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Should we buy a house - in cash?
Old 09-28-2008, 02:54 AM   #1
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Should we buy a house - in cash?

Looking for advice from the more experienced members on what to do with cash in an economy like this.

In the last few years, we have sold everything we owned, moved overseas and have had all our living expenses are paid for; resulting in significant pile of cash. It has also resulted in us owning nothing. We don't have a house, cars or really anything else that doesn't fit in a suitcase.

With the current economic state, I'm wondering if it wouldn't be prudent to use some of that cash pile to "tool up" earlier than planned? I guess the fear is that, if there is hyper-inflation and our savings aren't worth spit, at least we'll have a paid-for place to live when we move back.

Any opinions? I'm open to the fact that I may be freaking out from watching too much news; since we only have 5 English TV channels and 2 of those are news.
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Old 09-28-2008, 03:10 AM   #2
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Depending on the market, your financial situation etc, I think it may be a great time to buy...and frankly, if it isn't with cash, you may not be making the buy, since lenders are still hesitant to lend. RE is down 50% in some areas from the peak. If I wanted to be a slumlord again, I would buy...but I've already been there, done that, and got the t-shirt (and a few scars to go with it). Really though, we may already be at the bottom of the market real estate wise...in our area you couldn't build a new home for the price you could buy a nice slightly used 2-10 year old home, and if you are willing to do a little fixing, you can buy a foreclosure for 10 cents on the dollar in some places. You do have to be there to see it and to make sure you understand what you are getting.

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Old 09-28-2008, 05:22 AM   #3
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Any opinions? I'm open to the fact that I may be freaking out from watching too much news; since we only have 5 English TV channels and 2 of those are news.
Alot depends on where and when you need the house. I do think you should be concerned with a strong rebounding market but who can predict if it's next month or next year?

I would not tie up cash in a house at this time as rates are low and money is easy to get. I just bought a coop which is harder and more expensive to finance so I refi'd another property up to 80% LTV and took a HELOC on another to make up the difference . Both loans under 6% and were no muss/no fuss. As long as you freeze the price of the property and the financing you can always keep your cash in a safe interest earning place and decide about paying down the mortgage when the time seems appropriate.

Despite all the doom and gloom most good areas are holding their values (see neighborhoodscout.com) but the uncertainty is making it easier to find a better property than you could a year or so ago. Now if you want a house in a half built subdivision 60 miles outside a major city, or a inner city slum that had been purchased mainly because of the financing then you probably could get it for 30-40% less than its previous sales price a couple of years ago but you are still paying market TODAY and not 10 cents on the dollar. Don't let yourself be fooled by that way of thinking.
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Old 09-28-2008, 12:11 PM   #4
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Originally Posted by neeps View Post
Looking for advice from the more experienced members on what to do with cash in an economy like this.
Skipping over the house details for a few paragraphs, I'd do whatever's in line with your asset allocation and your life plans. Do you need to have another residence for the long term? Do you need to own a house right now? Do you know what area you'd want to own a house? When you someday need to live in a house, do you need to own it or could you rent for a few years?

If you're looking to become a long-distance landlord, I'd do a lot of reading of prior threads on that subject.

If you're looking to buy an asset that appreciates at about the rate of inflation (because you're not doing it for the leverage) then I'd buy TIPS or I bonds.

Quote:
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Any opinions? I'm open to the fact that I may be freaking out from watching too much news; since we only have 5 English TV channels and 2 of those are news.
It's hard to disagree with this assessment of the situation...
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Old 09-30-2008, 04:13 PM   #5
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Most signs point to continued depreciation in the US residential real estate market. I wouldn't be in any hurry.
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Old 09-30-2008, 04:22 PM   #6
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I guess the fear is that, if there is hyper-inflation and our savings aren't worth spit, at least we'll have a paid-for place to live when we move back.
How are you coming to the conclusion there will be inflation? Lack of lending, lower fed interest rates and lower economic activity would result in lower inflation.
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