Home Buying in Jersey City>Question Details

Garrett L Mi…, Home Buyer in Jersey City, NJ

If an individual has enough cash in the bank to purchase a $150,000 home, would it be better to pay for it all at once or to get a mortgage?

Asked by Garrett L Mills, Jersey City, NJ Wed Oct 3, 2012

I am planning on moving to the Manhattan, NY area later this month, and have intentions to purchase a multi-family dwelling such as a duplex, making any required repairs and renovations, and then renting the unit(s) out. This will be a long-term investment and will not be "flipped" at any point soon.

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Nick Gandhi’s answer

If you get a mortgage, your rate will be 5-6% as this is an investment property. It may be a lot more if you don't have good credit. (You should look into this and find out what it would be for your particular situation).

If you believe you can get better than this 5-6% rate in the market, or will have the need for a large sum in the near future, then you should get a mortgage.

If you believe you will not need this money in the future, and don't plan on investing it, the rate you get in a bank today is less than 1%, In this instance it may be better to buy the property with cash. You can always buy with cash, and then open home an 'Equity Line of Credit' , which will give you access to some of the capital while not paying any interest if you are not using it.

Hope this helps Garrett

Best of Luck!

Nick Gandhi
Equity Capital Real Estate
(203) 280 3838
0 votes Thank Flag Link Fri Oct 5, 2012
I like Helene's answer. You have to run the numbers and determine ROI. You can easily get an excel spreadsheet that will help you run the numbers and determine if it's a worthwhile undertaking to be a landlord. If you can earn more money investing your hard earned cash in a safe investment that requires no time, then your're better off doing that. In my opinion it's smart to think about buying something that needs work, then renting it out. That equals equity right off the bat and cash flow if you buy correctly. If you live in one of the units, so that the property becomes your primary residence, I believe there are tax benefits when you go to sell. Of course, I am not a tax attorney but it would be in your best interest to go over this with one.

Best of Luck.

0 votes Thank Flag Link Wed Oct 3, 2012
JO, do you happen to know where to obtain such a spreadsheet? I certainly want to run my numbers at least a couple times before "jumping in" and buying a property
Flag Wed Oct 3, 2012
If possible, I'd examine the ROI on obtaining a mortgage and investing the rest HOWEVER, as this will be an investment property, your interest rates will be substantially higher than residential rates we are seeing. I'd expect around 6%. That may obviate the benefit of investing those dollars elsewhere for a higher rate of return. If you cannot obtain a mortgage or the rate will be too high to be profitable, you have little choice. I am concerned that no one has asked if you ran your numbers on your ROI (rate of return). As a property investor/Landlord myself, you have to understand that "you make money when you buy." Don't assume that you'll wait and make your money when you sell. Maybe.
Leni Jeanette
Keller Williams Metropolitan
0 votes Thank Flag Link Wed Oct 3, 2012
Thank you for your response, I am very new to this industry and though I am familiar with the concept of investment returns, I do not know where to look for a resource like that, or which formulas to run in order to determine it myself. Any point in the right direction would be greatly appreciated!
Flag Wed Oct 3, 2012
It is relatively difficult to get a mortgage without a good credit score. Probably your option is a cash purchase You may want to refinance later after you've established your job and improved your credit.

Again, I'm ready to help you find an acceptable property.
0 votes Thank Flag Link Wed Oct 3, 2012
**additional information regarding my question** The budget I have established is actually $200k, and the mortgage option may not be very attainable for me since I have a handful of "blemishes" in my credit report (as well as a low FICO), and I will not be employed when I arrive in the area later this month. I will have around $400k in my bank account(s) so is paying cash most likely my only option?
0 votes Thank Flag Link Wed Oct 3, 2012
I can see you are getting all kinds of answers here. With interest rates as low as they are, I would put down the 30% required and finance the rest. This will also give you more flexibility in the property you buy. $150K for a 2 or 3 family will not buy much in Jersey City right now.

I would also advise you to discuss this with your accountant, since your particular set of circumstances could make a difference in the best option for you.

If you would like any help finding a property to purchase in Hudson County, please give me a call.
0 votes Thank Flag Link Wed Oct 3, 2012
I would pay cash and the finance it later.
Cash will give you more buying power to negotiate and save on some expenses the bank requires when making a purchase. Refi is cheaper. You could get an equity loan too.
0 votes Thank Flag Link Wed Oct 3, 2012
The best person to discuss this with would be your accountant. Based on your tax bracket and allowable deductions your accountant can best advise you of the financial situation.
0 votes Thank Flag Link Wed Oct 3, 2012
I would get a mortgage and keep some of the cash in the bank. You want to look at financing around 70 percent of the purchase price. Having 30% equity in the property keeps you away from paying PMI.

Reasons to get a mortgage

Tax benefits - mortgage interest falls into your itemized deductions.

Also with rates being at record lows it would only make sense to take a loan and find other things to do with your cash.

If you need help finding a place in the Jersey City area please let me know.

Darrell Roch
Weichert Realtors
0 votes Thank Flag Link Wed Oct 3, 2012
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