Paying for a property in cash has a lot of advantages. In this 2nd part of the article, we will focus on the pros and cons for paying for a property purchase in full. Both the buyer and the seller can greatly benefit from a cash transaction.
Most sellers prefer cash buyers.
As a cash buyer, you are on top of the sellers list. Every seller prefers smooth transactions that only cash buyers can provide. Cash buyers have a greater leverage and negotiating power when it comes to the price, turn-over date, repairs, and so on. On top of that, most sellers are willing to lower their prices in favor of cash buyers.
As a buyer, you are at the mercy of the appraisal based on the comparative sales within the market area of your chosen property and the condition of the property that you are buying. A low appraisal means a higher equity/down-payment is required to be paid to the seller.
Lets face it, every loan application goes thru a very strict process on determining if the risk for the bank is acceptable in granting you a loan. If a person’s credit score is not favorable then there is a very big chance that your loan will not be approved. If this happens then you need to find another source to fund your purchase or risk losing your reservation or even the paid up equity in favor of the seller.
A 30 year housing loan mortgage can add up to twice or three times the price of the original purchase due to interest. Aside from that, you need to pay additional bank charges such as appraisal costs and loan application fee. As a cash buyer, you save valuable time in closing the deal thereby eliminating the hassle of gathering the required documents, applying for a bank loan, going back and forth to follow up. As a cash buyer, you only meet with the seller up to a maximum of 2 appointments.
Paying for a real estate purchase in cash requires a lot and you are trading liquidity for long term gains. Always remember that it takes a while to sell a property and should the need arises, you cannot immediately trade your property for cash unless you sell at a loss.
Giving up on other opportunities
There is a bigger chance that you might deplete your cash reserves when you commit to an all out cash purchase.
There is also a chance that the value of your property depreciates after a cash purchase if it is located on a depressed area.
To sum of the pros and cons, it is always best to consult with your financial planner / advisor and to weigh in your options. This will vary depending on the type and the use of the property that you are planning to purchase.
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