Thinking of home buying with all cash - need guidance

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cvsvm2007
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Joined: Thu May 02, 2019 3:26 pm

Thinking of home buying with all cash - need guidance

Post by cvsvm2007 » Thu May 02, 2019 3:34 pm

Friends,

I am thinking of buying a home with all cash. I went through some of the threads in this forum on this topic. I still have following questions, please can some of you who have gone through this in the past help?

1. Calculators : I could not find any calculator that helps to decide whether to rent or buy home. All calculators assume that you will go through a mortgage. Have you folks come across or used any calculators that excludes mortgage in rent versus buy decision?
2. Do I need an Agent? This is the first time I am buying a home. Can you folks share real life experience of going through an Agent versus buying direct. Trying to save some dollars here.

Thanks

HSVJ

runner540
Posts: 1078
Joined: Sun Feb 26, 2017 5:43 pm

Re: Thinking of home buying with all cash - need guidance

Post by runner540 » Thu May 02, 2019 4:05 pm

You can still use the calculators (NYT buy vs rent) you just set the down payment to 100%:
No interest or principal, but your opportunity cost on the capital tied up in the house is higher.

In my analysis, my rent is almost equal to insurance, taxes, and maintenance if I bought a similar property, so why would I tie up the capital? Only if I were buying for lifestyle reasons.

Quirkz
Posts: 227
Joined: Mon Jan 14, 2019 5:32 pm

Re: Thinking of home buying with all cash - need guidance

Post by Quirkz » Thu May 02, 2019 4:30 pm

cvsvm2007 wrote:
Thu May 02, 2019 3:34 pm

2. Do I need an Agent? This is the first time I am buying a home. Can you folks share real life experience of going through an Agent versus buying direct. Trying to save some dollars here.
As the buyer, you don't pay the agent. They'll split the commission with the seller's agent, but it comes out of the seller's proceeds. I've heard some people argue if you don't have an agent you might be able to negotiate a few percent off instead, but I'm not sure how realistic that is.

I have only bought with an agent. They were my main point of contact and facilitated a lot of paperwork and negotiations, so it seemed valuable to me at the time. I do not know what the experience might have been like without them, though.

bhough
Posts: 79
Joined: Wed Feb 15, 2017 6:53 pm

Re: Thinking of home buying with all cash - need guidance

Post by bhough » Thu May 02, 2019 5:15 pm

One non-obvious reason to get a loan is that the bank's loan department vets the property and makes sure you aren't doing anything dumb (like buying a house in a flood zone, or with a horrible foundation, or paying more than what it is worth). It is like having a partner check your work. Ditto the real estate agent. It seems irritating to have to give the bank a bunch of documents and jump through hoops, but realize that as they are protecting themselves, they are also protecting you.

If you don't want a mortgage after you close, just pay the bank off. Most places get paid the origination fee and then sell on the secondary market anyway, as long as it is a conforming loan. You may argue that you want to avoid the origination fee and will do all the due diligence on your own, but I promise you that you won't. It is worth the origination fee and bank fees to have an irritating fact checker looking over your shoulder.

just my 2 cents.

runner540
Posts: 1078
Joined: Sun Feb 26, 2017 5:43 pm

Re: Thinking of home buying with all cash - need guidance

Post by runner540 » Thu May 02, 2019 6:01 pm

bhough wrote:
Thu May 02, 2019 5:15 pm
One non-obvious reason to get a loan is that the bank's loan department vets the property and makes sure you aren't doing anything dumb (like buying a house in a flood zone, or with a horrible foundation, or paying more than what it is worth). It is like having a partner check your work. Ditto the real estate agent. It seems irritating to have to give the bank a bunch of documents and jump through hoops, but realize that as they are protecting themselves, they are also protecting you.

If you don't want a mortgage after you close, just pay the bank off. Most places get paid the origination fee and then sell on the secondary market anyway, as long as it is a conforming loan. You may argue that you want to avoid the origination fee and will do all the due diligence on your own, but I promise you that you won't. It is worth the origination fee and bank fees to have an irritating fact checker looking over your shoulder.

just my 2 cents.
I'm sorry but this is not good advice. You can check flood zone, get an inspection and an appraisal on your own, without messing with mortgage fees and forms. The lender typically only cares about closing the loan to get origination fees.

