Author Topic: Advantages to buying house with cash  (Read 8101 times)

jimsmith

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Advantages to buying house with cash
« on: October 07, 2016, 05:00:06 PM »
Is the main advantage to buying a house with cash the fact that you can pounce immediately with a cash offer, possibly under the asking price?

I assume a seller would find the certainty of cash in hand appealing enough that a buyer would have more bargaining power than typical--is that correct?

I'm totally new to this; wondering if there are any "gotchas" etc to paying cash--

sunshine

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Re: Advantages to buying house with cash
« Reply #1 on: October 07, 2016, 05:07:35 PM »
It certainly can work that way from my experience. We have bought 3 in the last 4 years cash. I guess it depends on the seller.

ender

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Re: Advantages to buying house with cash
« Reply #2 on: October 07, 2016, 06:06:30 PM »
A large advantage to paying with cash is the seller, who probably needs the money in order to buy another house, knows that the sale will not fall through due to financing, etc, and that you can move quickly.

If for example someone makes an offer with 0% down, while they might be preapproved it's far more likely their mortgage application will take a while and/or not work than someone paying 100% down.

Consider that if you sell your house and make an offer on another home, but the sale of your home falls through because of mortgage issues. A non-insignificant percentage of mortgage applications get rejected and as a seller you probably can't know in advance who those will be. Higher percentages down likely decrease this likelihood, though, which makes higher % payments more attractive.

Common sense

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Re: Advantages to buying house with cash
« Reply #3 on: October 07, 2016, 09:51:26 PM »
If it's for your primary residence, being mortgage free and the psychologic happiness that brings, is also another advantage.

Little Aussie Battler

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Re: Advantages to buying house with cash
« Reply #4 on: October 07, 2016, 09:54:34 PM »
The biggest advantage is that it means that you have a big pile of cash!

A fast settlement can have $ value, but not to all sellers.

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Re: Advantages to buying house with cash
« Reply #5 on: October 08, 2016, 06:22:45 AM »
Here are the reasons I can think of advantages to pay all cash.  FYI I just bought a property last week and paid it off all cash and my next one will be all cash too pretty much for these same reasons below:

1)  Get a better purchase price.  Paying cash means fast closing and no appraisal issues.  In most cases you the seller will accept a lower amount if paid in cash.
2) Save on closing costs.  If you use financing, you will pay closing costs which can get in the $5k range.  Thats an extra $5k in your pocket.  I only paid $300 in closing costs on the rental I paid cash for.
3) Peace of mind, buying all house all cash means you dont ever have to worry about a bank taking your property, paying PMI, paying extra escrow, etc..
4) More cash flow.   Obviously you get to keep all the rent instead of some of it having to go to pay off a mortgage. 


Blindsquirrel

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Re: Advantages to buying house with cash
« Reply #6 on: October 08, 2016, 08:36:20 AM »
   Add to that list no appraisals, no inspections (unless you want them), no BS for sellers and banks, the sellers of foreclosures, greatly prefer cash. 

undercover

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Re: Advantages to buying house with cash
« Reply #7 on: October 08, 2016, 09:16:28 AM »
  • Less risk, but lower return
  • More peace of mind
  • Ability to avoid a lot of process/red tape

I mean, that's pretty much it. Leveraging is the exact opposite of all of this. I would not consider better price from seller to be an advantage since you're still going to get a better overall return going the leverage route.

The older, more established you get, the more appealing this list sounds. The younger, less established you are, the more appealing leverage sounds.

jimsmith

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Re: Advantages to buying house with cash
« Reply #8 on: October 08, 2016, 03:06:49 PM »
Thanks for great replies--

I am older, and this would be my home possibly for my remaining years; so the psychological aspects are significant--peace of mind, security, etc--

One thing--about foreclosures:

While I'm sure deals can be found, would it be better if a newbie/amateur not try to play that particular game? That is, might there be pitfalls to buying foreclosures that an inexperienced person could stumble into?

Or: If one can confirm a foreclosed property has no encumbrances, and a thorough inspection reveals no defects, maybe it's worth a shot?

