I’ve bought two houses outright, once in 2019 for a fixer-upper and again in 2023 for a fully renovated home. I know some folks think it’s not the best financial move, and they might be right. But there’s also a group of you who think it’s a fantastic idea, and I get it. Not having a mortgage makes life simpler and cheaper, but it’s not always possible if you don’t have the funds.
As we age, our financial situations change. In my younger years, I didn’t have the cash to buy a house outright. I was more interested in leveraging my money to grow my wealth. Now, in my mid-40s, I’m content with what I have and don’t want to risk losing it. A 5% to 10% annual growth in net worth is enough for me.
Deciding to buy a house with cash is a personal choice. It involves understanding your financial situation, knowing what you want from your money, and where you are in your financial journey.
There are two types of cash homebuyers. The first type, true cash buyers, have enough cash in their accounts and don’t need to sell any assets to buy a house. They’re usually considered ultra-rich. The second type, hybrid cash buyers, need to sell assets like stocks or bonds to raise enough cash. Most cash homebuyers, including myself, fall into this category.
You might think buying a house with cash is rare due to the high cost of homes. But in 2023, about 34% of all home purchases were made with cash. In 2024, the percentage of cash buyers is likely even higher, especially for luxury homes.
Now, let’s talk about the psychology behind paying cash for a home.
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Everyone loves a good deal. If you can pay cash for a home, you could save between 1% and 10% off the purchase price.
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When you have the cash, you want to avoid wasting time and spending unnecessary fees on getting a mortgage.
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If you pay for a house entirely with cash, you’ll feel great knowing that your money has finally been put to good use.
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The opportunity cost of paying cash for a house is the return you could have made by keeping your money in another asset class. However, you’ll be too busy enjoying your new home to miss the potential gains from investing elsewhere.
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If the economy booms after you pay cash for your house, you’re happy because your house and other risk assets are likely appreciating in value. If the economy goes into a recession, you’re fine because at least you’re enjoying your money.
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The more liquidity you use to buy the house with cash, the more motivated you’ll be to make back that money.
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When you can pay all cash for a house, you feel secure. Therefore, you don’t care about any negative opinions people may have about you not taking out a mortgage to buy the house.
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Once you pay cash for a house, you can’t help but think about the risk-free money market or Treasury bond income you could be earning instead.
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The more money you have, the more you need to figure out what to do with it. Some people prefer to invest their cash in their primary residence because they can keep a close eye on it every day they live in it.
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Finally, if you pay cash for a house, it’s not as if your cash is permanently tied up in your home. You can always do a cash-out refinance or take out a Home Equity Line Of Credit if the need arises.
In conclusion, there are downsides to paying cash for a house. However, if you’re contemplating paying cash for a house, I believe it’s a solid idea if you have the means. Over one-third of the home-buying population does.
Have you ever paid cash for a house? If so, what was the psychology behind your decision? What are some other considerations missing in my list for cash buyers to think about? Surely, there are more downsides to paying cash for a house?
You can invest in real estate without taking on a mortgage by investing in private real estate funds. Take a look at Fundrise, a leading private real estate investment firm, manages over $3.3 billion in assets with a minimum investment of just $10. It focuses on residential and industrial real estate in the Sunbelt region, known for its lower valuations and higher yields.
Personally, I’ve allocated $954,000 to private real estate funds, predominantly targeting properties in the Sunbelt. With remote work becoming more prevalent, there’s a growing trend towards lower-cost areas of the country.