Ybsybs
Posts: 533
Joined: Thu Aug 28, 2014 4:28 pm

Re: Thinking of home buying with all cash - need guidance

Post by Ybsybs » Thu May 02, 2019 6:08 pm

I don't think paying for a mortgage you don't need is necessary.

I do think getting home insurance and flood insurance (if you are shopping in an area zoned for that) is important. You could, as a buyer without a mortgage, choose not to insure your property, but unless your assets are very, very significant, it's not a good idea to self insure a house.

NYC_Guy
Posts: 304
Joined: Fri Mar 10, 2017 2:23 pm
Location: New York

Re: Thinking of home buying with all cash - need guidance

Post by NYC_Guy » Thu May 02, 2019 6:11 pm

runner540 wrote:
Thu May 02, 2019 6:01 pm
bhough wrote:
Thu May 02, 2019 5:15 pm
One non-obvious reason to get a loan is that the bank's loan department vets the property and makes sure you aren't doing anything dumb (like buying a house in a flood zone, or with a horrible foundation, or paying more than what it is worth). It is like having a partner check your work. Ditto the real estate agent. It seems irritating to have to give the bank a bunch of documents and jump through hoops, but realize that as they are protecting themselves, they are also protecting you.

If you don't want a mortgage after you close, just pay the bank off. Most places get paid the origination fee and then sell on the secondary market anyway, as long as it is a conforming loan. You may argue that you want to avoid the origination fee and will do all the due diligence on your own, but I promise you that you won't. It is worth the origination fee and bank fees to have an irritating fact checker looking over your shoulder.

just my 2 cents.
I'm sorry but this is not good advice. You can check flood zone, get an inspection and an appraisal on your own, without messing with mortgage fees and forms. The lender typically only cares about closing the loan to get origination fees.
The truth lies in the middle. I’ve bought and sold over 10 properties in seven states. I do the things just mentioned. I would posit that almost no first time buyer would.

runner540
Posts: 1078
Joined: Sun Feb 26, 2017 5:43 pm

Re: Thinking of home buying with all cash - need guidance

Post by runner540 » Thu May 02, 2019 6:25 pm

NYC_Guy wrote:
Thu May 02, 2019 6:11 pm
runner540 wrote:
Thu May 02, 2019 6:01 pm
bhough wrote:
Thu May 02, 2019 5:15 pm
One non-obvious reason to get a loan is that the bank's loan department vets the property and makes sure you aren't doing anything dumb (like buying a house in a flood zone, or with a horrible foundation, or paying more than what it is worth). It is like having a partner check your work. Ditto the real estate agent. It seems irritating to have to give the bank a bunch of documents and jump through hoops, but realize that as they are protecting themselves, they are also protecting you.

If you don't want a mortgage after you close, just pay the bank off. Most places get paid the origination fee and then sell on the secondary market anyway, as long as it is a conforming loan. You may argue that you want to avoid the origination fee and will do all the due diligence on your own, but I promise you that you won't. It is worth the origination fee and bank fees to have an irritating fact checker looking over your shoulder.

just my 2 cents.
I'm sorry but this is not good advice. You can check flood zone, get an inspection and an appraisal on your own, without messing with mortgage fees and forms. The lender typically only cares about closing the loan to get origination fees.
The truth lies in the middle. I’ve bought and sold over 10 properties in seven states. I do the things just mentioned. I would posit that almost no first time buyer would.
Adding title insurance to the list. I've never bought a home but I've researched it and know this. If someone buys a home with no due diligence, that's on them.

skeptical
Posts: 128
Joined: Fri Jul 18, 2014 12:24 pm

Re: Thinking of home buying with all cash - need guidance

Post by skeptical » Thu May 02, 2019 6:49 pm

If you are considering renting instead of buying because of financial considerations, I would rethink the idea of paying in cash. I would only pay in cash if what is left over makes you feel comfortable - either more than enough for retirement or enough that you are ahead of the game at your stage of life.

