Should You Buy Your Next House in Cash?

June 1, 2018 by Michael Brown

Fan of dollar bills
Buying a home and taking out a mortgage have essentially become synonymous over the years. Almost everyone takes out a loan to purchase a house, but that doesn’t mean you have to.

It’s a wonderful feeling to be able to buy a house with cash, and, regardless of your income, you might actually be able to do this in the future.

The Benefits of Buying in Cash

The fact that buying a house in one clean transaction sounds crazy says more about how the American culture and economy have changed over the years than anything else. In the past, paying cash for a house wasn’t that unusual.

Plenty of people did it and were better off financially better as a result. Why would you pay for a house in cash, you may ask. There are a number of attractive benefits, including: 

  • No need for mortgage. For starters, paying in cash means you don’t have to obtain a mortgage. And that means you don’t have to go through the arduous and stressful process of applying for one, supplying the documentation, filling out applications, and dealing with the stringent requirements dictated by lenders.
  • More attractive offer. Sellers love working with buyers who are prepared to pay cash. When a buyer presents a cash offer, it shows that he or she is eager and significantly reduces the chance that the deal will collapse before closing. 
  • Opportunity for better deal. When you can present an offer in cash, you have greater room to negotiate a better deal. This can result in a lower purchase offer, quicker closing, and fewer contingencies.
  • No risk of foreclosure. When you purchase a home in cash, you own the house outright. That means you never have to worry about making monthly payments to a lender. And if you don’t have to make monthly payments, it also means you can’t fall behind and ultimately lose the house. The house is yours; foreclosure isn’t a threat.
  • Greater sense of ownership. From a mental perspective, buying a house in cash makes a person feel a greater sense of ownership over the property. This can change the way you regard it, and often generates greater pride. 

These are just some of the benefits that come out of purchasing a home with cash. But there are in fact dozens of other advantages that come with circumventing the home-loan process and buying in cash.

Four Tips to Help You Pay Cash 

Buying with cash sounds great, but how can one actually make it happen? Most of us don’t have hundreds of thousands of dollars lying around, and waiting to be poured into real estate.

But in fact, anyone who earns a moderate or above-average income can buy a house in cash eventually. The key is to develop a plan and leverage some of the following tips.

  1. Start Saving Now

The key to buying a house in cash is to save over a period of time. It’s not something you’ll accomplish in one year; it might take three, five, or ten years to reach your goal, but you should be able to do it eventually.

Does this sound unrealistic? Consider an example scenario to help you see it.

Dan and Katie are married and both work full-time. Dan makes $50,000 per year and Katie makes $60,000. They decide to try to live off Dan’s salary and save Katie’s. This will enable them to put away roughly $3,750 per month in savings.

Here’s how that can add up over time:

  • 1 Year: $45,000
  • 3 Years: $135,000
  • 5 Years: $225,000
  • 7 Years: $315,000
  • 10 Years: $450,000

These numbers assume Dan and Katie would just toss the money under the bed. But if they put it into any sort of interest-bearing investment vehicle, they could generate substantially more.

The lesson of this illustration is you could do a lot if you start saving right away. Even if you’re able to put away only $1,500 a month, that would leave you with more than $125,000 in cash over seven years. You can do this!

  1. Work Your Way Up 

Not everyone will be able to save cash rapidly. Sometimes your best weapon for buying a house in cash is the current one you own.

Nobody is saying you have to buy your next house in cash. That may be two, three, or four houses down the line. The goal should be to sell each house you own at its peak.

In doing so, you can enlarge your equity over time and keep rolling it into a moderate house in a better neighborhood.

  1. Lower Your Expectations

However, you may need to lower your expectations if you hope to buy a house in cash. You might easily qualify for a mortgage on a $350,000 property, but perhaps you’ll have to live in a $150,000 house if you want to pay all cash. Resetting your expectations can unveil a new realm of possibilities.

  1. Expect to Make a Bunch of Offers 

Even when you think you’re ready to buy a house in cash, it’s still likely to take some time. If we assume you’re sticking to a strict budget, you may have to make dozens of offers before you finally find a seller who is willing to come down to your price.

Whether you’re paying in cash or going with a mortgage from the bank, patience is a virtue in the home-buying process. It’ll keep you grounded and prevent you from making emotional mistakes. 

Work With Green Residential

If you’re seeking to buy a home eventually in cash, every dollar matters. Unfortunately, every time you sell a home, you have to fork over thousands of dollars to real estate agents.

After two or three transactions, this can add up to be a pretty sizeable amount of money in itself. At Green Residential, we understand that people want to keep more of the money they make from the sale of a home.

That’s why we operate on a flat fee rate … instead of taking the typical three percent most Houston real estate agents require. On the sale of a $400,000 home, this could save you as much as $4,000.

For more information on how we can save you serious money, please contact us today!

Michael Brown

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