[...maybe that question should be a separate thread...]

Enigma

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Re: Advantages to buying house with cash
« Reply #9 on: October 10, 2016, 06:01:56 AM »
Foreclosures are an interesting animal.  One of the biggest pitfalls that I can recall is you are buying property at an auction.  In some of the counties I have bid, the auctions last seconds per property and no information is given on the property.  You have to do a lot of homework and good luck not getting stuck with just a parcel of land that you have to pay yearly taxes on.

Cash offers a quick closing for both the seller and buyer.  I have a wealthy investor that will give me a bridge loan of cash.  Recently I was the backup cash offer for a property that fell through after a bank loan fell through.  I also offered 25k less than the asking price due to the cash offer.

Other foreclosure issues...  Sometimes you buy the tax lien or you are not guaranteed the title.  You may also need to evict the current defaulters or tenants...  A legal battle can ensue for years (I recall reading one on here that took 5 years)...  I am sure there are other issues not mentioned

radram

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Re: Advantages to buying house with cash
« Reply #10 on: October 10, 2016, 06:41:03 AM »
   Add to that list no appraisals, no inspections (unless you want them), no BS for sellers and banks, the sellers of foreclosures, greatly prefer cash.

I see no required inspection as a disadvantage to an inexperienced buyer.

A home inspection is required so a mortgage company can better protect their investment.  It is done for them, not you.  If something is revealed that gives a reason to reject the loan, the buyer may be disappointed, but they were just protected from something that could have devastated their finances for years.

Without a required home inspection, you could be buying problems you are not aware of. 

With 25 years experience as a homeowner and 15 as a landlord, I would not think twice about offering a discounted cash offer if the property suited my needs. Know what you are buying, and what could go wrong.  You could always require a home inspection in your offer, though your offer would most likely be less attractive if discounted.

Fishindude

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Re: Advantages to buying house with cash
« Reply #11 on: October 10, 2016, 08:05:54 AM »
Quite a few advantages:
a.  A cash offer has more clout than a "pending loan approval" offer, so seller may take a slightly lower price knowing they can close fast.
b.  The transaction will be much quicker and cheaper.
c.  You will save a ton of money on interest expense that you would have otherwise had over the life of a mortgage.
d.  No house payment frees up funds for investments and other things.
e.  Peace of mind.  No house payment if you hit a financial bump in the road.

jimsmith

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Re: Advantages to buying house with cash
« Reply #12 on: October 22, 2016, 10:56:29 AM »
   Add to that list no appraisals, no inspections (unless you want them), no BS for sellers and banks, the sellers of foreclosures, greatly prefer cash.

I see no required inspection as a disadvantage to an inexperienced buyer.

A home inspection is required so a mortgage company can better protect their investment.  It is done for them, not you.  If something is revealed that gives a reason to reject the loan, the buyer may be disappointed, but they were just protected from something that could have devastated their finances for years.

Without a required home inspection, you could be buying problems you are not aware of. 

With 25 years experience as a homeowner and 15 as a landlord, I would not think twice about offering a discounted cash offer if the property suited my needs. Know what you are buying, and what could go wrong.  You could always require a home inspection in your offer, though your offer would most likely be less attractive if discounted.

I will absolutely get a home inspection. As a total newbie to home buying/ownership, it'd be dumb to not get an inspection.

In addition: I'm very risk-averse, so wouldn't it be a good idea to have an attorney review all paperwork? Probably a simple routine thing for a RE attorney; would it cost about 1-hr of attorney's time?

lizzzi

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Re: Advantages to buying house with cash
« Reply #13 on: October 22, 2016, 11:08:05 AM »
I bought my current home cash on the barrelhead, meant to be my primary residence and a "forever" home. I pretty much agree with all the advantages others have stated above. I absolutely did get a home inspection, and I absolutely did hire a real estate lawyer to go over all the paperwork and make sure it all was all right. I was buying in a state I wasn't familiar with, and just wanted a couple more pairs of eyes. Don't even remember the costs, but it wasn't bad, and worth every penny. I also had the property surveyed, which cost $400 if I remember right. I just like to know what I own.

