A questions that everyone who can afford purchasing a house for cash asks. We will discuss in this article the possibilities, so that we can help you decide what suites your situation better.
Questions to ask yourself:
1. Why are you buying the property- Buy to let, Buy to occupy, or Buy to sell out in a relatively short period of time. If you are an investor buying to let, it is healthy to allow your money go all the way being invested in income earning assets financing 50 to 60% of the property value allows you to spread your money while maintaining a safe percentage of equity in your asset. Buying to occupy works the same way if you treat the property as a business and lease the property out asif you are a tenant of yourself. While if buying to sell in a relatively short period, cash or other forms of finance may represent a cheaper option if available.
2. How old are you. (usually costs surrounding arranging a mortgage may pile us, and the longer the mortgage is for the more feasible it becomes to arrange for one. Most banks in some jurisdictions finance you up to the age of 65. Although mortgaging may help you purchase a property even if the mortgage is for 5 to 10 years you get the best of the mortgage the longer the period is)
3. What do you do in life. Are you a self-employed trader, a self-employed service provider, or an employee. If you are a self-employed trader it is advantageous to have your cash in your business as it earns multiples of what a mortgage would cost. While if you are a self-employed service provider or an employee it may be less advantageous to have the cash, so you will need to consider your plans post your purchase. Will you want to invest in other properties, do you have your finances in line with your future financial needs, do you have access money. All those considerations should be looked through for you to do an informed decision.
Things we should agree on:
1. Cash is so valuable. (if utilized in investments)
2. Cash loses buying power with time. Cash loses on average 3 to 8% to inflation on annual basis.
3. Every property is an investment even a property you live in. It mostly gains value with time, possess characteristics to be a hedge against inflation, saves you rent if you are living in it while earns you rent if you lease it out.
4. Leveraging is one of the oldest used tools in its basic form. The word derives from Lever, the tool used by humans since ancient times to move big objects that they would not otherwise be able to move without.
Why would we use a mortgage if we can pay for a property in cash, considering all the above.
1. Purchasing an asset of mostly appreciating value at today’s price and paying for it in the future using a currency that devalues is definitely a great idea.
2. Limiting your cash outlay may allow you additional investment power in the same asset class or diversifying into others.
3. If you choose the right property and the right mortgage the property may pay for itself.
What not to do if you have access to mortgage.
– Don’t be persuaded with a high LTV, over leveraging is can put you on the wrong track in wealth creation.
– Make sure you can afford the payment of the mortgage comfortably. Purchasing a bigger home is tempting however you will be paying for it.
– Keep a 3 to 6 months expenses in a security fund.
Enjoy investment, make the right choices.
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