instead of borrowing, pour into savings and pay for it outright. Anything is possible!
Thanks for the new video! I’m looking forward to seeing what other content you post! Always good to learn as much as you can!
Another great video in explaining of buying a house with cash. Thanks, Erin!
I did and am happy.
My husband bought our house in 2021 and got a 2.5% mortgage. We got married later that year and sold my home. We immediately paid down 45% of the mortgage with the proceeds. We’ve then proceeded to aggressively pay down the principal. We plan to have it paid in full in November of this year. There was a job loss in there for me as well. Everyone thinks we’re crazy since the rate is so low. We’re crazy excited to have zero debt and be positioned to snap up a different home when we see something great come along.
It's because we've been conditioned to accept debt, especially with a low interest rate. No matter what comes my way, I'm glad I have a paid for home and car.
Good for you and your husband.
All debt compounds against you, as it represents money that could have been compounding for you. Great that you have made steps to eliminate debt as it also brings safety in bad times - like the job loss you mentioned. Most people stay on the debt train and end up later in life with a home as their major asset, not useful unless they sell it. But those who eliminate a mortgage and shift the same monthly payments into investments often accumulate large sums of money for retirement. Good job !
At 2.5%, yes it is a mistake to pay off the house rather than maxing out your investments especially when historically, you can average 10% in the market. Tax break on a 401k, ira and a tax break on the 2.5% interest paid.
@@av8rgrip It's never a mistake to pay off your house and get out of debt. Your house will be secure and then you'll have more money to invest.
@@1981lashlarueyour house is never really “secure”. You will always have to pay for it. Many people have lost their homes to tax sales. Some have even been foreclosed on by HOA’s.
The last three houses I did all cash. After 2008 and the Great Recession I vowed never to finance anything ever again. And I haven’t. Or will I.
I decided to pay cash for my home in a LCOL so that I could "retire early" and I absolutely do not regret it at all. I got 'lucky' because this was Dec 2020, and the prices shot up a lot after this, however, the biggest benefit was having reduced fixed living expenses while trying out a FI lifetsyle.
"1/3 buying with cash" includes everyone who does not immediately mortgage the property they are acquiring. In other words, they may borrow from another source to pay "cash" for the home. Some people do this by borrowing against one property to buy another, especially if the second is going to be an investment property. Borrowing against investments (i.e. a margin loan) is another fairly common approach.
I found this video very relevant. Thanks for a posting an informative and concise video!
As someone who HAS paid for a house (PRIMARY RESIDENCE) in cash, there is only one answer - and the interest rate doesn't come into play.
If you can, and do, pay CASH - you are living within your means, and YOU own your home, not the bank. (yeah, you owe property taxes, but, it's the closest you can get to ownership...)
It's a great relief to know you're DONE paying off a fancy box.
**Now, if "house" means an investment or spare home, by all means, use debt to your advantage if the numbers make sense.
Expenses
Good video on a topic that is rarely covered, thanks!
I am learning so much from watching your videos. Thank you so much for sharing this amazing source of information. This one is quite helpful.
Very informative! Thanks!
Great video! We are in the process of doing this, but we'll need our current home's equity to make it happen, so unfortunately we'll need a bridge loan. The other half is in 6 month T-bills. It's great to hear the thought process of someone with your financial knowledge when making decisions of how much to finance (if any) and why. Maybe we'll take out a loan so we can have a decent sized emergency fund. We are building, so the exact amount we'll need is a moving target.
Please remember people you can’t refinance if you have no equity in your home. Everyone who way over paid for the home hoping to refinance in a couple years later won’t be able to when values drop.
For those of us that bought the Bitcoin dip, your video was very informative. Thank you. 😊
We wrestled with this for a bit. We sold our home of 22 years and paid cash for a new home. I decided that the money would do better if I were not paying that high interest rate for a loan. I would like to buy a rental property if that makes sense some day. At that time, I would take out a loan and buy something if it paid for itself plus a small profit. For now, the money sits in the house.
Cash is cool!
Depends on the interest rate.
I did. 2011 at near the bottom of the housing crash for less $$$ than an suv. Still live in it. As a bonus the property taxes are super low because it was assessed at the value back then with a maximum 3% annual increase.