jimsmith

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Re: Advantages to buying house with cash
« Reply #14 on: October 22, 2016, 12:12:36 PM »
I bought my current home cash on the barrelhead, meant to be my primary residence and a "forever" home. I pretty much agree with all the advantages others have stated above. I absolutely did get a home inspection, and I absolutely did hire a real estate lawyer to go over all the paperwork and make sure it all was all right. I was buying in a state I wasn't familiar with, and just wanted a couple more pairs of eyes. Don't even remember the costs, but it wasn't bad, and worth every penny. I also had the property surveyed, which cost $400 if I remember right. I just like to know what I own.

This raises another question:

The home inspection tells me about the physical structure, but what about the various legal things that might apply? Such as clear title, encumbrances, property lines, etc--I'm assuming there's more stuff than I know about--RE law is complex and I don't pretend to know anything about it.

Is there a separate kind of "inspection" that will ensure the property has no potential legal-type problems, like boundary/survey questions, title problems, liabilities, etc etc? Would the RE attorney take care of this, or would the attorney only be concerned with the closing paperwork? Being extremely risk-averse, I want to be sure such questions are addressed--

lizzzi

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Re: Advantages to buying house with cash
« Reply #15 on: October 22, 2016, 04:47:31 PM »
I think these things vary a little (or a lot) state-to-state. I forgot to say that I was going around with a RE agent, and the house was sold through the seller's RE agent. So it was a fairly typical way of doing business, except that I was paying cash. I was surprised that in this state (Ohio), the real estate agents get very involved with the closing...seem to have more power...much more so than NY, which I was more familiar with...where both buyer and seller get attorneys to guide the transaction. Anyway, FWIW, the Ohio RE attorney oversaw everything, made sure title was OK and I got title insurance...all the ins and outs.

jimsmith

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Re: Advantages to buying house with cash
« Reply #16 on: October 25, 2016, 02:43:55 PM »
You can still use an escrow company and sellers RE agent if you are doing a regular sale but just paying cash instead of getting a like loan  to make sure all that kind of stuff is taken care of. If you are buying directly from a seller then you'll need a RE attorney for you state to make sure everything that needs to be done is done. I bought a house with cash but as a regular RE sale. The agent and escrow company dealt with making sure title was clear, taxes were paid, there were no encumbetances,  lot Lines and deed were correct, water and soil testing done, required safety upgrades were done, etc.. Escrow took 3 weeks from offer to close. No need for a lawyer.

What about using a buyer's agent? That was my "default" plan--would buyer's agent ensure all that is taken care of?

Remember: you experienced buyers are advanced math; I'm elementary arithmetic [barely...]

jimsmith

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Re: Advantages to buying house with cash
« Reply #17 on: October 25, 2016, 02:45:35 PM »
I think these things vary a little (or a lot) state-to-state. I forgot to say that I was going around with a RE agent, and the house was sold through the seller's RE agent. So it was a fairly typical way of doing business, except that I was paying cash. I was surprised that in this state (Ohio), the real estate agents get very involved with the closing...seem to have more power...much more so than NY, which I was more familiar with...where both buyer and seller get attorneys to guide the transaction. Anyway, FWIW, the Ohio RE attorney oversaw everything, made sure title was OK and I got title insurance...all the ins and outs.

So you used a buyer's agent, correct? ...who protected your interests, and coordinated things with the seller's agent?

lizzzi

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Re: Advantages to buying house with cash
« Reply #18 on: October 25, 2016, 09:52:34 PM »
I think these things vary a little (or a lot) state-to-state. I forgot to say that I was going around with a RE agent, and the house was sold through the seller's RE agent. So it was a fairly typical way of doing business, except that I was paying cash. I was surprised that in this state (Ohio), the real estate agents get very involved with the closing...seem to have more power...much more so than NY, which I was more familiar with...where both buyer and seller get attorneys to guide the transaction. Anyway, FWIW, the Ohio RE attorney oversaw everything, made sure title was OK and I got title insurance...all the ins and outs.

