Some of my high net worth buyers ask me if it makes sense for them to get a low interest mortgage and then invest their cash in stocks or mutual funds rather then in a luxury Manhattan home which could take a long time to appreciate. I tell them that “ Well, it depends!”
Here are a number of reasons to consider why paying all cash may be right for you:
1. Simplicity: A cash deal is much more straight forward and easier to close. There are fewer fees and the transaction takes less time.
2. Negotiating Power: Sellers love all cash! They will often take an all cash offer and at a lower price rather than take a risk with a buyer who needs a mortgage.
3. Privacy & Confidentiality: Applying for a loan requires disclosing a lot of private information and answering a lot of questions.
4. Peace of Mind: Especially important if you are older and you would like to the know that your home fully paid.
5. Lack of confidence in the stock market: Perhaps you will be better off placing your money into a Manhattan luxury home which, by the way, is still a good way to diversify your investments.
6. Use cash to get the deal done: Then take out a home equity line of credit through your bank for more advantageous investments. The interest on a home equity line loan may be higher than mortgage interest however if you consider the return on stocks to be around 8%-10% investors could earn 12% to 15% investing in private equity.
7. Here’s one very important thing to remember! Unless you are using the money from the home equity line of credit loan to renovate your home or make substantial improvements the loan won’t be tax deductible under the new tax law. Also you can only take a tax deduction on your mortgage now on loans up to $750,000 with the new tax law. Prior it was up to $1 million.
If you’re looking to buy a Manhattan luxury home and need advice, contact me today!