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In Real Estate Cash Isn’t Always King

SS8-4-13The cornerstone of King Solomon’s advice for living a prosperous and godly life is wisdom, tempered with prudence – qualities that lead to successful outcomes in life as well as investing. That’s where a hefty dose of prudence – and foresight – can save money and time. Case in point: a quick cash buy on a cheap house can end up ousting more and yielding less than a higher prided property with financing.

The infamous “dollar house” in Detroit is actually listed for sale for just one measly buck. But even at that rock bottom price, nobody’s biting. The Detroit house is one of a number of properties up for sale in markets around the country for ridiculously low prices, as owners try anything just to get these homes off their hands. But as prospective buyers realize, that nominal price is only the tip of the iceberg. Taking care of the associated fees and ongoing costs can run cost thousands.

Transaction fees associated with a home purchase still apply; even if a buyer can make the purchase out of pocket change. Brokers, title services, as well as local and municipal service fees and registrations can add up quickly. And cash deals miss out on key deductions suck as the mortgage interest break.

Homeowner’s insurance also takes a bite. Depending on the location, type of property and the kinds of coverage needed, insurance can tack on s significant amount to the annual costs of owning and maintaining a home. And if you live in a particularly disaster—prone area, separate coverage for events such as floods, hurricanes and earthquakes might be needed –at additional costs.

Renovations and maintenance eat money. Although there are various reasons for posting the very low “stunt” prices on a home, a very cheap house is generally a very distressed house, And while investors and home buyers may be able to reap a tidy return after needed cleanups and upgrades are done, that return may be a long time in coming, even though repairs and maintenance are a part of the long list of tax deductions available to property owners.

Owning property outright — for whatever price – can be pricey, if the associated costs have to come out of a buyer’s own pocket. But saving that cash and financing a property may be a better choice. Leveraging other people’s money through mortgages and refinancing is a key principle of Jason Hartman’s investing philosophy – and a way to take more than a dollar to the bank.  (Top image: Flickr/SqueakyMarmot)

Source:
“Detroit’s One-Dollar House Sits on the Market for 521 Days.” The Bryan Ellis Investing Letter.BryanEllis.com. 1 Aug 2013.

Solomon Success is the complete solution for Christian investors.  Read more from our archives:

Wisdom is Worth More Than — Palladium?

New Rule Rewards Prudent Borrowers

The Solomon Success Team

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