I'm doing a hybrid. My ex is paying me out of half of the house we owned with no mortgage. I used my dad's life insurance policy payout to help pay off that house. Now I'm buying a house and using the payout to put half down and still saving some for emergencies but my mortage will be less than my rent.
Great content Erin! One thing about real estate cash only sales is that there is no guarantee the property will have the necessary building permits and or pass the necessary inspections and will be insurable when purchased. I’m not a banker or real estate agent, but the plus to having a mortgage is that banks will literally give you and the property that they are lending you money for a nice long, annoying investigation. Another thing to watch for is if the “cash only” property for sale has a “clean” title attached to it
Always use a lawyer to vet the property for liens, ownership,etc.
@@sct4040 or a title company
Great video 😊
We are saving cash to buy property and build. 5%+ savings rates help
I used to work construction to pay for college.
We are looking to buy a $60k-90k piece of property, I'll clear it and prep home site in the early spring. Pay to have well and septic installed. Utility will run a decent length of electrical for free. I'll do everything except electrical hookup, well and septic.
My wife just got a new nursing job so our income doubled and our cash flow is high enough to pay for some of it as we go.
Took lots of work to get to this point.
I'm hoping we are moved into our newly built modest home this next fall.
100% debt free at 40 years old.
I just sold off my vacant investment property, which had increased in value to the remaining mortgage of my family’s residence! It’s very tempting to use all of it to pay off our mortgage, especially since my job situation is good.
I think there is another factor in deciding to make a cash home purchase: it can be much easier to get the home you want for cash. Sellers often accept cash offers, even lower ones, to get the confidence that the buyer is going to be able to close and close quickly. Additionally, distressed properties can be very difficult to get a mortgage on, and a cash purchase can expand your options on those "fixeruppers".
it is not only interest costs on a mortgage there are insurance and other costs with debt I am receiving a severance package from work will pay off my rental properties before I need to renew because investment returns are lower than mortgage cost
Your age of life can play a huge factor in this decision. If you're young, keep a mortgage while investing more could be beneficial. If you're near retirement, then having a paid off home would be preferable.
The reason this is with most youth is that once someone pays off their house, they are not putting that $2000 would be mortgage payment in investments, it just becomes extra spending cash. If you put that would be mortgage payment into an investment account, you have just as much potential under current rates (7/7.5%). If the housing market was still at 2,3,4 % I would agree.
We did 30% down got a 3% rate a few years back could have paid cash but didn’t we are using the returns on the investment we made instead of paying cash to upgrade and fix the house up still leaving the option to pay it off
I’m selling my condo to a cash buyer in Florida. What should I look out for at closing regarding costs to me ? Buyer is a realtor
Our second house was purchased for $781K and we didn’t pay cash. Our interest rate is 2.99%.
We didn’t want to sell our first house and turned it into a rental after we moved into our second house.
I am really stunned at how little tax you pay in the USA. In Australia the rate that low and middle income earners pay is 30%, plus goods and services tax of 10%, plus stamp duty on cars and houses which can run into thousands, plus capital gains tax.
ratio question. what ratio of home to net worth do you want? i'd say if your purchase accounts for
I offered cash twice, I pulled out the first time b/c seller didn’t want to repair anything . The second cash offer… well it was verbally accepted but didn’t sign the contract. I got slighted by the seller’s agent and he sold (pending) it to someone who apparently offered more but is financing it.
Situations/problems in retirement are different than those that are still working. I'd like to upgrade and build a new home. I could pull money out of my retirement account, purchase property and build a house, then sell my existing home. But then I can't deposit that money back into a retirement account, since I no longer am working.
Great point about taking a high interest loan today, and refinancing when rates go down. However, the same can be done with paying all cash. You can pay cash for the house instead of taking a high interest loan. Later, when rates go down, you can still get a mortgage, taking the cash and investing at that time.
Value can be a transitory number.. Debt is not .
Cash purchases have been a big chunk of all home purchases way before interest rates began rising.
A friend suggested when the amount you can borrow from your 401k equals how much you need to pay off your home, you should do it. We did it on our second home, and it was great advice. We paid the interest to ourselves (via the 401k loan). We *did* borrow when the market was high, and paid when the market was low - it was a great investment opportunity, and no money wasted going to a bank. Then we sold that home to buy our current condo with cash at 170k, and it is now worth $320k 4 years later, thanks to Californians moving into my state. I will probably sell the condo next year after my last kid goes to college, and put it into dividend stocks and use those dividends to rent and travel the world. Or rent here, in a cheaper state than AZ (too much inflation). The only real estate I want to own is a REIT.
