New to Real Estate · Philadelphia, PA · Member since 2021 · 5 posts · 1 vote
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?
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.
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.
Agree with the others, I think cash is best used if you need a competitive advantage in a tough market or you're buying something that is distressed and won't qualify for a loan (and some other circumstances). For what you describe, it's likely best to go with a loan now and refi out when the rates come down. There's no guarantee that it will happen any time soon.
I think an important piece of info is missing. Is your mom going to pay you rent? Will the rent cover the mortgage + expenses? If YES and YES then put as little down as you can, and make sure the rent is covering mortgage/taxes/insurance/condo fees/ 5% repairs / 0% vacancy (shes going to stay i assume) / 0% management (assuming you manage it).
Make sense?
If you're straight up buying a house for mom, and you have the cash doing nothing else, I like your plan.. It just might take longer to refi than you want.