Buy a House Outright?

**Justice44** · 08-18-2009, 10:51 AM

Re: Buy a House Outright

HI Bp1,

I think that buying an house outright is generally a financial ideal. At the very least, it is ideal to have the financial capacity to purchase a house in full.

**Fizgig** · 08-18-2009, 11:03 AM

I think the saying "a bird in the hand is worth two in the bush" applies here. A home is a solid asset that you can live in. Stock options is a "maybe" asset. At first glance I do think it's reasonable to sell some of the options and buy the house.

Do you have much else in the way of investments? If a high percentage of your wealth is in the form of these stock options, I think it's a good idea to diversify by selling some and buying the house. The stock could go up, but it could also go down and then keeping 100% wouldn't have been such a good idea.

**KTP** · 08-18-2009, 11:52 AM

Having had over 19,000 options of a major software company that recently expired under water, my vote is:

SELL SELL SELL

If they are at least decently above water that is.

At the worst case, if you sell half and the stock goes way up, you still have half your options left that are worth a ton more. At the other end, if you hold them all and hope, some exec at your company will make a bad move and you will be left holding 19,000 worthless options.

**EEinNJ** · 08-18-2009, 12:39 PM

It's a great idea. If you're only selling half the options to cover the mortgage, you're hedging your bet. The tax consequences should be considered carefully, though, both selling the stock and not having mortgage interest to deduct.

**bp1** · 08-20-2009, 10:13 AM

Thanks for the advise everyone!

The options wont mature until December, so lets hope that the company does well until than.

What could happend in 4 months anyway LOL. Keeping my fingers crossed.

**creditcardfree** · 08-20-2009, 10:25 AM

The buyer of our last house had cash to buy it outright, but our real estate agent said they (real estate agents) advise against that. Too many assets in one basket? She didn't explain.

I'm not steering you the other way, but warning you that buying a house outright is not common and even professionals may advise you against it.

**tripods68** · 08-20-2009, 01:30 PM

I wish I could pay my mortgage outright. Pay it and be done with it!

**EEinNJ** · 08-21-2009, 06:52 AM

Originally posted by creditcardfree View Post

The buyer of our last house had cash to buy it outright, but our real estate agent said they (real estate agents) advise against that. Too many assets in one basket? She didn't explain.

I'm not steering you the other way, but warning you that buying a house outright is not common and even professionals may advise you against it.

The only reason a real estate agent would advise against buying a house for cash is that if you borrow money, you'll buy a more expensive house and they get a bigger commission.

An investment advisor might recommend a mortgage because of the leverage and tax deductability. This presumes you could get a better return on cash elsewhere, which has not been the case in the last 10 years.

**Ima saver** · 08-21-2009, 07:37 AM

I have been mortgage free for 32 years and I love it! I say, go for it!

**Radiance** · 08-21-2009, 07:43 AM

This is a very interesting concept.

My house is currently in shortsale, my mortgage payment is 2800, I can only afford 2200.

If when I go back to rent I put aside 1000 a month, I would have 172,227.52 after 10 years according to most savings calculators.
Meanwhile I would rent at about 1500.
So my housing expense would be 2500, 1500 for renting and 1000 towards house fund. Which I can afford after I paydown my cc debt.

I don't know what will be available for 172k in 10 years for now, but 172 would be a heck of a good downpayment.

So families would rent for 10 years and only then try to buy; a new model I think.

Does that make financial sense?

**Justice44** · 08-21-2009, 08:28 AM

RE: Buy a House Outright?

Originally posted by Fizgig View Post

I think the saying "a bird in the hand is worth two in the bush" applies here. A home is a solid asset that you can live in. Stock options is a "maybe" asset. At first glance I do think it's reasonable to sell some of the options and buy the house.

I agree.

**Justice44** · 08-21-2009, 08:32 AM

Re: Buy a House Outright?

Originally posted by creditcardfree View Post

The buyer of our last house had cash to buy it outright, but our real estate agent said they (real estate agents) advise against that. Too many assets in one basket? She didn't explain.

I may understand declining to buy the house outright, if there was strong evidence that the value of the house will significantly increase within 1-2years. I am generally against incurring debt.

**anonymous_saver** · 08-21-2009, 08:53 AM

I would exchange her stock options into Index funds and not buy the house outright. I'm assuming this money was earmarked for retirement. This seems almost as a bad idea as cashing out your 401(k) to me.

**Seeker** · 08-23-2009, 06:40 PM

Originally posted by EEinNJ View Post

The only reason a real estate agent would advise against buying a house for cash is that if you borrow money, you'll buy a more expensive house and they get a bigger commission.

An investment advisor might recommend a mortgage because of the leverage and tax deductability. This presumes you could get a better return on cash elsewhere, which has not been the case in the last 10 years.

Real Estate agents only get a percentage of the purchase price. The purchase price does not change according to the borrowed amount. Therefore, the "bigger commission" is not a valid arguement. Cash may limit a person's ability to buy any house.... but the Real Estate agent should not show people more house than they qualify for (in an ideal world). Of course, that does not happen. Real Estate agents will show houses out-of-reach in order to make "bigger commission" -- but cash or not, does not vary the purchase price.

The second paragraph is confusing to me. Are you for or against paying cash for a house? House rising or not, depends on locality. Investments rising or not depends on the market.
--

bp1:

If you and your wife plan on staying in that area where the house is for +7 years, then I too would say sell a portion of those stock options and buy the house outright.

While it is a house-rich and maybe a cash-poor decision, if it's somewhere you plan to stay and both your jobs are reasonably secure in this economy, and your budget/expense is such that you can easily save the money otherwise (ie for retirement how ever many years from now), than I would go for it.

There's tax deductions you'd be missing, but there's also peace-of-mind that you'd be saving (and for some of us, that peace-of-mind is worth more).

Buy a House Outright?