Depends on age. I can easily purchase a home with a value of around $500k w/o any mortgage. However, I am still in my 30s and earn a decent enough income with still a lot of runway until retirement if I choose so. That said, I wouldn’t purchase a house with 100% equity, as there is a significant opportunity cost. In fact, I would question, why I really need to own a house. But then again, housing is not a pure investment decision as it also relates to one’s lifestyle and family situation.
Erin what is your background? For a young woman you know a lot about finance.
3:59 that's assuming you made $400,000 "profit" from your investment.
i would say your tax will be less than 10K instead of 47K.
Does it make sense to sell non retirement equities to buy a house in all cash? it would wipe out 3/4 of my liquid assets and would probably only have 1-2 years of expenses left. Real estate yoy appreciates far less than stocks and even bonds. I would be selling long term cap gains for 15%. I still have a few years of salary in 401k and ira and roth.
Anyone who has the assets to purchase a home cash is already fully aware of the pros and cons of doing so.
Hey Erin, I have a different point of view based on discounted cash flow.
For instance, you are taking out a $320,000 loan with 7% fix rate 30 year mortgage.
The monthly payment will be $2129. The yearly payment will be $2129*12= $25548. The total amount you pay in 30 years is $766,440.
However, if you invest that money $320,000 with 2.96% COMPOUND annually for 30 years, the total will be $767,725.
That being said, $320,000 today is worth $767,725 in 30years based on the assumption of 2.96% inflation or investment return.
To elaborate, let’s say you don’t want to take any investing risk, so you decide to invest in US 30 yr treasury. Assuming the yield of 30 yr treasury is 4.76%, you will turn your $320,000 into $776,960 without reinvesting any interest. (30 yr US treasury yield today is 4.71%)
Your math is missing the fact that you still have an annual mortgage payment of $25,548.00
This equates to an 8% distribution rate on the 320k.
If you are invested earning 2.96% you will exhaust the 320k in 16 years and earning 4.76% the 320k will be exhausted in 20 years .
Cash is king
It's like you're talking to a toddler
The ability to qualify at todays higher rates is a factor not mentioned .
Today you will need approx 125k of income in order to qualify for the 400k home .
When rates where 2.50% you would need to show 75k of income.
Thank you, tremendously significant factor that matters to me!!! This eliminates many people. Avoid predatory mortgage lending companies. They love people that shouldn't qualify so they can prey on them, which hurts everyone. House prices not only didn't ease or decrease after the heated market, but they rose on average of at least 100k in my region of New England. Not even a very desirable place, depressed even. So when you factor in the cost for anything liveable, which is sadly about $250,000 starting about and up, with high rates, it knocks many people out of the running. I know of a company locally but it's a national lender I believe, that got sued for nearly 40 million for falsifying FHA loans. It must explain how there are still people being approved that have no business owning a property. They even said to us locally here that "everyone deserves a home" yet when they saw how well off we were, they actually didn't like that. That was stood out to me as a red flag, they must be specifically after people they can prey on and that's those who are daft and haven't learned financial responsibility yet, smart loan strategies, savings options, credit mastering......I really appreciate you mentioning the fact that not everyone can qualify anymore, in fact many won't. However, if such people have cash savings, that may an instance to consider using it. Shelter is most important, and your money will always be better invested in land than the banks! Mortgage free is extremely appealing! 🙋🏼♀️
Not everywhere had high prices. There are cities where the average home in under $150k.
At 7% I would do a huge down payment and a mini mortgage.
I just paid cash for a $725k home. Most of the money I used was from the appreciation equity in two previous homes I owned in hot real estate markets. About $200k was from non-retirement savings. It feels wonderful not having a mortgage.
Did you sell your other two homes?
@@IrisP989 Yes. Sold the first when I moved from CA to Texas. I paid-off the second home with cash a few years ago. That’s the $200k I referred to in my previous post. Sold it for $815k, downsized a little.
At what point is taking out of a 401k not a bad idea to help pay off a house? Closer to or at retirement age make a difference in strategy?
