Buying house with cash

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Babywawa
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Joined: Wed Jul 25, 2018 12:10 am

Buying house with cash

Post by Babywawa » Wed Jul 25, 2018 12:11 am

First time posting here. Thanks for the pages of amazing advice over the years!

Here is my situation.

Wife and I are 30.
Have 5MM NW in trusts, IRAs, 401ks, cash.

We make $160k combined right now. Wife's career will never earn her too much money but sky is the limit for me. 2-300k should be no problem within the next 10 years of working.

We are still both young in our careers. Living in very high property tax county on the coast.

Have been house hunting for 2 years but just haven't been able to pull the trigger on anything, until this weekend.

Found a house that literally checks all of our boxes and then some. It's a bargain at $170 per square ft, which is about half the average here. There are reasons for this that we are ok with. Perfectly livable as is but will need work over the years. Nothing immediately.

High taxes (no way around this here) and upkeep of big house, plus a mortgage makes this a tough buy at current cash flow. But we agree this is the house we see ourselves in for 30 to 40 years and raising our family in.

Without a mortgage this house would be no problem financially to upkeep and pay taxes and normal CC bills.

We are told sellers are motivated and would sell for 50k under listing for 650k. Maybe even less for all cash offer. In fact the owner called my agent directly to say she will play ball and agent now believe house can be had for even less. We have the cash assets to buy this right now if we choose.

I know the opportunity cost of the money we would be shelling out for this. It's definitely a nice amount of money (theoretically) if we kept it in the market till retirement age (~30 years from now). But that's just a number and doesn't account for living life mortgage free, being able to fully fund 401ks and beyond, etc.

Vanguards Outlook on the market over the next decade is to expect tempered returns, to the point our advisor said as low as 5%, which is right around the mortgage rate. He knows our financial situation and said we should go for it, that we still have plenty left that can grow over the next 30 years.

Obviously we want this place but we don't want to be idiots about it either. I'm looking and hoping to get an opinion based on our situation. I know we are very fortunate to be in our position and the last thing we want to do is destroy that for the now. We are still trying to find the right balance between living and enjoying today but having an eye always looking towards retirement. We both work very hard and have rarely touched our assets so far in life. Paid for one vacation and that's been it. We live on our income 99.9% of the time.

Would love to hear the communities thoughts and experiences with cash purchases.

Thanks!

riverguy
Posts: 496
Joined: Sun May 23, 2010 10:33 pm

Re: Buying house with cash

Post by riverguy » Wed Jul 25, 2018 5:54 am

Got 5mm at age 30. It’s 10% of your net worth, why is it even a question? You have to live somewhere.

TwstdSista
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Re: Buying house with cash

Post by TwstdSista » Wed Jul 25, 2018 7:09 am

^ Agreed. I would buy the house for cash.

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vineviz
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Re: Buying house with cash

Post by vineviz » Wed Jul 25, 2018 7:18 am

riverguy wrote:
Wed Jul 25, 2018 5:54 am
Got 5mm at age 30. It’s 10% of your net worth, why is it even a question? You have to live somewhere.
Yep. As long as you have enough cash to buy AND repair the house, I’d go for it. You can always “refinance” later if things change.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Frisco Kid
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Location: San Francisco Peninsula

Re: Buying house with cash

Post by Frisco Kid » Wed Jul 25, 2018 7:32 am

Affordability is a non issue if this house is the one buy it for cash and don't look back. My question is why is this house available at such a bargain? Clearly many others have chosen to pass on it and seller is beyond highly motivated to sell. Do your homework and proceed carefully so you don't end up purchasing a money pit.

Edward Joseph
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Re: Buying house with cash

Post by Edward Joseph » Wed Jul 25, 2018 7:34 am

Your situation couldn't be more ideal. (Based on the information you gave.) Pull the trigger with cash, no questions asked.

phisher4
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Re: Buying house with cash

Post by phisher4 » Wed Jul 25, 2018 7:52 am

The only question you should ask yourself: "Would I borrow an additional 600K in order to invest it?"

Because that's exactly what you're doing by taking a mortgage rather than paying cash.

The intellectual, dispassionate investor may say YES. But I suspect most folks (including myself) would say NO. As a mortgage-less individual who went through the same calculus, I have no regrets.

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JoeRetire
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Re: Buying house with cash

Post by JoeRetire » Wed Jul 25, 2018 7:59 am

Babywawa wrote:
Wed Jul 25, 2018 12:11 am
We have the cash assets to buy this right now if we choose.

It's definitely a nice amount of money (theoretically) if we kept it in the market till retirement age (~30 years from now). But that's just a number and doesn't account for living life mortgage free, being able to fully fund 401ks and beyond, etc.
It's not clear what you mean by "that's just a number".
With that kind of cash on hand, it's hard to believe you wouldn't be able to fully fund 401ks easily.

If "living mortgage free" is an important thing to you, then that's not a number at all - it's a just feeling you believe you want to have.

So you need to decide how important being mortgage free is to you.

If it's extremely important, then put the cash into the walls of your house. If it's not extremely important, then get a mortgage - you can always pay it off at a later date if you decide the market returns on your portfolio justify doing that.
Don't be a lemming.

Funancials
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Joined: Sat Feb 17, 2018 2:09 pm

Re: Buying house with cash

Post by Funancials » Wed Jul 25, 2018 8:09 am

My wife and I (age 32) just paid cash for our forever home and have no regrets. Take whatever your mortgage payment would’ve been and invest that monthly.

You could also have the trust buy the house.
Last edited by Funancials on Wed Jul 25, 2018 8:17 am, edited 1 time in total.

TexMexIndex
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Re: Buying house with cash

Post by TexMexIndex » Wed Jul 25, 2018 8:15 am

Check if built on a Native American burial ground. Trust me on this.

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FlyAF
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Re: Buying house with cash

Post by FlyAF » Wed Jul 25, 2018 8:15 am

You can't afford this house, you should keep renting a cardboard box. 5 million is just a start for your future.

What a dumb thread.

Jack FFR1846
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Re: Buying house with cash

Post by Jack FFR1846 » Wed Jul 25, 2018 8:16 am

At near 10% of your net worth, this would be a reasonable price to pay for a car for most people, let alone a house. Buy it and enjoy.
Bogle: Smart Beta is stupid

newenglandpat
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Re: Buying house with cash

Post by newenglandpat » Wed Jul 25, 2018 5:39 pm

you obviously can afford this house. 1 caveat; if either of you loses their job do you have a big enough emergency fund (separate and outside of whatever your investments are in) to cover your day to day for at least 6 months? Also, you mention an advisor. Please tell us that this isn't an Edward Jones or Raymond James situation. With your wealth at your age that would be quite the transfer of wealth from you to the advisor over the years!!

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