THANKS! to everyone who responded to my questions. Actually my credit became bad when I lost my job and

Asked by Antbee, California Sun Mar 8, 2009

had to deal with some medical bills.
However, I was fortunate enough to come into some money, and I can actually pay cash for the home $760,000) but it would take most of the money LOL!

I can find a less expensive home, but I really would like to stay in the $700,000 bracket from what I have seen.

Last question: Would it be best to purchase the home and pay in full, or pay $700,000 in cash, and try to get the $60,000 (let's say if I bought this particular property) financed just to build credit and or for tax purposes?

Would a lender finance the balance? Would that be a good move for me financially?

I have to invest this money into something and I need a home!

Decision, decisions!
Thanks again to everyone~


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Dp2, , Virginia
Mon Mar 9, 2009
IMHO (as an investor and not a financial planner), I agree with Cynthia that this decision (assuming you're talking about purchasing a SFH) doesn't appear to make sense financially--especially now. Grant is right: cash IS king. He also presents an excellent argument about weighing the pros/cons of paying more and being cash poor versus paying less. Keep in mind that we're in a buyer's market which basically means that buyers should be able to get more bang for their bucks.

To me, it would make more sense for you to purchase a multifamily property, like a 4-plex, live in one of the units, and rent out the other 3. This way you could "flash your cash" to a lender provided you intend to finance your purchase, and leverage your cash position with both the lender and seller. Let's say you financed the purchase of a 4-plex for 700K with a 30% down payment (210K) at 7% fixed for 30 years, and let's say that you could rent out the other units for at least 2K. Your mortgage payments would be roughly 3.26K, and you'd collect enough rent to pay your mortgage, the expenses, and earn an extra $445/month (before taxes). The situation gets even better as you're able to increase the rents. You'd also still have 550K remaining.

Another way to further tweak this deal is to leverage you cash even more. You could use 490K of that 550K as collateral for your purchase, so in a sense you're able to make that 700K purchase without actually having to spend all of it up front. You should also be able to lower your interest rate (quite a bit) by doing this. Nevertheless, you could tweak this arrangement further too. You could work with your financial planner to set up a collection of high-yield bonds with that 490K and tax liens, and re-invest the yield from those bonds in other classes of investments like stocks or forex. This way you'll use that 490K cash as collateral for your balance (initially also 490K), and actually earn some money off of your cash--just like the banks would.

If you were to adopt this kind of strategy, then I'd also recommend that you consult with an estate planning attorney to help you to set up a strategy to protect your home and cash from any scam artists looking for a quick payday.

By the way, although I didn't mention it before, I included the cost for property management (typically 5%-10%) in the expenses. If you opt instead to manage the property yourself, then you should pay yourself that management fee, and you should work with a competent CPA (who's experience with working with real-estate investors) to help you with your taxes.

Anyway, perhaps now you can see that it's possible for you to put your money to use in a way that will generate multiple streams of income, purchase that home, and enable you to deposit 60K into your savings.
3 votes
Cynthia Flem…, Agent, Laguna Niguel, CA
Sun Mar 8, 2009
With no job and medical bills, I would suggest you don't put all your cash into a property. I would recommend you look at less expensive homes first of all, if you can't find them in the town you are looking, I would expand the search to other cities. There are many deals out there right now, and a lot of inventory to choose from. I'd put some of your money into savings of some sort. You ought to seek the advice of an accountant or financial counselor to get the best advice for your particular situation and they can go over any tax implications with the $760k you just received.
1 vote
Grant Linsco…, Agent, Los Angeles, CA
Mon Mar 9, 2009

That was a great, well thought out response. Kudos!

Grant Linscott
0 votes
Cynthia Flem…, Agent, Laguna Niguel, CA
Mon Mar 9, 2009
To Dp2 - I like you're way of thinking! Great suggestion.
0 votes
Grant Linsco…, Agent, Los Angeles, CA
Mon Mar 9, 2009
Hi Antbee,

In this economy, as they say, "cash is king." You will be able to negotiate more with cash (or a large downpayment as a qualified buyer) and this will help you save money as well.

If paying cash would take most of your money you will have to weigh in on whether it's worth being cash poor but with no house payments or you'll have to find out what type of mortgage payments you're comfortable with every month. You have some big although nice decisions to make and there is no right or wrong to either as every person is different.

Please let me know if you need any help.

Best Regards,

Grant Linscott
Keller Williams Realty
323.333.6222 Cell
0 votes
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