Author Topic: Buy a home Cash or Loan?  (Read 2242 times)

ColtCeverz

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Buy a home Cash or Loan?
« on: December 23, 2013, 01:07:05 PM »
Hi All,
Great articles here. I've been a fan of a modest living for some time. I've founded my investing on guru's such as Dave Ramsey, and Mr Money Mustache, the oxford club Both teach the principles of living within your means. I've been a fan of investing and have bought several books including, “who moved my cheese”, “Rich dad Poor dad" "The Gone fishing Portfolio" and have applied many of those principles. I'm torn with a recent division about investing. I've recently come into some money after a parent passing away. I have a good retirement saving and was planning to buy a house. I've heard nay Sayers say don't buy a house for tax purposes, that makes no sense to me why would I owe money to wright just a little off on my taxes? Recently a friend of mine approached me with the idea of putting 20% down on 4-5 homes and Renting them. He says that would create a revenue stream for me. It seems risky. Or putting a little down on a home and buying some commercial Realestate. Or buying a really big home and taking out a small loan because it will go up in value... What's the right decision here, ultimately I don't want to squander this money its the only thing I have left from my parent, and Biblically it says in Proverbs " the borrower is slave to the lender.." What's the right choice here.
Thanks,
Dave

KingCoin

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Re: Buy a home Cash or Loan?
« Reply #1 on: December 23, 2013, 02:25:33 PM »
There's no "right" choice unfortunately.

The question is, do you borrow at a low rate and hope to achieve higher rates elsewhere (stock market, investment properties, etc.)? Or do buy a home in cash and content yourself with a low, but safe "return" (the "return" here will be the interest you don't have to pay on the loan). This is going to come down to your attitude about risk. You might decide to split the difference and put down 40-60%.

With respect to whether or not to invest in rental properties, you'll have to do your own research. Read some of the resources listed in the sticky thread in this category, and decide if it's right for you. At the very least, you'll probably want to start with one property, perhaps at a more modest leverage ratio, rather than buying 5 properties right out of the gate levered 5 to 1.

Basically, you're going to have to do a ton of learning on your own about real estate investing (and perhaps personal finance in general). Advice from friends and people on a message board can only get you so far (and might even be dangerous is it gets you into something you don't fully understand). 

jamccain

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Re: Buy a home Cash or Loan?
« Reply #2 on: December 25, 2013, 11:42:56 PM »
http://financialmentor.com/financial-advice/pay-off-mortgage-early-or-invest/7478

Here is the most comprehensive thing I have seen to help people decide. 

ColtCeverz

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Re: Buy a home Cash or Loan?
« Reply #3 on: December 26, 2013, 06:52:13 AM »
Thank you for the well thought out advice.
Also thank you for the link. This was a great article. I'm a little confused about the section where Warren buffet says he would buy hundreds of SFhomes.also I'm really confused about how he says you should have a mortgage to leverage against inflation. Does that mean he's saying that a homes value increases only due to inflation. I looked some other articles up about this and they coincide. I'll have to ponder this a few weeks. Thanks again sorry for any type errors as I am on my phone.
Dave

ender

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Re: Buy a home Cash or Loan?
« Reply #4 on: December 26, 2013, 08:01:36 AM »
http://financialmentor.com/financial-advice/pay-off-mortgage-early-or-invest/7478

Here is the most comprehensive thing I have seen to help people decide.

That's a good article.

For me personally, I think it'd come down to whether or not I was "ok" with the idea of debt and what my other financial goals are at that time. I'm able to max out tax advantaged accounts now and so the "tradeoff" would primarily be with respect to taxable investments vs mortgage. Even though mathematically I'd likely have a higher net worth later in life by preferring taxable investments vs paying off a mortgage I suspect I'd emotionally very much prefer paying it off.

If someone is choosing 401k money vs paying off the mortgage early, it's a much different situation too. I'd not really be giving up any tax advantaged space to do this - the situation becomes much different if so. Likewise, in my opinion it is easier emotionally to "cut costs" in order to pay off a mortgage early rather than to invest money in a taxable account. This is different for everyone.

SunshineGirl

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Re: Buy a home Cash or Loan?
« Reply #5 on: December 26, 2013, 08:36:27 AM »
I think you should ponder it for a lot longer than a few weeks. It sounds like you're new to investing, and if you're not careful, one bad decision can hold you back from achieving your financial goals.

What are your living expenses right now? How much do you have in savings, and how many more years are you planning to work? Sometimes, the best and easiest thing to do is open an account with Vanguard and choose a Target Date fund, or talk to someone there about what the right mix of investments is for you. "Set it and forget it" with a reputable company.

Landlording isn't for everyone.