buy a house in cash or not?

[KaneKungFu123]

are there any situations where it is a good to pay cash for a house or is it always a bad idea?

[Peter666]

I think as a general rule it is always better to buy something with cash unless you can get better interest on investing the cash and using it as collateral for a lower interest loan.

[jdoe]

Make sure you compare apples to apples. If you borrow money (on a house) the interest is tax deductable. Calculate that money back (out of) into the interest rate and see if you could get a better return in another "investment"

If you paid cash for your house now and you decided to take some money out later it would be really easy and cheap to get at it.

Its possible to lose money in the stock market. In fact it happens to lots of people all the time.

Jdoe

[KaneKungFu123]

[ QUOTE ]
Make sure you compare apples to apples. If you borrow money (on a house) the interest is tax deductable. Calculate that money back (out of) into the interest rate and see if you could get a better return in another "investment"

If you paid cash for your house now and you decided to take some money out later it would be really easy and cheap to get at it.

Its possible to lose money in the stock market. In fact it happens to lots of people all the time.

Jdoe

[/ QUOTE ]

is the entire interest deductible?

[squiffy]

Always . . . Very few things are always true. Or always the best option.

If you are in a serious accident and become permanently disabled, it would be nice to have your house paid off. So you would not have to worry about paying your mortgage, if you are unable to work. So having the house paid off guarantees you have a place to live, even if you lose your job or become disabled.

If you are close to retirement and want to guarantee that you have a place to live, even if inflation erodes your pension payments or retirement savings, then it would be nice to have paid off your house in cash.

If you are sued in court for negligence or some kind of tortious act which has harmed someone, in some states, if your house is a homestead, you cannot be forced to sell it. And the plaintiff might not be able to get your money, if it is all tied up in your house. So in that situation, it might be good to have paid cash for the house.

But in general, if you can borrow money at a very low interest rate, and if you can invest the difference in the stock market and earn a higher return, then why not.

Or, you could use the money to buy even more land.

If you spend 200K cash to buy a 200K home, you will have one home. And if it goes up in value 20% in one year, you now have a home worth 240K. So you have 200K of your cash, plus 40K in equity on paper.

If you only put say 20% down on a 1 million dollar home, and you borrow 800 million at 6% interest. And the home goes up in value 20%. Then you have a home worth 1.2 million. You put 200K into it, you owe 800K at 6% interest, and you have 200K in equity.

If instead of paying 200K cash for 1 home, you put 20% down on 5 separate homes at 200K each, same analysis. You put 40K down on each home. And you borrow 160K for each home.

If you pay 200K for the 200K home, you have safety and security. You don't have to make mortgage payments. So it's unlikely you will lose the home even if you are disabled or lose your job.

If you buy the 1 million home or the 5 200K homes, you are using leverage. You put some money down and the bank loans you the rest. You have higher risk and higher potential reward.

If you lose your job or are disabled, you might be unable to pay the mortgage, and might be forced to sell the home(s) at a loss, if the market is down at that time.

If the market keeps going up like crazy, it doesn't matter too much if you lose your job and cannot pay the mortgages, because you could sell one of the properties to help pay off the other mortgages (if you have multiple homes).

[KaneKungFu123]

the future of online poker is uncertain and that is where i make my bread. i dont know anything about any other business.

Lets say for example that i had 1,000,000

I want to buy a house for 350,000.

using these examples, would your analysis become easier?

also assume that my ability to make money in the future is very shaky and im 19 years old.

the problem is that if the market was to completely crash, i could end up completely broke and not even have a house to live in. if i own a house, then i could go broke, but who cares ill have a home (in a third world country) and my expenses will be minimal and i can always do something to make a little bit of money.

[midas]

What country?

[KaneKungFu123]

[ QUOTE ]
What country?

[/ QUOTE ]

thailand.

[Peter666]

One may also take a tax deduction for the interest paid on a loan for investing purposes (not just a mortgage)

True, one can lose money in the stock market, but the same applies to real estate. On the whole, the stock market has been a far superior investment compared to the appreciation of real estate (plus all the work involved in maintaining a property).

[KaneKungFu123]

[ QUOTE ]
I don't see how a property that you live in is considered a real investment until you sell the property, take the cash and buy something cheaper to live in, thereby having a net gain.

Without positive cash flow (and the property you live in usually generates negative cash flow) you are not invested! Banks encouraging people to take out large mortgages because their home is an investment is the biggest lie in financial planning! You are making bankers extraordinarily rich by doing so.

[/ QUOTE ]

[midas]

Kane - interesting question being that it is in Thailand. Based on previous posts that you have written, a tax deduction may not be of value plus I'm not sure if foreign mortgage interest is even tax deductable. The issue is can you even get a mortgage in Thailand at good rates and terms like the U.S.? I think your main question is buying vs. renting. If you are going to buy an oceanfront place or a high-end condo in Bangkok/Phuket that will appreciate you may want to buy. On the other hand if your house gets wiped out by a fire or Tsunami - can you get good insurance?Renting allows you to walk away but may cost you more in the long run.

[greg nice]

[ QUOTE ]
On the other hand if your house gets wiped out by a fire or Tsunami - can you get good insurance?

[/ QUOTE ]

after fire/tsunami/hurricane/earthquake/volcano insurance is it even worth it?

[squiffy]

Often, with economic choices, as with general lifestyle and career choices, there is not necessarily a correct answer, only a range of possible choices, which are very hard to properly evaluate or quantify.

So it becomes a question of personal preference and philosophy.

Even after you do the math, or quantitative analysis, the ultimate choice is often substantially qualitative, meaning which do you prefer.

The balance between risk and reward is a personal one. Even if you assume $1 million dollars in the bank, there is no CORRECT choice. If you want more safety, less risk, less potential profit, you pay cash and never have to worry about mortgage payments.

If you want to invest the money and leverage your investment in real estate, you can put some money down and invest the difference or use it to buy even more land.

Sometimes the choices are like asking whether it is BETTER to each chocolate ice cream, vanilla, or strawberry. Sometimes people spend needless hours analyzing this choice. BUt often, it doesn't matter much which you choose. They are all sweet and taste good. So pick the one you feel like eating at that time.

If you want more money, faster, you will take more risk. (Some people like skydiving or alligator wrestling or rock climbing without safety ropes, others like watching tv and knitting or playing scrabble.) One way to spend your time is not BETTER than any other. It depends on which you prefer to do and which you enjoy.

Some people will go for maximum leverage and try to turn their $1 million into $10 million. Others will say $1 million is plenty, why gamble at all?

So you have to ask yourself what is wealthy? How much do I need to be wealthy? And is my goal wealth, or happiness? Is wealth a tool or component of happiness? Or is wealth and ceaseless work the goal?

If I have $100 million in the bank, will I keep going to work, is it fun? Or will I travel, study languages, visit friends, learn new hobbies, and not work another day in my life.

No correct answers. Only personal choices that make you comfortable and happy, or stressed and worried.

[KaneKungFu123]

good post, thanks.