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Who ACTUALLY Has Money On The Sidelines?
invite response
2011 Nov 22, 1:44pm 19,617 views 62 comments
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Melissa
2011 Nov 25, 1:42am
I have 40-50% down for a home in the area in which I am interested (LA beach cities), plus a fairly well funded retirement and 6+ months reserves. I have made offers on 4 homes, been interested in maybe 8. Got one; canceled during the inspection period (more damage than I had hoped). I've been looking for about 18 months. I sold my house in 2008, about 6 months after the downward slide began in the area. Been renting at a rate that is less than my post tax deduction outlay for my previous home and probably 70% of what the next house will cost. Socking the excess away to by applied to one of the above pots.
I fit the criteria (over $100k in the bank), and that would still be true even if the condo I already own were to vanish into thin air.
What I really want to do is buy my next home, in Manhattan or Brooklyn, now and let renters pay my mortgage until it's time to move back there. I actually find myself researching that more and more (and with co-ops it's quite hard to do).
I'm scared stiff of inflation and am tired of seeing prices go up while my bank account pays 0.2% and my CDs pay 0.4%. I just want to get my money into some kind of safe shelter -- I earned that cash through hard labor!
Flawed question. There is no such thing as "money on the sidelines." When you use your money on the sidelines to buy a house, that money goes back to the sidelines in someone else's hands.
If you really think about it, why did they raise the FDIC insurance from 100k to 250k? A hunch tells me it is because tons of people have over 100k sitting around.
Yeah, but how many of those people were too stupid not to realize how to have more than $100K FDIC-protected?
We fit the criteria: Been saving for about 8-9 years, have retirement investments, etc etc. Could put down probably 50-60% depending on the price in the Bay Area. Buying all cash seems financially dumb.
The issue at hand is that for years I've been flipping back and forth on where to live. Part of me wants to stay here. We could do it no problem. On the other hand we could basically semi-retire just about anywhere else with what we've saved. I worked my way up in my career, starting at $8 an hour and eventually making 6 figures. I know what its like to be poor and make decisions at the supermarket. Thus I'm hesitant to blow tons of money on a house.
So in the meantime we save. Not like that's going to hurt anything.
toothfairy
2011 Nov 30, 6:49am
Buying all cash seems financially dumb.
Well in this market you get better deals open up to you when you're offer is all cash. You can always refinance and take out a mortgage later. Which was my plan when I bought my last house all cash but something funny happened on the way to getting the mortgage. There's a certain peace of mind with owning free and clear and having no monthly payments.
I kind of like it.
My income stayed the same but now I'm saving about 3 time faster so maybe not the most optimal use of funds it's been working out ok.
Well in this market you get better deals open up to you when you're offer is all cash. You can always refinance and take out a mortgage later.
Two possible problems with that plan I can think of:
1) if you later refi after buying cash, your loan is recourse in states like California where purchase money is non-recourse.
2) the refi market could seize up as it did a few years ago
But you're right that many of the better deals are cash lately.
Well in this market you get better deals open up to you when you're offer is all cash. You can always refinance and take out a mortgage later. Which was my plan when I bought my last house all cash but something funny happened on the way to getting the mortgage. There's a certain peace of mind with owning free and clear and having no monthly payments.
Most financial advisers will tell you not to pay all-cash for a house. Reason being that you suddenly tie up a huge amount of cash into a single investment versus having that handy for other investments. Mortgages are cheap. That isn't to say that if the house was cheap enough I wouldn't do this- as in 200k or so, but most definitely not on a 500k house. Besides, if you have enough cash to buy a house outright then you'll have enough to pay for a mortgage.
Most financial advisers will tell you not to pay all-cash for a house. Reason being that you suddenly tie up a huge amount of cash into a single investment versus having that handy for other investments.
Yes, shit can happen. I have a buddy who went all-in into buying a house a few years ago and got a little over-extended temporarily. He had what seemed to be a massive pile of cash in stock, but between contract and escrow, the stock price dropped significantly. He makes good money and figured it all out, but it was not easygoings there for a while.
You could also have other problems. For a California example, most people don't have earthquake insurance, and generally speaking earthquake insurance isn't cheap and doesn't always cover very much (the deductible is very high).
There can be benefits too, and it might make sense in certain cases where it's not your entire cash position, as edvard said.
There can be benefits too, and it might make sense in certain cases where it's not your entire cash position, as edvard said.
FWIW, I invested my entire cash position in buying my condo (my savings went from six figures to two, temporarily), and in just three years am almost back where I was before. If you're confident that you can build up your savings immediately after buying the property, do it! I don't have kids yet, and have a stable job, so I took the plunge. The peace of mind has been worth it from the start!
joshuatrio
2011 Dec 1, 2:57am
FWIW, I invested my entire cash position in buying my condo (my savings went from six figures to two, temporarily), and in just three years am almost back where I was before. If you're confident that you can build up your savings immediately after buying the property, do it! I don't have kids yet, and have a stable job, so I took the plunge. The peace of mind has been worth it from the start!
+1
bmwman91
2011 Dec 1, 3:23am
There can be benefits too, and it might make sense in certain cases where it's not your entire cash position, as edvard said.
FWIW, I invested my entire cash position in buying my condo (my savings went from six figures to two, temporarily), and in just three years am almost back where I was before. If you're confident that you can build up your savings immediately after buying the property, do it! I don't have kids yet, and have a stable job, so I took the plunge. The peace of mind has been worth it from the start!
This is my plan. When a property comes along that like and want to live on, and the cost is of an amount that leaves me able to stash away some cash while making more than the minimum monthly payment, I will be fine with it.
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There seem to be a lot of people with some sort of interest in buying property in this forum (as opposed to passively commenting just for kicks). Many of you folks seem to be "waiting" for something along the lines of a "price bottom" or "affordability" or something along those lines (I am in this group with you). One common statement in here is that, "buyers are waiting and saving" while they wait for this sign-from-above to buy. So, I am curious to see, of all the folks that wish to buy a property and consider themselves to be "waiting," how many are actually in a position to buy if next week if it were when this "sign" appears (and this means that said sign indicates that current prices ARE the bottom)?
Here are the criteria for "who has cash on the sidelines."
- You have enough cash right NOW to put 20% down...
- ...on a SINGLE FAMILY HOME...
- ...in an area that you are coveting / want to live in long-term...
- ...PLUS >6 months of living expenses in cash.
So no, you don't count if you "have enough cash to put 20% down when prices drop 50%."
We all love to rag on the 3.5% FHA loans and other low-down deals, so the bar is set at a level that most people consider to be the minimum threshold for "responsible" borrowing/buying.
This is not intended to be some sort of financial pissing-match or excuse to show-boat. I am genuinely curious to see how many of the RE-savvy folks here are actually positioned to move when the time comes. We all rage about not wanting to participate in this market, but it seems sort of silly if you have no idea how many people can ACTUALLY participate in it.
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And yes, my fiancee and I meet the above criteria. She has been saving for 7 years and I for 4 (basically since we graduated from college). We don't want to see all of our saved cash go up in smoke if/when prices adjust around here, so we wait (and we have a wedding to deal with; there is no way we are going to try to deal with a RE purchase and that in the same year). Having the cash sit in savings accounts is shitty, too, since its value is smouldering away...damned if we do, damned if we don't!