Cash in Housing

I zip over to patrick.net occasionally and read stories and comments. A year and more ago there were a few very noisy gold supporters. They seem mostly to have vanished (having some gold is not a bad idea, but buying it when prices are sky high and dollar value is down is...also a gold standard is a horrible idea).

I do still read quite a few comments in the "cash is king" strain. I don't deny that cash has advantages in some places in society. Mostly, in housing, however, it doesn't. There are two exceptions. One is competitive bidding when TIME is critical to the seller. The other is auctions--whether for bank foreclosure or tax lien. There are a lot of the latter happening now and for the foreseeable future, but even still, the vast majority of purchases are mortgages, and that is because you are NOT typically advantaged by having cash.

There are two reasons for this. One is that the seller generally doesn't give a damn how the money gets there. If they can sell a house to someone getting a mortgage for $225k and a cash buyer offers them $175k, they are just giving up nearly $50k by going with the cash buyer (not quite because of various fees the seller may be responsible for). The other is that cash buying is not generally a good idea unless you are getting a steep discount (like at auction) because houses are not often very good investments.

Buying a house that you live in is an excellent hedge against inflation, and so makes good sense to do as soon as feasible...which means mortgage. Buying a house to rent out can make sense in some places, but there are several factors to consider, it is neither easy nor cheap to do and there is a good chance that someone who just invested the same money in the market will do as well or better. Buying a house that you live in with some expectation of selling it for a profit in a few years is generally pretty stupid. It can pay off, but so did Madoff for some folks. Didn't mean they were smart.