patrick.net

If you buy a house together each partner providing 50% of the money than that's dandy, but if you buy the whole house yourself and then get married without a prenup you leave it up to the government and your partner to freely redistribute your property (that goes for both sexes) in case it doesn't work out (unfortunately statistically the chances are > 50%).

mell says

It depends on how much reduction you get for all cash, but in any case you will be paying far less without interest. It is stupid to say that just because the interest rates are low it is great to pay more. If you think you have money leftover after the monthly payment and can invest it safely at a much higher return rate then a mortgage might become interesting, however don't forget that you pay interest on a large amount of money while the money leftover after the monthly mortgage payments is likely not a large sum to reinvest. It's not just peace of mind and absolutely debatable. Inflation is only useful if the house value inflates with it which it will likely not and also if the core goods needed to survive (food, energy) don't inflate as much but as I see it it is actually the opposite so I would be very careful with the mortgage rah-rah.

Buy with cash if it helps with the deal, but I'd refi into a loan.
30 year @ 3.375 / 25% Fed Tax / 8% State Tax = ~2.3% after MID
15 year @ 2.875 / 25% Fed Tax / 8% State Tax = ~2.0% after MID

If you can't find anything to do with your cash right now, stick it in a 5 year Jumbo CD @ 1.9% and wait. In 5 years pay it off if you want, but I'm betting you can find an investment that pays more than 3% at that time.

If disaster strikes (earthquake/zombies/housing prices drop 50%), walk away.

mell says

If you buy a house together each partner providing 50% of the money than that's dandy, but if you buy the whole house yourself and then get married without a prenup you leave it up to the government and your partner to freely redistribute your property (that goes for both sexes) in case it doesn't work out (unfortunately statistically the chances are > 50%).

why isnt the house a premarital asset but subject to community property rules after marriage?

Oxygen says

New renter says

Oxygen says

- 150k salary, single, 27

- maxed out 401k/IRA, no student loan debt, or any other debt

- health insurance fully covered

$150k/yr, no debt with health insurance @27? What is your hypothetical career?

even though this is a hypo, i framed the hypo to mirror exactly the situation a friend of mine is in, although he is in no rush to buy a house.

Is the cash legal? Sorry, but that kind of income at 27 makes me wonder.

Oxygen says

FortWayne says

But being 27 you are too young to tie yourself down into a house. At that age you need flexibility. So save and try to grow a business if you can. If you are not tied down, world is your oyster, you can create a business, make something amazing, move and live anywhere, find a good woman, you have options. I wouldn't advice buying into housing until you are mid 30's at least and family life requires settling down.

the nature of his career doesnt allow him to start a business. someone who gets paid 150k at 27 is definitely going to be pressed for time, so that would not even be an actionable option

Do you consider 150k at 27 to be LOW? If not why would your friend be pressed for time?

FortWayne says

Oxygen says

the nature of his career doesnt allow him to start a business. someone who gets paid 150k at 27 is definitely going to be pressed for time, so that would not even be an actionable option

Take risks, it's only going to be harder later. Some of the biggest regrets in life have always been having an opportunity and not doing anything about it.

Freedom 1789-2012

Then again fear and trepidation exist for a very good reason. Its OK to regret not taking an action if taking it would have ended in tragedy. Usually after uttering the words "hey guys, watch this!"

New renter says

Oxygen says

New renter says

Oxygen says

- 150k salary, single, 27

- maxed out 401k/IRA, no student loan debt, or any other debt

- health insurance fully covered

$150k/yr, no debt with health insurance @27? What is your hypothetical career?

even though this is a hypo, i framed the hypo to mirror exactly the situation a friend of mine is in, although he is in no rush to buy a house.

Is the cash legal? Sorry, but that kind of income at 27 makes me wonder.

Software Engineering with a location adjustment for a high cost of living area would do it. I was making $105K in 2001 when I was 28 in Boulder, CO which would be $136K in 2012 dollars. Bay Area (and perhaps NYC?) salaries are about 15% higher which would be $156K.

Law would do it too

Do you consider 150k at 27 to be LOW? If not why would your friend be pressed for time?

It took me 70-80 hours a week to make executives ecstatic and get big raises when I was a young lad. There's not enough time left after that to both do enough hobbies to stay sane and fit and start a business.

yes, engineer in NYC. Law starts at 160k (biglaw salaries, not shitlaw)

Oxygen says

mell says

If you buy a house together each partner providing 50% of the money than that's dandy, but if you buy the whole house yourself and then get married without a prenup you leave it up to the government and your partner to freely redistribute your property (that goes for both sexes) in case it doesn't work out (unfortunately statistically the chances are > 50%).

why isnt the house a premarital asset but subject to community property rules after marriage?

Well it is, but lets take CA for example: If you paid cash or took out a mortgage and your house appreciated during your marriage by let's say $200K, then you owe your spouse 100K on the appreciation since it became a marital asset. If you take out a mortgage you have to consider that even if the house does not appreciate in value you will owe the reduction in principal by 50% since you joined forces. If you think that's fair than it's all good, if you think that any appreciation/reduction in principal should be yours you have to have an ironclad prenup. Or just rent a nice pad and don't worry, what StoutFiles said ;)

Amazing how many people in this thread use emotion to make financial decisions rather than reason.

drew_eckhardt says

Do you consider 150k at 27 to be LOW? If not why would your friend be pressed for time?

