The Downsides Of Buying A House In Cash

Christy Bieber  Sun, September 22, 2024  Moneywise

My financial advisor says I shouldn't pay 100% cash for a house — is it better to take out a mortgage and invest in the S&P 500 instead?

If you have a lot of cash and are considering buying a property, you may be tempted to pay for the home outright. After all, not having a mortgage sounds nice.

But the reality is that it’s not always a good idea to buy your house in cash for many reasons. Before writing a big check for your real estate investment, you’ll want to consider the opportunity costs of tying up your money this way.

The downsides of buying a house in cash

The biggest downside of buying a house in cash is that you can’t invest the money you sink into the home.

Your return on investment (ROI) for paying cash is the interest you save on your mortgage loan. Even with rates still hovering near record highs, your ROI would still be around 6.93% (the 52-week average interest rate for a 30-year mortgage loan as of September 12, 2024.) Meanwhile, the S&P 500 has produced a 10% average annual return since its inception almost 70 years ago, offering a potentially higher ROI if you invest in the stock market.

There are also some other factors to think about.

If you itemize your deductions, you can get a tax break for your mortgage interest, so the government subsidizes your home purchase. Plus, your housing payment effectively gets cheaper every year due to inflation, which reduces the value of the money you're making housing payments with.

TO READ MORE:   https://www.yahoo.com/finance/news/financial-advisor-says-shouldnt-pay-113300313.html