Couple of thoughts on the process itself:
- You should get an experienced and well respected agent.
- You should have an experience real estate attorney throughout the entire process.
- A good agent will help you get a better deal than on your own, it is unlikely you will get a better deal without one, unless you are experienced in real estate sales and negotiation.
- A good agent will know what kind of due diligence you will need
- You should do your own research on what due diligence you need to do.
- You should get a good inspector that has no relationship with the seller, if you can get away with it, get two inspectors and compare their results, though the seller will not like this.
- Paying cash gives you an advantage in a competitive market.
- Be very careful how you pay for this, it will probably be a wire transfer. There are known scams (not the seller, bank, or agents), but outsiders who can insert themselves into the payment process. Since there will be no lender involved, use the attorney for the payment process.

CoastalWinds
Posts: 580
Joined: Sat Apr 06, 2019 8:28 pm

Re: Thinking of home buying with all cash - need guidance

Post by CoastalWinds » Thu May 02, 2019 6:51 pm

runner540 wrote:
Thu May 02, 2019 4:05 pm
You can still use the calculators (NYT buy vs rent) you just set the down payment to 100%:
No interest or principal, but your opportunity cost on the capital tied up in the house is higher.

In my analysis, my rent is almost equal to insurance, taxes, and maintenance if I bought a similar property, so why would I tie up the capital? Only if I were buying for lifestyle reasons.
+1. I learned this the hard way. The allure of homeownership is strong, but is not necessarily the best choice financially.

mchampse
Posts: 267
Joined: Mon Feb 26, 2007 1:45 am

Re: Thinking of home buying with all cash - need guidance

Post by mchampse » Thu May 02, 2019 7:26 pm

runner540 wrote:
Thu May 02, 2019 4:05 pm
You can still use the calculators (NYT buy vs rent) you just set the down payment to 100%:
No interest or principal, but your opportunity cost on the capital tied up in the house is higher.

In my analysis, my rent is almost equal to insurance, taxes, and maintenance if I bought a similar property, so why would I tie up the capital? Only if I were buying for lifestyle reasons.
1)Depending on your tax situation, you may be able to deduct interest payments and property taxes.

2)Your mortgage payment will always stay the same. Your rent payment is likely to go up. Insurance, property taxes will still go up, but mortgage is usually the lions share of your housing payment.

3)When you sell, you can claim a $250k/$500k capital gains exemption.

4)Your money is in a (generally) appreciating asset which has the benefit of leverage. Let’s say you buy a $100,000 house and put 20% down. The home appreciates to $120,000 in 5 years. What is the return on your investment? 20%? Wrong. It’s 100%. You only put $20,000 into the property and then the same as your rent to stay in it and possibly got money back from the government in the process.

Now in fairness, there are closing costs, realtor commissions, etc. You also don’t have to worry about the roof leaking if you are a tenant. It’s also a lot easier to move if you don’t have to sell and buy a home in between. And leverage works both ways, a 20% reduction in the price of your home means you’ve lost 100% of your initial investment. Though if you keep living in the house and making your payments, what does it matter that the house lost value? You only lose when you sell. Of course, you may be in a position that you have to move and are forced to sell, though there is always the option of renting the place out...though that comes with its own set of hassles.

runner540
Posts: 1078
Joined: Sun Feb 26, 2017 5:43 pm

Re: Thinking of home buying with all cash - need guidance

Post by runner540 » Thu May 02, 2019 7:51 pm

mchampse wrote:
Thu May 02, 2019 7:26 pm
runner540 wrote:
Thu May 02, 2019 4:05 pm
You can still use the calculators (NYT buy vs rent) you just set the down payment to 100%:
No interest or principal, but your opportunity cost on the capital tied up in the house is higher.

In my analysis, my rent is almost equal to insurance, taxes, and maintenance if I bought a similar property, so why would I tie up the capital? Only if I were buying for lifestyle reasons.
1)Depending on your tax situation, you may be able to deduct interest payments and property taxes.