So you used a buyer's agent, correct? ...who protected your interests, and coordinated things with the seller's agent?

I think of a "buyer's agent" as one that the buyer pays to help find the house. I think it's more typical to just go around with an agent who shows you homes, but that it is the seller who pays the agent's commission. The agent did a lot of coordination, but I did not expect her or trust her to totally protect my interests. That was why I hired the attorney. Again, these things vary state-to-state.

adamcollin

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Re: Advantages to buying house with cash
« Reply #19 on: October 26, 2016, 03:51:46 AM »
Buying a home with cash has lots of advantages. You can save money on closing costs and mortgage applications. 

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Re: Advantages to buying house with cash
« Reply #20 on: October 27, 2016, 01:04:10 PM »
Yes, that is the main advantage to cash. That, and being able to act quickly may give you negotiating power on the price too.

HOWEVER... in the long run, the main thing that (can) make real estate a better investment than the stock market is the availability of cheap financing to increase overall returns - IOW, total return on residential rentals is typically in the high single digits, which is OK but not market-beating; but getting 70-80% of the purchase price lent to you at 4-5% puts you well into double digits. Otherwise, RE doesn't beat index funds by enough to justify its illiquidity and other disadvantages.

There's a whole thread here where ARS did that math, so I won't repeat it all.
« Last Edit: October 27, 2016, 01:06:25 PM by zephyr911 »

DeanW5

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Re: Advantages to buying house with cash
« Reply #21 on: November 15, 2016, 06:43:01 AM »
Paying cash for a home has many advantages. First of all, it eliminates the need to pay interest on the loan and many closing costs.
A cash home purchase could be also closed faster. And this is very attractive for seller.

Besides, in competitive market, a seller is likely to take a cash offer over other offers because they donít have to worry about a buyer revoking the deal due to financing being denied.

Spitfire

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Re: Advantages to buying house with cash
« Reply #22 on: November 15, 2016, 07:45:01 AM »
Cash can also allow you to buy houses that won't qualify for a loan (bad roof, other major rehab).

You can always refinance after the fact too if you need to pull some out.

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Re: Advantages to buying house with cash
« Reply #23 on: November 15, 2016, 03:01:10 PM »
A cash offer also allows for a quick closing. No banks involved. Someone may really want to get out and not wait for a mortgage to happen for several months.

Metric Mouse

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Re: Advantages to buying house with cash
« Reply #24 on: November 19, 2016, 05:10:18 AM »
  • Less risk, but lower return
  • More peace of mind
  • Ability to avoid a lot of process/red tape

I mean, that's pretty much it. Leveraging is the exact opposite of all of this. I would not consider better price from seller to be an advantage since you're still going to get a better overall return going the leverage route.

I was going to post almost this exactly. I think any list of advantages should be weighed against the advantages of the other side, if one wants to make a well-informed decision.

NorCal

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Re: Advantages to buying house with cash
« Reply #25 on: November 19, 2016, 08:15:00 AM »
Yes, that is the main advantage to cash. That, and being able to act quickly may give you negotiating power on the price too.

HOWEVER... in the long run, the main thing that (can) make real estate a better investment than the stock market is the availability of cheap financing to increase overall returns - IOW, total return on residential rentals is typically in the high single digits, which is OK but not market-beating; but getting 70-80% of the purchase price lent to you at 4-5% puts you well into double digits. Otherwise, RE doesn't beat index funds by enough to justify its illiquidity and other disadvantages.

There's a whole thread here where ARS did that math, so I won't repeat it all.

Your underlying assumption is that because the OFFER is all cash that there is never a mortgage.  This doesn't have to be a true assumption.

If you have the cash available, you can use it to negotiate a lower price and speed closing.  You can later choose to get a mortgage on the property or not.