Under 59-1/2 incurrs a 10% penalty on retirement account withdrawals and it's taxable income on top of taxable income if you're working. Might kick you into a higher tax bracket.
I think age and income are part of the calculus, as well. I'm middle-aged with a high income and a nice reserve funds safety net. For me, it was a no-brainer to get a mortgage and invest the money. But I consider the stock market the lowest common denominator of asset classes. I invested in a business returning 25-30% annually. If I was nearing retirement or had lower earning potential, the security of a paid-off house might have been more attractive.
And we bought our latest home Dec 2021 at 5.75%. Not quite the 8's people are seeing today but not the 3% range which also made "invest!" the obvious choice. I have some rental properties in the 2.5-3% range and they have a TON of dead equity just sitting there. It doesn't keep me up at night, but I think about it often and hate it.
@@JofoTubina low mortgage rate, a write off and a renter paying your mortgage. Wasn't that the plan?
@@hogroamer260 That was the plan but plans need to be updated as the battle unfolds. Someone said "a decision to hold is a decision to buy." Thanks to crazy appreciation, I wouldn't buy those houses today for the amount of equity I have in them now. But maybe that's just because we're at the top of a bubble, I dunno.
You only get taxed on the profit from the stock market….the only way the $350k would be taxed at 15%, is if you made $350k in profit. That is a big return! If you were able to make $350k profit in the market, 15% “fee” is nothing.
Having a house to live in with no payments, is safe money, wherever or not you could* invest and make more. Do that with the money you're saving with no mortgage
Yes if you can buy a house in cash do it. Reason, no more interest payments (which robs you blind) and you can now use your equity in the house. Of course this is determined from how long you are owning the home....4 years, not a good idea. 20 years, good idea.
Cash only for me, already invested fully
She doesn't understand taxes. 3:59
Only the gains are taxed, not the whole amount.
I like how this video is targeted exclusively to people who wouldn’t watch this video.
I wouldn't seriously consider doing it unless the interest rate was significantly higher than the average historical market rate of return. And even then I'd probably avoid it because you can always refinance when the rates improve.
When I bought my most recent home I did borrow money from my 401k for the down payment, but I only used as much as I was sure I could recover in equity from the sale of our old home. I ended up only missing two months of very low growth on that money. Which was a very good trade for being able to get the home we wanted, when it was available, and helped us avoid ending up in a bidding war.
If I could I would.
We bought our home all cash for $325k . We are now thinking of cashing out $180k out of the new market value at $360k to save & invest the rest since we had no money left. It is very situational. We don’t want to be home rich , cash poor.
I was going to buy a house in cash but after saving for 10 years we realized we barely had enough for a down payment.
We still went the cheaper route and bought a 490,000 fixer upper that we had to strip to the bare bones and remodel. Not satire, dead cereal.
Not sure who this video is for. People with the ability to pay cash for a home are financially savvy and already know these things (thats why they can pay cash for a home) and people who cant are going to think you live in a bubble like you said at the beginning of the video. So again... who is this for???
I'm one of the folks with the ability to pay cash for my home. However, I was watching the video merely to find out if Erin really knows her stuff on this topic. IMO, she does know her stuff on this topic. All of the options and considerations were clearly presented. I'm impressed.
Or, it could be for a young person renting while still saving, or a person who has been living with their parents while starting their career, and saving. Also, buying a home may not be a $400,000 house, it might be a small condo for $60,000, or even a $100,000 house or unit. And yes, in many parts of this country, these prices are still available. They are small, older houses, but they are there!
Yep, I can and have paid only cash for a home and will when I retire in another state.
I just bought a home cash, so I'm watching to see if I made a mistake???😬
I agree if you have this problem you are fine. Most comments I see are people confirming what she said. Meaning thet didn't need the advice cause they already made the choices. People who are buying their home in cash dont need advice of doing it.
@5:00 now tell me ... do you feel lucky? do you feel lucky, ... ... punk
Who ever gave you that statistic of all cash at 1/3 is totally not true. This video is made for people not corporations who are a large majority of that buying with cash. Not saying people dont houses with straight cash. But im not buying this. Nobody has that problem erin sorry. 60 percent of Americans dont have more than a 1,000 dollars in their accounts. Even the video of paying off your house is a super smaller problem for fewer people considering most are in credit card debt nor have an emergency fund.