2)Your mortgage payment will always stay the same. Your rent payment is likely to go up. Insurance, property taxes will still go up, but mortgage is usually the lions share of your housing payment.

3)When you sell, you can claim a $250k/$500k capital gains exemption.

4)Your money is in a (generally) appreciating asset which has the benefit of leverage. Let’s say you buy a $100,000 house and put 20% down. The home appreciates to $120,000 in 5 years. What is the return on your investment? 20%? Wrong. It’s 100%. You only put $20,000 into the property and then the same as your rent to stay in it and possibly got money back from the government in the process.

Now in fairness, there are closing costs, realtor commissions, etc. You also don’t have to worry about the roof leaking if you are a tenant. It’s also a lot easier to move if you don’t have to sell and buy a home in between. And leverage works both ways, a 20% reduction in the price of your home means you’ve lost 100% of your initial investment. Though if you keep living in the house and making your payments, what does it matter that the house lost value? You only lose when you sell. Of course, you may be in a position that you have to move and are forced to sell, though there is always the option of renting the place out...though that comes with its own set of hassles.
I appreciate your input. Believe me, I am aware of all these points and considered them in my analysis. Taxes, insurance and maintenance also go up with inflation, and in my case are almost equal to rent, before p&i.

mchampse
Posts: 267
Joined: Mon Feb 26, 2007 1:45 am

Re: Thinking of home buying with all cash - need guidance

Post by mchampse » Thu May 02, 2019 10:38 pm

runner540 wrote:
Thu May 02, 2019 7:51 pm
mchampse wrote:
Thu May 02, 2019 7:26 pm
runner540 wrote:
Thu May 02, 2019 4:05 pm
You can still use the calculators (NYT buy vs rent) you just set the down payment to 100%:
No interest or principal, but your opportunity cost on the capital tied up in the house is higher.

In my analysis, my rent is almost equal to insurance, taxes, and maintenance if I bought a similar property, so why would I tie up the capital? Only if I were buying for lifestyle reasons.
1)Depending on your tax situation, you may be able to deduct interest payments and property taxes.

2)Your mortgage payment will always stay the same. Your rent payment is likely to go up. Insurance, property taxes will still go up, but mortgage is usually the lions share of your housing payment.

3)When you sell, you can claim a $250k/$500k capital gains exemption.

4)Your money is in a (generally) appreciating asset which has the benefit of leverage. Let’s say you buy a $100,000 house and put 20% down. The home appreciates to $120,000 in 5 years. What is the return on your investment? 20%? Wrong. It’s 100%. You only put $20,000 into the property and then the same as your rent to stay in it and possibly got money back from the government in the process.

Now in fairness, there are closing costs, realtor commissions, etc. You also don’t have to worry about the roof leaking if you are a tenant. It’s also a lot easier to move if you don’t have to sell and buy a home in between. And leverage works both ways, a 20% reduction in the price of your home means you’ve lost 100% of your initial investment. Though if you keep living in the house and making your payments, what does it matter that the house lost value? You only lose when you sell. Of course, you may be in a position that you have to move and are forced to sell, though there is always the option of renting the place out...though that comes with its own set of hassles.
I appreciate your input. Believe me, I am aware of all these points and considered them in my analysis. Taxes, insurance and maintenance also go up with inflation, and in my case are almost equal to rent, before p&i.
I misread your initial post. I somehow interpreted it as rent = mortgage payment + other housings expenses, when in reality it’s rent = other housing expenses. That would be a tough slog.

FWIW, I bought my home about 15 years ago and it was a big jump from my rent payment. (It’s probably around your situation of my rent was all of my non-mortgage expense). Ended up being the best thing I’ve ever done.

My home is worth probably 3x what I paid for it. I actually don’t live there anymore, but rents rose to a point where it’s 2x my housing payment. Though this is in the Bay Area in a neighborhood that went from ok to Mark Zuckerburg lives a few blocks away and there were a couple of other things that I won’t get into that goosed my return.

runner540
Posts: 1078
Joined: Sun Feb 26, 2017 5:43 pm

Re: Thinking of home buying with all cash - need guidance

Post by runner540 » Fri May 03, 2019 8:30 am

mchampse wrote:
Thu May 02, 2019 10:38 pm
runner540 wrote:
Thu May 02, 2019 7:51 pm
mchampse wrote:
Thu May 02, 2019 7:26 pm
runner540 wrote:
Thu May 02, 2019 4:05 pm
You can still use the calculators (NYT buy vs rent) you just set the down payment to 100%:
No interest or principal, but your opportunity cost on the capital tied up in the house is higher.

