The concept of the cash buyer is a bit of a farse as well. What usually takes place is a cash offer. They just need to proof of funds to do this. But then, they get financing to close. Nobody in their right mind is putting that sum of cash in real estate when they could borrow at 2% or whatever it was before the recent run up. The mortgage interest even has favorable tax treatment so it’s effectively much less. Oh and the actual cash can also grow tax deferred. I really don’t understand why you’d actually put a large sum into a house when interest rates were as low as they were.
Not true at all. If you are self employed getting underwritten can be a nightmare.
We had savings galore but they wouldn't count it for a variety of reasons (withdrawn from biz account in last 90 days, biz account showed slight decrease because of covid), then calcs with old place and new together are hard.
Sometimes if you just leverage equity in old place you will be moving from + hard money + savings, you can do a cash offer, then sell off old place (we had a preemptive offer 4 days in well over asking - bay area).
Now you only have to be underwritten for one property (before selling old property they included both in calculations which made it hard). We got a 3% rate, then used that to settle up everything back to the way it was.
Actually there a lot on business owners that can’t get mortgages because they don’t don’t have stable income reported on a w2. It can often be easier to buy cash and refinance than try to get a purchase mortgage
The ultimate endpoints of personal wealth are… home equity itself (down payments) and cash flow (retirement). There are also major purchases like college but compared to housing they’re pretty small. A fancy private education costs just 10% ($250k) of a decent 3BR in a walkable neighborhood ($2.5m).
It seems like home equity is actually a pretty safe and efficient form of cash flow. Even with a cheap mortgage, the payments I need to make each year are about 5% of the principal, which is of course more than the standard 3-4% safe withdrawal rate for investment. The mortgage interest deduction is relevant, but the mortgage is also the reason I would need to realize so much taxable income in the first place. There are no taxes on imputed rent or home equity. Living in a paid off home, you can appear to the income tax system and even some means-tested programs (those that consider income not wealth) as a pauper.
Because housing so dwarfs all other expenses, it is not clear to me why growing my principal at the expense of housing-sized cash flow would be a good tradeoff.
Because for some people, it’s not about maximizing financial returns, but to have only their name in the deed and not the bank. Zero hassling with banks is freedom.
