Financial Advice Please-re Buying A Property Outright With Cash

[Paulo di Canio]

Hi all – if there’s any real money minded people out there could you please give me a little bit of advice – after 20 years of saving like a lunatic I am fortunately in a position where I could now buy a 200k property outright – believe it or not ive never owned a property, ive always rented, but I just want my own place now and im guessing its probably a good time, or should I wait until the cold winter months?

NOW, this is where I need your advice – ive seen a property that I like and im ready to buy, so if you were in my shoes, would you:

a) buy the property outright, so that ive got no mortgage at all around my neck for 25 years to save on all those interest payments, or would you

get a mortgage, bank the money, but don’t buy the property outright with cash because you think im gonna lose a lot of my capital if houses keep decreasing by say another 15 per cent, or would you

c) get a part mortgage and pay for the rest from my savings, but hold back some of my savings?

Obviously, Im just worried about buying it with all cash, because then i’ve got all my eggs in one basket and I will have no savings left.

I’m guessing that I would save probably over a hundred grand at least in interest payments over time.

Also, what are the tax advantages/disadvantages

I’m not very clued up on this, so would appreciate your views.

Next question, the property is up for 200k and the advert says ‘offers in the region of 200k’ - what does this mean? – I spoke to the estate agent who said they would only accept offers of bang on 200k, or should I offer say £180 or £190 because im not in a chain and im offering cash – what offer should I give?

Thanks a lot for your help.

Cheers,

Paulo

[nickincash]

I'm intending to buy for cash but I don't think now is the right time. Prices are still ridiculously high. If prices fall aren't you going to lose just the same amount whether you borrow money or not? Don't let the EA dictate to you how much you can offer and put any offer in writing to the EA and the seller.

[Bloo Loo]

I think id catch my meat in the zipper reading that post.

[kilroy]

Hi all – if there’s any real money minded people out there could you please give me a little bit of advice – after 20 years of saving like a lunatic I am fortunately in a position where I could now buy a 200k property outright – believe it or not ive never owned a property, ive always rented, but I just want my own place now and im guessing its probably a good time, or should I wait until the cold winter months?

NOW, this is where I need your advice – ive seen a property that I like and im ready to buy, so if you were in my shoes, would you:

a) buy the property outright, so that ive got no mortgage at all around my neck for 25 years to save on all those interest payments, or would you

get a mortgage, bank the money, but don’t buy the property outright with cash because you think im gonna lose a lot of my capital if houses keep decreasing by say another 15 per cent, or would you

c) get a part mortgage and pay for the rest from my savings, but hold back some of my savings?

Obviously, Im just worried about buying it with all cash, because then i’ve got all my eggs in one basket and I will have no savings left.

I’m guessing that I would save probably over a hundred grand at least in interest payments over time.

Also, what are the tax advantages/disadvantages

I’m not very clued up on this, so would appreciate your views.

Next question, the property is up for 200k and the advert says ‘offers in the region of 200k’ - what does this mean? – I spoke to the estate agent who said they would only accept offers of bang on 200k, or should I offer say £180 or £190 because im not in a chain and im offering cash – what offer should I give?

Thanks a lot for your help.

Cheers,

Paulo

timing aside, maybe you should look at an offset mortgage for 50% or so. No interest to pay, if you keep the 100k cash in the savings part, plus you have the benefit of instant liquidity of said 100k if you needed it.

[grey shark]

Next question, the property is up for 200k and the advert says ‘offers in the region of 200k’ - what does this mean? – I spoke to the estate agent who said they would only accept offers of bang on 200k, or should I offer say £180 or £190 because im not in a chain and im offering cash – what offer should I give?

Thanks a lot for your help.

LOOK .... it is your duty as a British citizen to pay as much as you can for this property that you desire , please try to offer at least 220k .... to offer less than 200k would be a insult .

In 2 years time this property is likely to be worth at least 400k and you want to make offers NOW of below 200k .... just who do you think you are ?

[Thread Killer]

I would certainly negotiate a BIG discount on the basis that you can pay cash. That gives you negotiating power because you can complete without a chain.

Consider buying at auction for a better deal.

Once you have bought then it would be sensible to take out a small mortgage (of say £30K) so that you have some spare cash to keep you going in case of job loss etc. It is worth the interest payments. It saves you from having to sell the house in a hurry in the situation where you need some emergncy cash.

Best of all, don't buy, and wait for prices to come down.

[Bloo Loo]

I would certainly negotiate a BIG discount on the basis that you can pay cash. That gives you negotiating power because you can complete without a chain.

Consider buying at auction for a better deal.

Once you have bought then it would be sensible to take out a small mortgage (of say £30K) so that you have some spare cash to keep you going in case of job loss etc. It is worth the interest payments. It saves you from having to sell the house in a hurry in the situation where you need some emergncy cash.

Best of all, don't buy, and wait for prices to come down.

mortgage for spare cash? how about a credit card....or buy a cheaper house.

[Jim B.]

I would certainly negotiate a BIG discount on the basis that you can pay cash. That gives you negotiating power because you can complete without a chain.

+1. But wait a while. You will be in a superb bargaining position. You should get at least 10% off for a quick cash sale.

[ReggiePerrin]

Your biggest problem is going to be carrying the money, I suggest you use two strong carrier bags (not the cheap one's from Morrisons, but good quality ones from M&S).

[Jim B.]

Now, I'm no expert myself, but you could get the cheapest mortgage on offer with that much, the low rates they have for 60% LTV. So, if the rate you were paying was significantly less than you could get for a fixed rate bond you would actually make money out of this. I.e borrow £100k at 3%, put your £100k in a fixed bond for 5%.