In my analysis, my rent is almost equal to insurance, taxes, and maintenance if I bought a similar property, so why would I tie up the capital? Only if I were buying for lifestyle reasons.
1)Depending on your tax situation, you may be able to deduct interest payments and property taxes.

2)Your mortgage payment will always stay the same. Your rent payment is likely to go up. Insurance, property taxes will still go up, but mortgage is usually the lions share of your housing payment.

3)When you sell, you can claim a $250k/$500k capital gains exemption.

4)Your money is in a (generally) appreciating asset which has the benefit of leverage. Let’s say you buy a $100,000 house and put 20% down. The home appreciates to $120,000 in 5 years. What is the return on your investment? 20%? Wrong. It’s 100%. You only put $20,000 into the property and then the same as your rent to stay in it and possibly got money back from the government in the process.

Now in fairness, there are closing costs, realtor commissions, etc. You also don’t have to worry about the roof leaking if you are a tenant. It’s also a lot easier to move if you don’t have to sell and buy a home in between. And leverage works both ways, a 20% reduction in the price of your home means you’ve lost 100% of your initial investment. Though if you keep living in the house and making your payments, what does it matter that the house lost value? You only lose when you sell. Of course, you may be in a position that you have to move and are forced to sell, though there is always the option of renting the place out...though that comes with its own set of hassles.
I appreciate your input. Believe me, I am aware of all these points and considered them in my analysis. Taxes, insurance and maintenance also go up with inflation, and in my case are almost equal to rent, before p&i.
I misread your initial post. I somehow interpreted it as rent = mortgage payment + other housings expenses, when in reality it’s rent = other housing expenses. That would be a tough slog.

FWIW, I bought my home about 15 years ago and it was a big jump from my rent payment. (It’s probably around your situation of my rent was all of my non-mortgage expense). Ended up being the best thing I’ve ever done.

My home is worth probably 3x what I paid for it. I actually don’t live there anymore, but rents rose to a point where it’s 2x my housing payment. Though this is in the Bay Area in a neighborhood that went from ok to Mark Zuckerburg lives a few blocks away and there were a couple of other things that I won’t get into that goosed my return.
This is actually a great example to talk about for OP: 15 year hold period in one of the hottest RE markets, with some special additional appreciation factors, and the house value went up 200%. In the last 15 years, even with the Great Recession, the S&P 500 went up 243% with dividends reinvested.

mchampse
Posts: 267
Joined: Mon Feb 26, 2007 1:45 am

Re: Thinking of home buying with all cash - need guidance

Post by mchampse » Fri May 03, 2019 9:21 am

runner540 wrote:
Fri May 03, 2019 8:30 am
mchampse wrote:
Thu May 02, 2019 10:38 pm
runner540 wrote:
Thu May 02, 2019 7:51 pm
mchampse wrote:
Thu May 02, 2019 7:26 pm
runner540 wrote:
Thu May 02, 2019 4:05 pm
You can still use the calculators (NYT buy vs rent) you just set the down payment to 100%:
No interest or principal, but your opportunity cost on the capital tied up in the house is higher.

In my analysis, my rent is almost equal to insurance, taxes, and maintenance if I bought a similar property, so why would I tie up the capital? Only if I were buying for lifestyle reasons.
1)Depending on your tax situation, you may be able to deduct interest payments and property taxes.

2)Your mortgage payment will always stay the same. Your rent payment is likely to go up. Insurance, property taxes will still go up, but mortgage is usually the lions share of your housing payment.

3)When you sell, you can claim a $250k/$500k capital gains exemption.

