My Money vs. Their Money

[Stanley E.]

Hello all. I wanted to get your opinion as to whether it is better to get a lona to purchase a property or if it is better to pay cash if I can? What are the pros and cons? Thanks. Stanley

[Adam Hershman]

Hey Stanley,

You will undoubtedly get responses saying NEVER use your own money. I always look at this from the perspective of interest and return. I won't every pay cash for something if the interest rate is lower than what the returns of investing the principal would be. For example, I never advocate paying cash for a car, actually I never advocate buying a car you should lease, because the interest rate your paying for the loan is almost certainly going to be less than what the same money would earn if you invested it. 

If an item is $100k and the interest rate is 5%, I would much rather take the loan save and invest the cash, and earn an 8% return while paying 5% interest on the money.

If those numbers start to favor buying cash, either from higher interest rates, or lower probable returns, then look at paying cash for it.

Adam