My dad did this a couple decades back.  He borrowed cash from my grandparents (their retirement savings were in all cash) at an interest rate above their savings account rates but below mortgage rates.  He got a traditional mortgage once he owned the house outright.

clarkfan1979

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Re: Advantages to buying house with cash
« Reply #26 on: November 19, 2016, 04:53:09 PM »
The biggest advantage to cash is that you can purchase distressed houses at a massive discount if they don't qualify for traditional financing. After you fix it up you can take out a traditional mortgage, if you want.

Metric Mouse

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Re: Advantages to buying house with cash
« Reply #27 on: November 19, 2016, 04:55:56 PM »
Yes, that is the main advantage to cash. That, and being able to act quickly may give you negotiating power on the price too.

HOWEVER... in the long run, the main thing that (can) make real estate a better investment than the stock market is the availability of cheap financing to increase overall returns - IOW, total return on residential rentals is typically in the high single digits, which is OK but not market-beating; but getting 70-80% of the purchase price lent to you at 4-5% puts you well into double digits. Otherwise, RE doesn't beat index funds by enough to justify its illiquidity and other disadvantages.

There's a whole thread here where ARS did that math, so I won't repeat it all.

Your underlying assumption is that because the OFFER is all cash that there is never a mortgage.  This doesn't have to be a true assumption.

If you have the cash available, you can use it to negotiate a lower price and speed closing.  You can later choose to get a mortgage on the property or not.

My dad did this a couple decades back.  He borrowed cash from my grandparents (their retirement savings were in all cash) at an interest rate above their savings account rates but below mortgage rates.  He got a traditional mortgage once he owned the house outright.

This is probably the best plan I've ever heard.

Dicey

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Re: Advantages to buying house with cash
« Reply #28 on: November 20, 2016, 12:00:51 PM »
^No so fast.^ Nowadays lenders want the purchase to be "seasoned" before they'lll give you a mortgage on a house you paid cash for. Generally, one year in our area. Also, there might be IRS tripwires.

We bought our current home on a short sale for cash. Took eight months to close.

In the past 18 months, we've purchased three properties. The one we paid cash for took almost as long as the other two, just because of all the bureaucracy.

Better option is to get pre-qualified and pre-approved with a good lender before you house shop. That way the seller knows the deal will go through. A letter helps because some sellers want their home to go to a buyer who plans to raise their family there, not a faceless investor.

Cassie

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Re: Advantages to buying house with cash
« Reply #29 on: November 20, 2016, 01:12:20 PM »
Our last house was a bank foreclosure that only took cash offers for 24 hours.  It had to be all cash and no inspections. It closed super fast.

Dicey

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Re: Advantages to buying house with cash
« Reply #30 on: November 20, 2016, 02:22:32 PM »
Our last house was a bank foreclosure that only took cash offers for 24 hours.  It had to be all cash and no inspections. It closed super fast.
Don't I wish. We don't believe in inspections (other than our own or any specialists we hire personally) either. We were the highest bidder, with no conditions. At one point, they tried to hijack us for an extra 35k. Thank dog for our pit bull of an experienced real estate broker. I congratulate you on your success, Cassie.

We are not fans of home warranties, even if the seller throws it in. On our last rental, the fridge crapped out. $60 service call. Guy said we needed new part. Republic Home Warranty then said part was not available, fridge was too old, no recourse, loophole in the fine print, blah x3, etc. and sent us a check for less than $200. Total PITA and wasted at least two weeks time. Which eventually resulted in a month's rent lost.
Did I mention they are called Republic Home Warranty? You're welcome.

Cassie

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Re: Advantages to buying house with cash
« Reply #31 on: November 20, 2016, 04:10:02 PM »
Diane, since my DH is a civil engineer with also an environmental background we felt confident to go without the inspection. Besides they would not sell it to us if we wanted one. We just got lucky on this deal. They had not been able to sell the property at a higher price after the inspections because their buyers always backed out so were sick of it. Also my DH is very handy so we did not have to hire all the work done and their was a ton of it.

