All Cash or Mortgage

I'm a real estate agent, so I can only address the most effective purchasing strategy. In the current market it's a co-op, taking a small mortgage is probably the best way to go. If it's a condo, going all cash is probably the best way to go.

As far as the most effective overall portfolio management strategy ... I'll let others speak to that.

ali r.
DG Neary Realty

^^ "if it's a co-op"

why use cash with mortgages at historic lows? You may find yourself one day wishing you had that cash for something else. at least finance 417, or whatever the conforming number is these days.

front_porch, why do you recommend mortgage with a co-op, but all cash with a condo?

491k?

Maybe because with a condo mortgage you pay about 2% in recording tax, but with a co-op share loan you don't (yet): http://www.urbandigs.com/2010/02/a_coop_mortgage_recording_tax.html

Hi Lucy,

I think in this situation, a small mortgage will make the OP a better board candidate.

ali

5/1 ARM up to the 625k superconforming limit is about 2.5%. That's the inflation rate. Borrow it, do something with the money that exceeds 2.5% and pay it off after the 5th year.

it depends on how much you value optionality. Cash earns zero but leaves options open. The cost = the rate. The more cash you have the less you will value that option.

Why would a board prefer a mortgage over all cash?

Why does having a mortgage make one a better board candidate??

I am just guessing but some reasons I could thing of:

1. More liquid assets after closing. Boards have liquidity rules to make sure that new owners can coast through at least 1-2 years of financial hardship.
2. Boards can be lazy with candidate financial screening if a bank does it for them. I work for a bank (but not in mortgages). We are fairly good at screening clients. A board of apartment owners wouldn't be anywhere near as diligent. Banks screen 5 clients per week, boards 5 per year. Banks pay people to look at client records full time where boards meet infrequently.
3. Banks are also very good at handling title insurance, escrow accounts at the right time, checking that the buyer maintains insurance, etc. The board could be more confident if a bank is involved in the closing that everything is done right, especially is FSBO.

Paul, you said that perfectly.

There is one more reason a Board might prefer a mortgage. If the buyer doesn't pay maintenance in a co-op the Bank pays it and then goes after the purchaser. In a condo it is much more difficult to get the carrying charges paid