4)Your money is in a (generally) appreciating asset which has the benefit of leverage. Let’s say you buy a $100,000 house and put 20% down. The home appreciates to $120,000 in 5 years. What is the return on your investment? 20%? Wrong. It’s 100%. You only put $20,000 into the property and then the same as your rent to stay in it and possibly got money back from the government in the process.

Now in fairness, there are closing costs, realtor commissions, etc. You also don’t have to worry about the roof leaking if you are a tenant. It’s also a lot easier to move if you don’t have to sell and buy a home in between. And leverage works both ways, a 20% reduction in the price of your home means you’ve lost 100% of your initial investment. Though if you keep living in the house and making your payments, what does it matter that the house lost value? You only lose when you sell. Of course, you may be in a position that you have to move and are forced to sell, though there is always the option of renting the place out...though that comes with its own set of hassles.
I appreciate your input. Believe me, I am aware of all these points and considered them in my analysis. Taxes, insurance and maintenance also go up with inflation, and in my case are almost equal to rent, before p&i.
I misread your initial post. I somehow interpreted it as rent = mortgage payment + other housings expenses, when in reality it’s rent = other housing expenses. That would be a tough slog.

FWIW, I bought my home about 15 years ago and it was a big jump from my rent payment. (It’s probably around your situation of my rent was all of my non-mortgage expense). Ended up being the best thing I’ve ever done.

My home is worth probably 3x what I paid for it. I actually don’t live there anymore, but rents rose to a point where it’s 2x my housing payment. Though this is in the Bay Area in a neighborhood that went from ok to Mark Zuckerburg lives a few blocks away and there were a couple of other things that I won’t get into that goosed my return.
This is actually a great example to talk about for OP: 15 year hold period in one of the hottest RE markets, with some special additional appreciation factors, and the house value went up 200%. In the last 15 years, even with the Great Recession, the S&P 500 went up 243% with dividends reinvested.
It went up 3x from my purchase price. However, it went up 15x from my down payment (ie my actual investment in the house). Not sure how to account for the large bump in payments between rent and housing costs when I first bought or how to account for now rental income on the house being double the housing payments now, but perhaps it’s a wash. There was also maintenance along the way. Nothing major, but YMMV.

The OP would save rent though would have to pay taxes, insurance, etc. If those all added up to their rent, it could make sense to forgo, though if that represents a savings it starts to make sense.

The other thing to consider in your calculation is that the gain on your home is tax free up to $250k/$500k while S&P held outside of a retirement account is not.

runner540
Posts: 1078
Joined: Sun Feb 26, 2017 5:43 pm

Re: Thinking of home buying with all cash - need guidance

Post by runner540 » Fri May 03, 2019 10:08 am

mchampse wrote:
Fri May 03, 2019 9:21 am
runner540 wrote:
Fri May 03, 2019 8:30 am
mchampse wrote:
Thu May 02, 2019 10:38 pm
runner540 wrote:
Thu May 02, 2019 7:51 pm
mchampse wrote:
Thu May 02, 2019 7:26 pm


1)Depending on your tax situation, you may be able to deduct interest payments and property taxes.

2)Your mortgage payment will always stay the same. Your rent payment is likely to go up. Insurance, property taxes will still go up, but mortgage is usually the lions share of your housing payment.

3)When you sell, you can claim a $250k/$500k capital gains exemption.

4)Your money is in a (generally) appreciating asset which has the benefit of leverage. Let’s say you buy a $100,000 house and put 20% down. The home appreciates to $120,000 in 5 years. What is the return on your investment? 20%? Wrong. It’s 100%. You only put $20,000 into the property and then the same as your rent to stay in it and possibly got money back from the government in the process.

Now in fairness, there are closing costs, realtor commissions, etc. You also don’t have to worry about the roof leaking if you are a tenant. It’s also a lot easier to move if you don’t have to sell and buy a home in between. And leverage works both ways, a 20% reduction in the price of your home means you’ve lost 100% of your initial investment. Though if you keep living in the house and making your payments, what does it matter that the house lost value? You only lose when you sell. Of course, you may be in a position that you have to move and are forced to sell, though there is always the option of renting the place out...though that comes with its own set of hassles.
I appreciate your input. Believe me, I am aware of all these points and considered them in my analysis. Taxes, insurance and maintenance also go up with inflation, and in my case are almost equal to rent, before p&i.
I misread your initial post. I somehow interpreted it as rent = mortgage payment + other housings expenses, when in reality it’s rent = other housing expenses. That would be a tough slog.