It took me 70-80 hours a week to make executives ecstatic and get big raises when I was a young lad. There's not enough time left after that to both do enough hobbies to stay sane and fit and start a business.

Ah you meant not enough time in the day, not left in one's career

You know anything about practicing law in Big Law in your first couple of years?

Getting slightly off topic, someone making $150,000 as a lawyer shouldn't buy a house right away, although since most people finance their law education with student loans, it's usually unlikely.

The first priority for a young lawyer should be socking money away. The second priority should be keeping mobile (especially if you're in NYC, since many lateral opportunities will be in smaller markets). The third priority should be staying liquid. The fourth priority (believe me, it's an issue) is not to get caught up in an extravagent lifestyle. Lawyers really don't make much money when you take into account loans and costs of living where the law jobs are.

My first law gig, I just put it all in the bank the first year. It came in handy when my boss jumped ship and I had to find a new job.

There's a great blog to read for attorneys and law students. It's called The Legal Dollar. This post (from 2010) sums it all up. http://thelegaldollar.blogspot.com/2010/09/not-rich-at-250k-its-how-you-live-not.html

Homeboy says

Because it's possible to make MORE money than the amount of interest you are paying by having the cash on hand.

Exactly. Because nobody loses money on stocks , its all up and up.

Idiot says

You know anything about practicing law in Big Law in your first couple of years?

yes I know a decent amount regarding biglaw, but the hypo isnt about biglaw attorneys. also, as i said in the hypo, SL debt and stability of career is not an issue, even if it is not true for the majority of the population.

i just wanted to see what the options are available that i havent thought of and what areas to research further.

mell says

Well it is, but lets take CA for example: If you paid cash or took out a mortgage and your house appreciated during your marriage by let's say $200K, then you owe your spouse 100K on the appreciation since it became a marital asset. If you take out a mortgage you have to consider that even if the house does not appreciate in value you will owe the reduction in principal by 50% since you joined forces. If you think that's fair than it's all good, if you think that any appreciation/reduction in principal should be yours you have to have an ironclad prenup.

interesting. divorce laws vary by state though.

Idiot says

There's a great blog to read for attorneys and law students. It's called The Legal Dollar. This post (from 2010) sums it all up. http://thelegaldollar.blogspot.com/2010/09/not-rich-at-250k-its-how-you-live-not.html

thanks

KILLERJANE says

If you buy a house cash and rent it, more cash flow ROI!!!!

Thinking saying and doing need to line up.

You are assuming too many things - perfect tenant,no vacancy,no maintenance......

This depends on the prediction on your crystal ball.

I did the caculation myself since I invest in residential real estate.

If you believe we can muddle through the recession (or even recover) without a deflation collapse, mortgage COULD be better since it could gives you higher return rate (from an investment POV) assuming it makes no difference in selling price (but usually cash gives you better negotiate position, esp. for REOs.)

However, if you believe the deflation collapse is coming, DO NOT buy ANY house. Save the cash and buy whatever you want AFTER the collapse (this will use some patience.)

Mobi says

However, if you believe the deflation collapse is coming, DO NOT buy ANY house.

Oh how I wished more thought deflation were a real risk. Then I'd have fewer offers to compete with to buy real estate!

Just keep in mind that if your money isn't earning money, then you're losing money. Since a true deflationary spiral would take years to fully develop with out a major catalyst, how much will you lose before you gain? Right now I am earning $6000/yr on each of my $50,000 condos. If rents plunge by 25%, then I'm still making $4000.

Mick Russom says

Exactly. Because nobody loses money on stocks , its all up and up.

Right. Your only choice for the next 15 years is going to be risky stocks, because CDs will pay historically low rates for the rest of time.

A decade ago you could get 5% with your money just sitting in a savings account. But you're right, you should pass up the opportunity to get a loan at 2.75% interest, because rates will never go up again.

"Finance frightens and confuses me"

Only thing I can add that hasn’t been said already. If this person buys with a cash offer - would they have sufficient reserve? If they drain their savings close to zero and then something unexpected comes up - then what?

Call it Crazy says

Ha Ha Ha... so true... and many don't seen to know how to use a calculator either...

Yeah, and its Amazning how loud people are when they wine (however rare), and how completely silent they are when they lose.

robertoaribas says

Just a few years ago, I was getting 6% return on online checking accounts... How good would you feel getting over 6% on money you are only paying 3.5% for?

Yeah, thats sustainable. Exactly where will this magical money spread come from. Ahh, the printing press. Inflation on food, gas, tuition, rent and commodities and everything made from them will really help the average guy out.

Homeboy says

Right. Your only choice for the next 15 years is going to be risky stocks, because CDs will pay historically low rates for the rest of time.

Pretty much we are all just trying to beat inflation. Only the obscenely wealthy will be able to expand their principle.

EastCoastBubbleBoy says

Only thing I can add that hasn’t been said already. If this person buys with a cash offer - would they have sufficient reserve? If they drain their savings close to zero and then something unexpected comes up - then what?

he wont be "house poor" and his credit is good enough to float funds on a 0%APR credit card