Home Buying in Sherman Oaks>Question Details

directrpep, Home Buyer in Los Angeles, CA

Should I buy a condo with cash or finance it? For my mom so investment property.

Asked by directrpep, Los Angeles, CA Tue Feb 5, 2013

My mom lost her job and i want to buy her a condo to live in instead of paying for her rent. This way the money goes to something that will gain value with time.
So, I have the money to purchase a condo with cash. And as this is going to be an investment property (since i wont be living in it), should I just buy it with cash or should i try to finance it? I'm looking at places at about $200k.
Also making sure this is a good idea. I thought this was best again so not to put money towards her rent. Help? thoughts? Thanks!

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Jim Olive’s answer
If you REALLY want the property and want to stand out...nix the inspection, but understand the risks associated. Maybe ask for another viewing and take someone who understands home repair who can spot any obvious problems before you commit? Best of luck...
0 votes Thank Flag Link Wed Feb 6, 2013
There's some advice here that makes me very, very nervous. I'll defer to those who know and who say it's a hot market with multiple offers. OK. I've seen that sort of market, too.

Still: Forego the inspection? Think long and hard before you do that. Sure, your offer is stronger without it. But I've heard plenty of horror stories about people who skipped the inspection, only to find some really major problems.

Also: A blanket piece of advice to offer above the asking price? Bad advice. What if the asking price is 15% above fair market value? Especially if you pay all cash and there's no appraisal, you could easily overpay. There's nothing wrong with paying fair market value. But that's NOT the same thing as the asking price.

Next: Talk to your financial advisor. Yes, there are pros and cons of buying with cash, taking into consideration the low interest rates. But there are some things you didn't mention. OK: You've got $200,000 in cash. Great. However, you need a cash cushion, too. Many advisors suggest at least 9 months-1 year of living expenses. Further, do you have any expenses coming up? Anything from having a child to going to school? Do you have the income or cash to pay the condo fees? Might YOU want to move in a year or so? These are things that would affect your decision to pay all cash.

Finally: Your purchase is NOT an investment. It's a nice thing you're doing. But it's not an investment. In fact, check with a financial advisor on the tax implications. If your mom isn't going to be paying you rent, the IRS may "impute" a fair market rent. In other words, it'll say: "Even though this person isn't collecting rent, we know that rents in the area are $1,000 a month. So we will treat her as if she's getting $1,000 a month in rent." If you pay all cash--and I'm not a financial advisor so this isn't financial advice--you may actually end up with a bunch of tax owing based on the imputed income.

Keep in mind, too, that property values don't always go up. Remember 2004 and 2005? Very hot markets. Remember 2007 and 2008? Huge price declines. Never pay top dollar in a rising market and assume that you'll see appreciation.

I recognize that there are personal and emotional reasons for the purchase. And that's fine. But within that framework, there are still things to consider and steps to take to protect yourself and your mom.

Hope that helps.
2 votes Thank Flag Link Tue Apr 2, 2013
Don Tepper, Real Estate Pro in Burke, VA
Dear Directpep,

This is a very good idea for your Mom. All cash and above asking price is usually a good strategy. Make sure you follow the advice of your Realtor who will be in a better position to guide your offer.
0 votes Thank Flag Link Tue Apr 2, 2013
Interest rates are so desirable at the present time that even people with piles of money and no need to borrow are electing to finance....

0 votes Thank Flag Link Thu Mar 7, 2013
I would probably say for tax reasons you would finance it. Talk to your tax professional for the best answer to your particular situation
0 votes Thank Flag Link Thu Mar 7, 2013
It is always better to buy a house with cash as Cash buyers often get a discount and closing costs are lower with cash.
0 votes Thank Flag Link Thu Mar 7, 2013
Thank you everyone. I am about to make an offer on a condo. The agent is drawing up the paperwork now. It's an REO and i guess the game now begins. I didn't know if I should make an offer for exactly what they are asking for or if I should go higher. I went higher hoping that I could get the place. But still I really don't know if it is high enough because there are other bidders (which the agent said included other cash offers). It is still lower than the other properties that showed up in the comps though.
Is there anything I can do to stand out more? Even if I am a bit lowr? A standard 7 day inspection with 21 day close? If that is reduced, does that look more appealing?
0 votes Thank Flag Link Wed Feb 6, 2013
Considering the almost non existing inventory and the entry level price range you are interested , in my opinion and experience with Buyers in this range, cash is king.
I'm working with Buyers who can finance 50 % of the purchase and capable of going much higher in price if need be and we've encountered situations where Sellers selected cash offers instead.
Several factors may be in play, such as Sellers wanted a much faster close, no loan and appraisal contingencies or some complexes may not have sufficient reserves, higher HOA delinquency rate or the owner occupancy % vs the tenant occupancy % does not meet the lending requirements.
Cash will get you in and if in need of cash down the road most lenders will refi after 1 year of ownership.
Research and information gives you the edge in making a decision which way to purchase.

Best of luck.

Beatrice Stambulski
DRE 1335053
0 votes Thank Flag Link Wed Feb 6, 2013
You may buy with cash and then do a cash out refinance to get that cash back to you.
I believe that having cash in the bank is always your best line of defense.
This is a great idea to purchase instead of paying rent (which is helping the landlord purhcase his home)

You can qualify for a owner occupied loan with mom as the occupant as she is your parent and you want to provide her with shelter.

Explore different financing ideas.
0 votes Thank Flag Link Wed Feb 6, 2013
Buying with cash will help you to get a property in this low-inventory, multiple offer season. It also allows your Mom to live with no one making payments.

Some might think that getting a mortgage enables you to free up your principal to invest...

There are pros and cons to each...so as the others have suggested...do your homework!

Best of luck.
0 votes Thank Flag Link Wed Feb 6, 2013
Please feel free to contact me at susan@susanbour.com

I would be happy to assist.

Have a great day!

Susan Bo'ur Realtor/Coldwell Banker
0 votes Thank Flag Link Wed Feb 6, 2013
I think you will see that most financial planners will say that now is a great time to buy. Buying with cash is also a good idea. You generally get a better price than with a mortgage. However, if you buy with a mortgage and inflation comes in the next few years, the money you borrowed will basically be at a discount.

I would suggest talking to a financial planner. You can work out several scenarios that will help you make a choice that is right for you. A big factor in the decision is the HOA assessment as well as the age and maintenance required for any property. This is because the money you save by buying all cash could easily be wiped out by remodeling or a high HOA.

Please call or send an email if you need help with any of your real estate needs.

Tommy Lee
DRE #01723594 SFC (Short Sale & Foreclosure Certified)
Premier Service® Professional
говорю порусскии
0 votes Thank Flag Link Tue Feb 5, 2013
Cash is King and in this price category under $200k there are more buyers than properties - there for by using cash you will have advantage over buyers who will come in with financing/loan ( which you will definetly need in this market!)

Interest rates are low so financing make spence as well, however if you buy in cash you will always have an option to refinance at a later time.

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0 votes Thank Flag Link Tue Feb 5, 2013
If you can buy a condo your mom can live in for $200K cash, then you should definitely do it as soon as possible. Prices for condos in that price range are moving up quickly due to investor demand. So, you'll need to do an all cash deal to stay competitive. Afterwards, you should look into financing if you can get a good rate below 4%.
Web Reference: http://www.archershomes.com
0 votes Thank Flag Link Tue Feb 5, 2013
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