FWIW, I bought my home about 15 years ago and it was a big jump from my rent payment. (It’s probably around your situation of my rent was all of my non-mortgage expense). Ended up being the best thing I’ve ever done.

My home is worth probably 3x what I paid for it. I actually don’t live there anymore, but rents rose to a point where it’s 2x my housing payment. Though this is in the Bay Area in a neighborhood that went from ok to Mark Zuckerburg lives a few blocks away and there were a couple of other things that I won’t get into that goosed my return.
This is actually a great example to talk about for OP: 15 year hold period in one of the hottest RE markets, with some special additional appreciation factors, and the house value went up 200%. In the last 15 years, even with the Great Recession, the S&P 500 went up 243% with dividends reinvested.
It went up 3x from my purchase price. However, it went up 15x from my down payment (ie my actual investment in the house). Not sure how to account for the large bump in payments between rent and housing costs when I first bought or how to account for now rental income on the house being double the housing payments now, but perhaps it’s a wash. There was also maintenance along the way. Nothing major, but YMMV.

The OP would save rent though would have to pay taxes, insurance, etc. If those all added up to their rent, it could make sense to forgo, though if that represents a savings it starts to make sense.

The other thing to consider in your calculation is that the gain on your home is tax free up to $250k/$500k while S&P held outside of a retirement account is not.
Of course, all good points but the OP is not planning to use leverage. And you were in one of the most rapidly appreciating markets, so OP needs to evaluate whether they think their market will perform as well.

If yoir house is worth 3x what you paid, it's value increased 200%. If you paid $500k and now it's $1.5 million, that's 200%.

michaeljc70
Posts: 5828
Joined: Thu Oct 15, 2015 3:53 pm

Re: Thinking of home buying with all cash - need guidance

Post by michaeljc70 » Sat May 04, 2019 9:21 am

runner540 wrote:
Thu May 02, 2019 7:51 pm
mchampse wrote:
Thu May 02, 2019 7:26 pm
runner540 wrote:
Thu May 02, 2019 4:05 pm
You can still use the calculators (NYT buy vs rent) you just set the down payment to 100%:
No interest or principal, but your opportunity cost on the capital tied up in the house is higher.

In my analysis, my rent is almost equal to insurance, taxes, and maintenance if I bought a similar property, so why would I tie up the capital? Only if I were buying for lifestyle reasons.
1)Depending on your tax situation, you may be able to deduct interest payments and property taxes.

2)Your mortgage payment will always stay the same. Your rent payment is likely to go up. Insurance, property taxes will still go up, but mortgage is usually the lions share of your housing payment.

3)When you sell, you can claim a $250k/$500k capital gains exemption.

4)Your money is in a (generally) appreciating asset which has the benefit of leverage. Let’s say you buy a $100,000 house and put 20% down. The home appreciates to $120,000 in 5 years. What is the return on your investment? 20%? Wrong. It’s 100%. You only put $20,000 into the property and then the same as your rent to stay in it and possibly got money back from the government in the process.

Now in fairness, there are closing costs, realtor commissions, etc. You also don’t have to worry about the roof leaking if you are a tenant. It’s also a lot easier to move if you don’t have to sell and buy a home in between. And leverage works both ways, a 20% reduction in the price of your home means you’ve lost 100% of your initial investment. Though if you keep living in the house and making your payments, what does it matter that the house lost value? You only lose when you sell. Of course, you may be in a position that you have to move and are forced to sell, though there is always the option of renting the place out...though that comes with its own set of hassles.
I appreciate your input. Believe me, I am aware of all these points and considered them in my analysis. Taxes, insurance and maintenance also go up with inflation, and in my case are almost equal to rent, before p&i.
The thing is, you cannot predict rent into the future. I've never heard of a 15 year residential lease. Of course property taxes and maintenance go up, but they are a smaller portion of home ownership.

