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Housing Market prices are high but I don’t see it cooling off anytime soon, so if you like something and the price seems reasonable I would go for it. Would pay the minimum amount to get best interest rate (they are low right now so take advantage of that). Assuming the property will appreciate <8% a year (depends on where you are buying, historical prices etc.) I would put 20% of the remaining money in crypto ( assuming you are young and have the appetite to potentially lose this amount) remaining in an ETF tracking S&P 500 or total market.
Mentor
Cash is so powerful in negotiations and will come down to personal circumstances of the seller. When I was buying my house in 2013 (mind you a different market) I put in an offer on a house with the terms 20% down and conventional loan (more stable than a FHA). My offer was slightly under asking price. The seller instead selected an all cash offer for 80% of asking price instead.
I did some digging and found out the seller had just gotten remarried and needed the cash quickly to buy a new home with his new wife. The all cash offer was more stable than my offer and ended up closing really really quickly.
I guess it depends on the market. My friends who are searching for a house in my area keep telling me how they put in an offer first day the house is on the market and are up against a half dozen offers. If you do an all cash offer your offer will certainly stand out.
All cash carries very low risk in not closing. Can be a disaster if you need to relist as it carries a stigma. Also much much faster which could be needed if buying (or already bought) another home
I just purchased a house with an all cash offer to stop the bidding war and $10k lower than the asking price. My plan is to refinance to get my cash back with 20% down and reinvest in stock market.
That’s what Dave would tell you not to do lol. It’s just leveraging yourself and there is no reason not just to borrow as much as you can. Risk becomes a sliding scale with how much you take out a loan for which is much harder to assess than a binary choice.
Overall don’t leverage yourself to invest.
The reality is that most “cash” offers today aren’t people actually paying 100% cash - it’s just people who have firm lending commitments from their lenders waiving the mortgage contingency and taking on the appraisal risk.
You get an underwritten approval from your lender and you're waiving the contingencies yourself. If the appraiser comes back saying you overbid, you need to cover the difference the bank would loan you so they're really reducing the risk for themselves, not taking it.
In the bay area market, they are literally all cash offers closing in 2 weeks. Don't know if they're taking the cash back out afterwards or what but it's seriously insane.
Given these insanely low interest rates, I’d only put 20% down and then invest the rest. You’ll certainly make more than 2.5% on your money over the long run if you’re disciplined enough to invest it and not spend it.
I agree. Just bought a home Friday at 2.375% 30year fixed. Current thoughts are to live here for 5-10 years, then remortgage excess equity above 20% and use that / other investments for deposit of new home and rent out original home. Since the rate is so cheap, we have less risks in rent not covering mortgage and viola - building on the real estate portfolio!
If you’ve got that much cash on hand you’re doing it wrong
I disagree. Better than having it in overpriced equities that could lose half their value in a week
No, put 20-25% down and invest the rest in the stock market as long as you have an emergency savings account already established.
For anyone interested, we went 31% down on the house, 7% deposit, and 15% over asking with an underwritten approval, waiving all contingencies, and 2 months rent back waived and we won but barely. The competing offer was slightly lower than us, 50% down, no contingencies, 3% deposit, and offered 3 months rent back. I feel like I've been raked over coals now.
Congrats!
Mentor
All cash offer will almost always trump a 20% down offer, especially in this market. Your chances will increase if you increase your down payment. Cash is always king. Not saying that you should have that money laying around but be prepared to be overrun by all cash offers if you are only going in with 20%.
If it meant I’d actually get an offer accepted, sure 😂 (Note: my spouse has not approved this message.)
I would do the minimum downpayment and use the money to buy other investment homes
Except in our market, minimal down won't get you to the table. We're competing against FAANG money where offers are usually no contingencies, with all cash offers and bidding 15-30% over asking.
Buy the property in cash. Maybe you’ll strike a better deal with all cash anyway. Then, refinance and pull 80% of your equity out of the property and invest that cash.
Why do you think it doesn’t work? I am working with a mortgage broker and she is about to do exactly how EY1 described. There are caveats if you are buying a fixer upper. Ours is a brand new house so we aren’t worried about appraisal since it’s in par with the recent home sales.
Agree with others here - money is cheap right now, so it makes better sense to borrow. Buy in cash, and then essentially sell it back to yourself at these super low interest rates and put that money somewhere else it'll make you more than the mortgage interest rate.
Somewhat related but are you in a better position as a buyer if you put more down? So if instead of 20% you put 35-40% down. All other variables held constant (like offer amount), does a higher down payment make if a better offer?
$1950, including PMI, at a 2.5 interest rate. Have to wait a year to have the PMI removed but I have over 20% equity now. I bought in the early fall.
Why would you give up on free leverage?
Mentor
Yeah, because leverage means jack squat if you can't buy.