Tip on purchasing a home

[trendlover]

Quote from GermanTrader:

If you are smart, you pay cash and use an attorney instead of a realtor.

If you are average, you pay 20% down to get around PMI.

If you are an idiot, you pay 0% down at the top of the market, and finance all closing costs.

You break everything to: Smart
Average
Idiot
But it is more about how much money a person has to start with, and the price of the house they want to buy.

Is it (smart) or( foolish) to pay cash for a $200,000 home when you have only $250,000? Now only $50,000 cash securtiy or cash to invest left over. Seems foolish to me to put almost all a persons cash into a house.

Is it (average) or (smart) to put (20%- $40,000) down on $200,000 home when you have only $250,000? Now you have $210,000 cash security or cash to invest left over.

For buying at the top of a bubble, that is never good.

So if the money a person starts with is changed to $500,000 cash: then

Is it (smart) to pay cash for a $200,000 home if you have $500,000? Yes
Is it (average) to put down (20%-$40,000) when you have $500,000 cash? This leave $460,000 cash for security and investment that could beat the interest on the morgage.

If someone puts all their cash in a house, then if that person need cash sometime, then they have to borrow from the equity (and pay interest on their own money) That does not seem smart to me.

 

[OldTrader]

For someone who wants longevity in this business, I'm a big believer in owning your home free and clear. In fact, I'm a believer in keeping your overhead down in general...pay cash for your car, etc etc.

Earning in this business can be volatile. Lowering your overhead keeps the stress down...no pressure to pay those bills every month.

Yeah, you can always figure out that your return is better than the interest on your loan. I'd ignore that. I've seen alot of guys who made that calculation, who are no longer in the business.

I went a step further. With my earnings I bought alot of rental real estate over the years, free and clear. It's a solid source of income.

OldTrader

 

[trendlover]

Quote from OldTrader:

For someone who wants longevity in this business, I'm a big believer in owning your home free and clear. In fact, I'm a believer in keeping your overhead down in general...pay cash for your car, etc etc.

Earning in this business can be volatile. Lowering your overhead keeps the stress down...no pressure to pay those bills every month.

Yeah, you can always figure out that your return is better than the interest on your loan. I'd ignore that. I've seen alot of guys who made that calculation, who are no longer in the business.

I went a step further. With my earnings I bought alot of rental real estate over the years, free and clear. It's a solid source of income.

OldTrader

I think I see what you are saying. If you have no pressure to make a morgage payment, then more room for error in other things in life?

 

[gnome]

Quote from OldTrader:

For someone who wants longevity in this business, I'm a big believer in owning your home free and clear.

Talking "economics only", that's HOGWASH! (If you're talking "feeling warm and fuzzy because there is no mortgage on your house", that's different.)

If you have the capital to be able to "write a check and pay off the mortgage on a moment's notice", that's the same as having paid it. Use your assets more efficiently.

You can't serve 2 masters in the markets... you can't serve 2 masters in financial decisions.

 

[ElCubano]

Quote from gnome:

Talking "economics only", that's HOGWASH! (If you're talking "feeling warm and fuzzy because there is no mortgage on your house", that's different.)

If you have the capital to be able to "write a check and pay off the mortgage on a moment's notice", that's the same as having paid it. Use your assets more efficiently.

You can't serve 2 masters in the markets... you can't serve 2 masters in financial decisions.

if the money that you can write a check with isnt *RECEIVING a higher interest "RISK FREE" than the interest on the loan...then "economics only " u'd be better off paying the mortgage......

when OP can produce more than the interest on the loan on a consistent basis he can always get that loan against the equity and double down...in the mean time...the 800 pound monkey isnt on ur back...which should have a cost associated to it...like a $ 1million

 

[trendlover]

Quote from ElCubano:

if the money that you can write a check with isnt paying a higher interest "RISK FREE" than the interest on the loan...then "economics only " u'd be better off paying the mortgage......

Ok, but if you only put down payment on a morgage, and put (maybe half) the money left over into (risk free) savings at very low rate, maybe 3.5 to 4.00%, then make extra payment on the principle of morgage loan with the interest I make from risk free savings, this way you have the bank paying down the morgage. So I use interest earned from the bank to save on interest the bank could be making from me from the morgage loan.
I am just considering this, and did not do the math.
Then with the other half of the cash, maybe look for investment?

 

[mgookin]

OP said in his opening statement that he has sufficient capital to pay cash for a home (a home he does not have today) and still have adequate capital for trading. There is no existing mortgage to consider in the equation.

He did not say what experience (if any) he has at trading nor what returns he gets (if any).

If he pays for the home cash and looses all his trading capital he can choose whether to get a job and quit trading or take out a HELOC to carry him until he gets in a profitable career.

To mortgage a home 100% (or 80% or whatever) and put all that capital in the markets is r i s k y b u s i n e s s.

If after a year of trading he sees he's getting 30% on his trading annually and he chooses to mortgage the home to increase his return, he will have that choice.