Home Buying in New London>Question Details

Joe, Home Buyer in New London, CT

Queston with buying a house outright with cash

Asked by Joe, New London, CT Tue Nov 30, 2010

I'm heavily invested and have saved up approx. 300k for a house. I'm a first time buyer looking to buy a house. My question is could i get the price of the house lowered since im paying outright with cash? Also what are my advantages and disadvantages of doing so? Please help, i appreciate it. Thanks

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Lori Hopkins-Cavanagh’s answer
A seller looks at the whole package. Cash versus financing is a contingency with risk for the seller. If the buyer cannot get mortgage commitment the deal falls apart, whereas a buyer with cash eliminates that contingency. You will outbid a finance buyer all things considered equal but how much you can save depends on the condition of the house and other aspects of the transactions such as inspections and motivation of seller.
0 votes Thank Flag Link Tue Apr 9, 2013
Joe,

Let me pose a scenario. Assuming you can mortgage 80% of the property at 4.5% and keep 240k in the bank. Once the economy begins to correct, your mortgage rate of 4.5% is fixed for 30 years and will not change. At the same time you can invest your 240k into investments that might at a better time be returning 8-10%. If you invest the entire sum into the house now and the economy begins to grow, all of your money is tied up in the property. At that point the only way to get it out would be to borrow against the asset at the interest rates of that time period. Assuming investments begin experiencing 8% returns, it's safe to say borrowing rates will be closer to 6-7% which is substantially higher. This is a slightly more complex theory that I attempted to simplify. If you want to discuss more in detail feel free to call or e-mail. I'm not a CT agent, but I don't mind sharing the theory regardless.

-Ed
1 vote Thank Flag Link Tue Nov 30, 2010
Just because you are buying with cash doesn't necessarily mean that they will lower the price. It depends on the market. If the home you love has been on the market for 6 months, then I would advise you to come in slightly lower than listed price. On the other hand, if the home was just listed sometimes the seller will be willing to deal and sometimes they won't. Here is what I would advise you - if your market is very strong where each home gets multiple offers, then you need to come in higher than list. However, if the market is slow and most people are just praying for an offer, then you can come in lower. Cash is not necessarily the determinant. It is the market conditions. As to your advantages and disadvantages of each - here they are: the advantage of paying cash is that you save about $300,000 over 30 years because that is what your interest will come to on a $300,000 home. In other words, you will be paying $600,000 or possibly more for the home by the time you finish 30 years from now. The disadvantage is that you lose a tax deduction of your mortgage interest over 30 years. Obviously, the interest you will pay will exceed the deduction you will receive. So you would come out ahead paying cash for the home. Another disadvantage is that you might be able to make more money in your investing with that $300,000. So weigh it both ways after speaking with a tax professional.
0 votes Thank Flag Link Tue Nov 30, 2010
Joe,
To the seller, it's all cash. Buyers arrange financing and other than the risk of not getting the loan, it's all the same. The benefit of offering or being able to buy all cash is to take that element out of the equation.
Here is my question to you, as an investor, why would you turn down the opportunity to invest a portion of that while borrowing at historic low rates? Beside the investment return, you get to write off what interest you pay resulting in an even better return.
Just food for thought, you know your circumstances better than I, but if you hadn't considered it you should.
0 votes Thank Flag Link Tue Nov 30, 2010
If you are looking for investment properties this is a great time to buy. As an agent in Florida we are flooded with REO and foreclosed properties. One thing that is quite common now down here is that they do not take any investor offers for the first days of the listing, sometimes up to 2 weeks. They are interested in getting people into the homes that will be using it as their primary residences. That said, there are still great investment opportunities here. As far as low balling the prices, some of the banks are able to negotiate a cheaper asking price depending on what they are owed on the property. I am showing properties that were in the 200-300K market value range a couple years ago and are selling for 60-70K! You can reach me at evepurvis@gmail.com, love to send you some listings. I am also able to arrange the leasing of these properties for you.
0 votes Thank Flag Link Tue Nov 30, 2010
Thank you for your prompt awnsers. I appreciate it.
0 votes Thank Flag Link Tue Nov 30, 2010
You could try to negotiate a purchase price for less than is listed, but you will have to show proof of funds in order to "back up" your claim that you will be doing a true cash transaction.

One of the main advantages to purchasing with cash isyou'll have no mortgage payment every month,but one disadvantage is that you'll miss out on taking your mortgage interest as a deduction on your taxes each year.

Are you working with a Buyer Agent yet?

If I can be of any further assistance to you, I am licensed in CT and can be reached at elizabeth@elizabethherbert.com
0 votes Thank Flag Link Tue Nov 30, 2010
What is your agent advising--Keep in mind that in the end, cash or loan, the seller gets paid no matter--therefore, if you stumble upon a must have property do be aware of comps--recently sold similar properties in the immediate area--review the data and make a determination as to a fair offer, then go from there. As for advantages/disadvantages--consider consulting with your tax professional, he/she can best advise as to what will be more beneficial to you when it comes to any tax related issues.
0 votes Thank Flag Link Tue Nov 30, 2010
Buying with cash is attractive to sellers (and buyers) because it reduces the risks and potential delays associated with obtaining a mortgage, including appraisal problems. The purchase can also occur very quickly - as fast as 7-10 days in many states. For these reasons, the seller may accept a lower price than if you were obtaining a mortgage, but that depends on the seller's motivation and how long the property has been on the market. There are no disadvantages to buying with all cash to either party.
0 votes Thank Flag Link Tue Nov 30, 2010
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