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Would this work for all cash buyer to mitigate risk in buying a house????
2012 Jan 23, 11:56pm 1,766 views 3 comments
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SFace
2012 Jan 26, 4:49am
It's a long winded question that comes down to simple facts.
After tax investment return vs. after-tax interest cost.
Based on current rates (long term fixed), after tax interest cost can be anywhere from 2.5% -3.5%. With cash on hand, I would probably get a floating rate of around 2.5% (1 year ARM for example) and get an after tax cost of 1.75% or so.
A morgage REIT like you described pays about 10% dividends, but of course, they have risk of gain/(loss) as well. But 1.75% is so easy to beat it doesn't require much thinking. Then there are the soft reasons why keeping the cash liquid is better.
Given the parameters, I would put as little as possible to get the best rates possible.
Almost all cash buyer buys the house with cash (to secure the best price) and after 2 months, they re-finance and recapitalize so really all cash buyer doesn't mean all cash.
elliemae
2012 Jan 26, 1:58pm
He's on to something! He buys for as little down as possible, then finances the rest with the REIT he owns. He's ahead as long as he makes the payments - but if he doesn't, he'll have to foreclose and eventually evict himself. Then he'll own the house.
If he gets a job working for the sheriff's department, he'll be able to show himself compassion as he serves himself with an eviction.
I've got it all figured out... Gonna have another glass of wine, now.
If you qualify for first time home buyer loan put very little money down. But you have all the cash to buy a little place. So you get the low money down loan at low interest and then with the cash you buy insured mortgage securities(could even be same bank backing your place). For taxation the interest income on your cash(securities) would be offset by the mortgage interest deduction. Then if housing prices fell you camp out and hand over house when bank wants and you still have your cash and did not risk capital or if housing prices go up you can always sell in 2 years and have tax free income? ?? What is the descrepancy in the interest between securities and mortgage???
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