All Cash versus Mortgage
Started by goodgracious
over 16 years ago
Posts: 21
Member since: Apr 2009
Discussion about
Given today's real estate market and the economy, what difference should it make, if any, were I to make an all-cash offer on an apartment as opposed to one where I had to get a mortgage? I am refering only to Manhattan co-ops and condos. Any thoughts would be helpful. Thanks.
if you have the cash, I question whether 100% borrowing versus 0% financing makes a diference. Assuming equal duration, the rate on savings vs rate on borrowing should be similar. And if you are getting a deduction on the borrowing (i.e. 40%). This is exactly what you are paying on the interest you earn.
That said not having a mortgage reduces your monthly outlays, and has psychic benefits.
Of course having the mortgage can you flexibility. Rates drop you can refi, or if the rate on your savings drops relative to mortgage rates, you could choose to pay off the debt.
goodgracious , if you plan on taking a standard deduction on your taxes, I'd go all cash.
Thank you, Riversider. However, I was wondering more along these lines: what difference, if any, should it make off of the asking price were I to make an all-cash offer versus one where I went and got a mortgage? How much is this worth to the seller?
bird in the hand, kind of thing, but impossible to quantify.
I think if someone is paying all cash, they are earning enough to be itemizing deductions, no?!?
I've wondered the same thing. It seems like there are alot of Manhattan buyers who can offer all cash to a seller and that is hard to compete with. It seems like you have to offer a seller a little bit more than an all cash buyer to offset the extra waiting time although if you're pre-approved for a mortgage, what's the real difference. It seems like the real problem is often getting the buyer to acknowledge that their apartment isn't worth what they think it is in today's market.
The advantage depends on each sellers' situation. Jumbo mortgages are difficult to get. Stressed devs are not liked by creditors. Some people need to sell asap for a wide range of reasons, including delinquent debt. If you get a seller that is not in a hurry, chances are this seller can't care less about cash or mortgage. If you find a seller who tried to sell 2 times and the financing fell through, and whose unpaid debt is growing daily with high interest rates because he have stopped paying, chances are this seller will be willing to cut the price substantially just to unload the apt quickly. Another variable is the amount of the debt, is the owner underwater? How much does he owe? Some people can't cut the price because they can't pay off the mortgage. Add to this the seller's view. He can think the market is going up in the short term, or be totally pessimistic about the current state of things and think the market will go down another 20% or more. All you can do is study the owner's credit situation and draw your own conclusions. Sometimes the seller's broker will give you hints as of what is the seller's situation. You can also tell the broker to let u know if there is an offer, because you might be willing to match it with cash.
it is very hard to compete with all-cash buyers and that would be a good trump to play if you needed to
All cash buyer...so far no benefit.
Reasons that cash buyer is in superior position:
1. There have been several recent articles about appraisals coming in lower that what the buyer would like so that mean difficult situation with the bank and a larger cash down payment that may result in the buyer not being able to do the deal.
2. All cash buyer can close much quicker, so a stressed buyer may take lower offer.
3. No mortgage tax.