Smart to offer cash now, then mortgage later?

[Jonathan Saft]

Hi BP community! 

I am researching the smartest ways to buy a new condo or apartment for my mom. With the uncertainty in the market and rising interest rates, my initial thought was to wait 3-6 months to see if either house prices or interest rates start to fall.

After doing some research, however, I am now inclined to start looking more aggressively and prepare to make an all-cash offer without a loan. Then, if and when interest rates start to fall back around the 4-5% range in the next 12-18 months, I can always take out a mortgage at that point and use the cash from that loan to invest in something with a >6% return. 

With this strategy, I would miss out on investing the cash used for the initial house purchase in the short term, but going from a 7% interest rate to a 5% interest rate on a 15 year mortgage would save me over $70k. Plus, I am guessing I would be able to negotiate a better purchase price with the cash offer. Lastly, there is no guarantee right now that even safe investments would provide a positive return over the next 12-18 months.

Am I missing something? This feels like a no brainer move to me, but are there any downsides to making a cash offer now and taking out a mortgage later?

Appreciate any advice or insights. Thanks!

[Karl McGarvey]

I don't buy cash because it takes away all leverage and means my money is not working as hard for me. If I can have 100K over 3 properties instead of one, I'm taking 3 properties on most days of the week. 

I also think 4-5% interest rates in the next 12-18 months is highly unlikely, which means you are going to spend a lot longer waiting to get your money back out in a refi. If you are ok having your cash sitting there in the asset then Cash is fine, I just prefer to have mine spread out.