malabargold
Posts: 582
Joined: Fri Aug 08, 2014 8:16 am

Re: Thinking of home buying with all cash - need guidance

Post by malabargold » Sat May 04, 2019 9:30 am

Quirkz wrote:
Thu May 02, 2019 4:30 pm
cvsvm2007 wrote:
Thu May 02, 2019 3:34 pm

2. Do I need an Agent? This is the first time I am buying a home. Can you folks share real life experience of going through an Agent versus buying direct. Trying to save some dollars here.
As the buyer, you don't pay the agent. They'll split the commission with the seller's agent, but it comes out of the seller's proceeds. I've heard some people argue if you don't have an agent you might be able to negotiate a few percent off instead, but I'm not sure how realistic that is.

I have only bought with an agent. They were my main point of contact and facilitated a lot of paperwork and negotiations, so it seemed valuable to me at the time. I do not know what the experience might have been like without them, though.
Respectfully disagree.
The buyer does indeed pay the agent
Buyer pays any and all agents - that is who the
cash is coming from

lotusflower
Posts: 258
Joined: Thu Oct 24, 2013 12:32 am

Re: Thinking of home buying with all cash - need guidance

Post by lotusflower » Sat May 04, 2019 10:46 am

malabargold wrote:
Sat May 04, 2019 9:30 am
Quirkz wrote:
Thu May 02, 2019 4:30 pm
cvsvm2007 wrote:
Thu May 02, 2019 3:34 pm

2. Do I need an Agent? This is the first time I am buying a home. Can you folks share real life experience of going through an Agent versus buying direct. Trying to save some dollars here.
As the buyer, you don't pay the agent. They'll split the commission with the seller's agent, but it comes out of the seller's proceeds. I've heard some people argue if you don't have an agent you might be able to negotiate a few percent off instead, but I'm not sure how realistic that is.

I have only bought with an agent. They were my main point of contact and facilitated a lot of paperwork and negotiations, so it seemed valuable to me at the time. I do not know what the experience might have been like without them, though.
Respectfully disagree.
The buyer does indeed pay the agent
Buyer pays any and all agents - that is who the
cash is coming from
Agree that the buyer is the source of funds, but you'd have to negotiate any reduction in the agents' commission with the seller and the seller's agent. Money talks so if you make it worth their while you might get something.

michaeljc70
Posts: 5828
Joined: Thu Oct 15, 2015 3:53 pm

Re: Thinking of home buying with all cash - need guidance

Post by michaeljc70 » Sat May 04, 2019 10:56 am

lotusflower wrote:
Sat May 04, 2019 10:46 am
malabargold wrote:
Sat May 04, 2019 9:30 am
Quirkz wrote:
Thu May 02, 2019 4:30 pm
cvsvm2007 wrote:
Thu May 02, 2019 3:34 pm

2. Do I need an Agent? This is the first time I am buying a home. Can you folks share real life experience of going through an Agent versus buying direct. Trying to save some dollars here.
As the buyer, you don't pay the agent. They'll split the commission with the seller's agent, but it comes out of the seller's proceeds. I've heard some people argue if you don't have an agent you might be able to negotiate a few percent off instead, but I'm not sure how realistic that is.

I have only bought with an agent. They were my main point of contact and facilitated a lot of paperwork and negotiations, so it seemed valuable to me at the time. I do not know what the experience might have been like without them, though.
Respectfully disagree.
The buyer does indeed pay the agent
Buyer pays any and all agents - that is who the
cash is coming from
Agree that the buyer is the source of funds, but you'd have to negotiate any reduction in the agents' commission with the seller and the seller's agent. Money talks so if you make it worth their while you might get something.
There are two assets here: the property and cash. Because the cash is coming from the buyer doesn't mean they are paying the commission. Once the property is turned over that cash belongs to the seller, not the buyer. Using this logic above would mean because the buyer has the cash they are paying everything associated with closing. Doesn't make sense to me. Besides that, the commission is almost certainly in the seller's contract with the agent stating they will pay it.

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