[sell low buy hi]

Now, I'm no expert myself, but you could get the cheapest mortgage on offer with that much, the low rates they have for 60% LTV. So, if the rate you were paying was significantly less than you could get for a fixed rate bond you would actually make money out of this. I.e borrow £100k at 3%, put your £100k in a fixed bond for 5%.

Good answer.

You could also put the 200k in a bond for a year, by then the 200k house could be worth 170k and you'll be 'quids in'.

Money is real and has true value when its been earned and saved, as apposed to pretend borrowed money. Don't waste it.

[threetimesdead]

Invest your cash and spend all of the income from your capital on renting

[Thread Killer]

mortgage for spare cash? how about a credit card....or buy a cheaper house.

credit card a possibility, but you're putting yourself at risk of high interest rates on the card. Also there is the risk that credit limits on the card might be cut without warning, if something bad happens in the markets.

[JustYield]

Hi all – if there’s any real money minded people out there could you please give me a little bit of advice – after 20 years of saving like a lunatic I am fortunately in a position where I could now buy a 200k property outright – believe it or not ive never owned a property, ive always rented, but I just want my own place now and im guessing its probably a good time, or should I wait until the cold winter months?

You, of all people, know the value of 200K. Don't confuse the fact that you've managed to save this amount with what a reasonable price for a modest house should be. Affordability is not related to value (to prices, yes). In other words, think. And wait. You've got everything to lose.

[BlueRat]

Hi all – if there’s any real money minded people out there could you please give me a little bit of advice – after 20 years of saving like a lunatic I am fortunately in a position where I could now buy a 200k property outright – believe it or not ive never owned a property, ive always rented, but I just want my own place now and im guessing its probably a good time, or should I wait until the cold winter months?

NOW, this is where I need your advice – ive seen a property that I like and im ready to buy, so if you were in my shoes, would you:

a) buy the property outright, so that ive got no mortgage at all around my neck for 25 years to save on all those interest payments, or would you

get a mortgage, bank the money, but don’t buy the property outright with cash because you think im gonna lose a lot of my capital if houses keep decreasing by say another 15 per cent, or would you

c) get a part mortgage and pay for the rest from my savings, but hold back some of my savings?

Obviously, Im just worried about buying it with all cash, because then i’ve got all my eggs in one basket and I will have no savings left.

I’m guessing that I would save probably over a hundred grand at least in interest payments over time.

Also, what are the tax advantages/disadvantages

I’m not very clued up on this, so would appreciate your views.

I'd work out what I needed to live on and leave some savings so you're not up sh1t creek if you lose your job. I've heard 6 grand and no more is a good figure to have if you needed to claim benefits.

This idea someone mentioned above of buying a house with a low rate fixed mortage deal, putting your cash in a bond and pocketing the difference sounds tempting but remember you pay tax on bank interest earnt.

Next question, the property is up for 200k and the advert says ‘offers in the region of 200k’ - what does this mean? – I spoke to the estate agent who said they would only accept offers of bang on 200k, or should I offer say £180 or £190 because im not in a chain and im offering cash – what offer should I give?

Cheeky sods. They are the last people you should be asking what offer you should put in. You're in a very strong position, try not to get fixated on one property, make low offers on several and someone will bite.

Best advice as mentioned above is to wait a little longer. If you've managed to save for 20 years then another 6/12/24 months won't hurt.

[the_austrian]

Cash is not a reliable store of wealth, partly because the banking system and the central bank can eliminate the value very quickly but also because ultimately it is only bits of paper and lumps of metal.

Don't bother holding back more than a few thousand quid once you have purchased the house, make sure to spend the rest. I would err against getting a mortgage but if you do why not get a more expensive house, say for £350k with £150k mortgage? As far as tax, my understanding is that in the past interest on the mortgage could be offset against earnings but that you can't do that any more so no real issue.

[Bloo Loo]

credit card a possibility, but you're putting yourself at risk of high interest rates on the card. Also there is the risk that credit limits on the card might be cut without warning, if something bad happens in the markets.

of course, having a mortgage to withdraw cash will count as savings in the event of a benefits claim.

best to have nothing....lose job you need three months, then its mortgage paid, poll tax mostly paid, JSA etc etc.

[Neverland]

Now, I'm no expert myself, but you could get the cheapest mortgage on offer with that much, the low rates they have for 60% LTV. So, if the rate you were paying was significantly less than you could get for a fixed rate bond you would actually make money out of this. I.e borrow £100k at 3%, put your £100k in a fixed bond for 5%.

-1

You have to pay income tax on your interest dumbo

[Neverland]

timing aside, maybe you should look at an offset mortgage for 50% or so. No interest to pay, if you keep the 100k cash in the savings part, plus you have the benefit of instant liquidity of said 100k if you needed it.

+1

We did something similar

Its the same as taking a small mortgage but tax effective as the savings effectively pay you gross of income tax by being set against your debt

Can't see why anyone would need more than £50k under this arrangement tho

There are also the benefit implications to think about if worse comes to worse

[Nationalist]

Your biggest problem is going to be carrying the money, I suggest you use two strong carrier bags (not the cheap one's from Morrisons, but good quality ones from M&S).

Don't forget, M&S charge for their carrier bags now.

[VeryMeanReversion]

Pay cash and you never have to worry about govt/bank safety. Why risk another bank going bust or your savings being wiped out by devaluation.

I will be putting a cash offer on a house tomorrow on that basis, putting my money where my mouth is.

VMR.

Edited September 24, 2009 by VeryMeanReversion