Eco_eco

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Re: Advantages to buying house with cash
« Reply #32 on: November 20, 2016, 06:37:40 PM »
If you have enough equity you don't need to actually have the cash. For my past few property purchases I've secured a mortgage using the equity built up in my rental property to arrange an unconditional mortgage. Once I have an unconditional line of funding on the purchase then I can offer the same as cash without having to tie up lots of of funds in the purchase.

Dicey

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Re: Advantages to buying house with cash
« Reply #33 on: November 20, 2016, 08:14:35 PM »
Diane, since my DH is a civil engineer with also an environmental background we felt confident to go without the inspection. Besides they would not sell it to us if we wanted one. We just got lucky on this deal. They had not been able to sell the property at a higher price after the inspections because their buyers always backed out so were sick of it. Also my DH is very handy so we did not have to hire all the work done and their was a ton of it.
Sounds like your DH and mine have a lot in common. Congrats on scoring a great deal on a house you like.

Cassie

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Re: Advantages to buying house with cash
« Reply #34 on: November 21, 2016, 05:37:04 AM »
We actually bought this to be our retirement home.  It is one story and only 1400 sq ft so perfect without being too big. We can step into our showers etc so we can age in place.  OUr yard is also low maintenance.  We are also close to everything versus being in the burbs.  We really love it.

Dicey

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Re: Advantages to buying house with cash
« Reply #35 on: November 21, 2016, 08:09:46 AM »
We actually bought this to be our retirement home.  It is one story and only 1400 sq ft so perfect without being too big. We can step into our showers etc so we can age in place.  OUr yard is also low maintenance.  We are also close to everything versus being in the burbs.  We really love it.
Wow! That sounds a lot like our plan once MIL and her pal ALZ are no longer living with us. We're casually watching for a screaming deal on a fixer that we could talke our time on before we sell the clown house.

Cassie

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Re: Advantages to buying house with cash
« Reply #36 on: November 21, 2016, 08:18:32 AM »
We did not move in for 4 months after we bought it. My DH & a helper worked 50 hours/week to get it move in ready. Bathrooms, kitchen gutted, they had pergoed over the hardwood-ugh, moved walls, etc. WE had a huge dining room and small MB so moved a wall to make both decent sized rooms. It had a very small bedroom attached to the MB so we made that into a walk in closet because we only needed 3 bedrooms.  Then we spent the next 4 years doing the paint outside, yard , etc.  It has been really fun to make it just how we wanted it.  It is a 1950's ranch that is ordinary from the outside and beautiful in the inside.  It is big enough to entertain and have company stay over but small enough that it is not a pain to clean.

zephyr911

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Re: Advantages to buying house with cash
« Reply #37 on: December 01, 2016, 03:18:33 PM »

Your underlying assumption is that because the OFFER is all cash that there is never a mortgage.  This doesn't have to be a true assumption.

If you have the cash available, you can use it to negotiate a lower price and speed closing.  You can later choose to get a mortgage on the property or not.

My dad did this a couple decades back.  He borrowed cash from my grandparents (their retirement savings were in all cash) at an interest rate above their savings account rates but below mortgage rates.  He got a traditional mortgage once he owned the house outright.

If you have the cash available, indeed.
I hear a lot of people/companies will build up enough cash to buy one prop, then use that to speed serial acquisitions. Buy in cash, finance afterward, rinse and repeat. If you get them cheap enough, you can do deals in pretty fast succession. And I'd love to... but by the time I ever see that much cash, I'm probably not gonna need the rapid growth. Irony! xD

MicheleCooper90

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Re: Advantages to buying house with cash
« Reply #38 on: December 15, 2016, 05:27:08 AM »
Personally I feel that you should weigh the pros and cons. Some of the pros are no monthly payments and bypassing the mortgage approval process.Some of the disadvantages are depleting savings and losing out more profitable investment opportunities in future. Here's a rundown of the pros and cons.

http://homeguides.sfgate.com/advantages-disadvantages-buying-house-cash-39787.html
http://library.hsh.com/articles/first-time-homebuyers/pros-and-cons-of-paying-cash-for-a-home.html