Buying property all cash or mortgage?
There have been some other threads about this, but wanted to start up a new one given the recent rate cut. Looking to buy a place around $500K, can pay all cash, but given the recent rate cut and rates 3%, should I be taking on a mortgage to capture some of that sweet sweet leverage?
Likely poor advice, but IMO... I would hold out a little longer. Futures have another 200 bps of cuts priced in + housing market has been steadily climbing for far too long. Money will likely go further in the near future
In general I might wait unless you have a solid reason to buy (at which point if you hold over the medium term you'll be fine regardless), but you can always pay all cash and bid lower, then refi out with a loan after the fact.
My lease is ending and the building has a lax subletting policy, so I'll hold the asset for the medium term at least. Considering rates might even dip lower, refi doesn't sound like a bad idea right now...
Why not treat this like any other investment?
Just do a break down and figure out what the financials would look like had you paid in cash versus taking out a loan. The big difference with a loan is that you get to keep a large chunk of the cash you have now to use for better investment opportunities that may come up. What was said about rates and house values changing is certainly something to consider but just factor that into your analysis.
Question, what would the exact interest rate be from the bank be if you took out and for how long? You can basically screw the bank over if you took the loan out early, you decide to bail, and you pay off the full mortgage.
Put 20% down and invest the $400k in higher yielding stocks, real estate or fixed income that you expect to earn 8%+. Look at the $400k as a 3% loan from the bank...the difference between expected return and interest is your profit $$$$
Problem is there are a lot of headwinds upcoming that there are very few assets out there yielding 8%. Stocks are a crapshoot these days, fixed income yields have come down as well (which is why mortgages are so cheap)
It's not hard to make 7 -9% leveraged returns in commercial real estate. I've got money in Fundrise earning double digits. Long term average historical equity returns are 10%+ I don't think anyone really knows where stock prices are headed in the short term.
Better to put 5% down instead of 20%. Understanding how these work to make more $$ is key.
I would take advantage of where markets are right now. Provided the property is in a strong market where you don't see property values going upside down, IMO borrow as much as you can afford right now, the money is so cheap.
I was having this same conversation with my dad about locking a rate on a mortgage I am currently floating. His message was basically, "dude rates are at 3% and change, don't get greedy, that is insanely low. When I got a mortgage 30 years ago it was 18%".
Listen to this fine person here. Ricky Rosay knows what it is. #Leverage
18% is crazy...
lol
Word!.
The sad part is the world has changed. Interest rates are not just tied to the US economy, but the global markets now. Look at Europe, so many countries with negative yields. Look at Japan. US actually has higher rates than other countries and unless the global markets get stronger, we are going to see either low or declining rates. Very unlikely that rates will go to the levels seen by generations before us.
Depends on your long term plans, I do not believe in using my $$$ to buy an asset like real estate, or should I say a small amount of my $$$
If this is your idea of a pro and con list, no one should ever take your recommendation on who to talk to regarding a mortgage. As likely to wake up in a bath tub full of ice, missing organs, than to get good advice on whether or not to buy a home, let alone finance it with debt.
To buy real estate for cash, you have to have a huge amount of money, my friend
Maybe I have something mixed up here but over the time horizon of a 30 year mortgage wouldn’t investing the money not used in a down payment into various securities severely cut into (or even outpace) the interest expense if rates stay below ~8%. Seems like an obvious choice to me since the time horizon is so long for mortgages
i'm browsing empty land to develop. Will be taking a mortgage
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