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tom | Any REAL ESTATE EXPERTS here ? ... Should i take out a mortgage or pay all-cash for a condo unit.?? |
i am planning on purchasing a condo unit. i can afford to pay for it in all-cash. is there any reason to mortgage a property if one can pay for it in cash.? wouldn't one come ahead paying all cash even with the mortgage interest tax deduction.?
thanks |
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drp2505
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You don't really need a real estate expert, you need a good financial advisor/accountant.
Basically, you need to have an anlysis done based on interest rates, tax deductions, and return on investment of your cash.
Here's an example. Say the Condo is $100,000. You will pay a 6% mortgage rate, and $3,000 a year in taxes. In the first year, you will pay out of pocket about $6,000 in interest (a little less actually), and will have total tax deductions of about $9,000. If everything is tax deductible, and your single, you will net (after taking into account your standard deduction of about $4,000 (note:standard deduction for 2007 is more, however, taking into account other tax deductible items, such as local taxes) and a tax rate of 25%) a tax deduction equal to $1,250. So, after paying for your mortgage and taxes, you would have paid out a net amount of $7,750.
Say you take that $100,000 and put it into a high-yield savings. If you were to earn 5% on it, you would have made $5,000 in pre-tax income, and about $3,750 in after tax income.
In this case, you have a total cash output of $4,000 per year (net) after taking into consideration the money you made on your investment, along with tax benefits.
However, if you pay for the property straigh out, you will have a cash outlay of $3,000 each year for property taxes, and no tax benefit.
If, however, you were to take your money and invest in a mutual fund, and make 8% on your investment, you would only have a total cash outlay of $1,750 per year with the mortgage. In other words, you would save more money doing it that way. Plus, you would still have the money in case of emergencies.
My advise: Hire a good accountant to take a look at all the factors. The $100-500 you'll pay could save you thousands each year! |
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skipper
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One reason for borrowing, instead of paying cash, is leverage. If you put 20% down on a $200,000 condo, and the condo appreciates at 2% per year, 2% of $200,000 is $4,000 per year, on an investment of $40,000 (20% of $200,000) for a gain of 10% per year. Could you make at least that amount (after tax) by investing the $180,000 that you borrowed?
Of course, leverage works both ways. Assume the condo declined in value 2% per year. Now you have lost 10% per year on your investment. |
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VATreasures
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With a condo, especially new construction more things can go wrong than with a SFH house. Get a conventional mortgage with low closing costs, once you are certain the condo fits your needs you can pay off the loan if that seems to make sense.
If you are still working, studies have shown that contributions to a 401k come out ahead of extra mortgage payments. |
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THEHATMAN
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I own 6 properties and I have all ways felt it is best to leverage your money. Please see an example below.
If you buy a property for $300,000 and put down 20% $60,000 and keep it for 5 years, Lets say you average 7% increase over each year and with compounding interest the value would increase about $112,500. This is a profit of almost $2 for every dollar invested.
If you buy a property for $300,000 and put down 100% $300,000 and keep it for 5 years, Lets say you average 7% increase over each year and with compounding interest the value would increase about $112,500. This is a profit of almost .37 cents profit for every doller invested.
If you took the first option you could invest in 5 properties with $60,000 down payments.
Make sure you know the market in your area and remember that they have to sell and you don't have to buy. Try to buy a property under value. Good luck. |
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ajrrst
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i recommend getting a four or eight plex than a condo and have a 2nd party run it for you that way you have an income |
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thrill88
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You are right that mortgage interest is tax deductible. Also, how much interest could you earn if you invested the money somewhere else? You might be better taking the mortgage. |
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Paul M
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There are a few reasons that you should take a mortgage out. The first of which is that the interest is tax deductible. This will save you a tremendous amount on your taxes.
The second thing to consider is the opportunity cost of using all of your cash. If you get a mortgage at 6% and you are earning 7-10% in returns on ivestment your opportunity cost is 1 to 4% meaning you are not utilizing your money to its greatest potential. |
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exitbrian.com
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The answer depends on the return you are currently earning on your invested cash. If you are earning less than the interest rate that you will have to pay, then you should pay cash for the condo. If you are earning more than the interest rate plus the tax deduction (check with an accountant or tax consultant) then by all means finance the purchase. If you pay cash and find yourself in need of cash later on, you can easily get a mortgage or home equity loan at that time. |
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La dee dah ..
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If you have the cash , you don't need a mortgage. Yes they would be ahead. |
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clothildemstacer
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id mortgage for the simple reason that your money will be tied up. but if you can afford to pay it, and have a lot of extra cash afterward go for it. |
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cesarsalad366
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i suggest paying it all in cash. this way the condo will be all yours. just make sure youre not out of cash. |
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