While paying cash for your next home might seem outlandish, if you put in the time and effort required, it’s actually a very attainable goal.
While you may not be able to purchase a sprawling Tudor Mansion in the “old money” neighborhood in town, a ranch style home that needs some TLC or a manufactured home on a nice size lot may fit easily within your price range. If you can fix it up and sell it for a profit a year or two down the line, your “live-in flip” could net you enough to roll into a better house in a more desirable area. You could also make all the upgrades needed to turn a fixer-upper into the home of your dreams.
By paying cash for a home you can literally save many thousands of dollars in interest over the next 15-30 years. This is an obvious plus for just about anyone, but is it worth the extra effort for you?
Consider the following benefits of purchasing a home for cash rather than financing the purchase with a mortgage:
1. No mortgage payments
You won’t ever have to make a mortgage payment again! You will still need to cover taxes and homeowner’s insurance, but the amount of coverage you need may be less than a bank would require. The only ongoing expenses incurred will be maintenance and utilities.
• The average principal and interest on a decent size home will easily be $1000-$2000 per month depending on what part of the country you live in. By paying cash you’ll be able to pocket this amount every month assuming you don’t spend it on anything else.
• Don’t forget that a larger home means more cost for heating & cooling as well as lawn care, exterior maintenance, etc.
2. Full profit
If your home appreciates in value, you’ll be able to pocket the entire profit without having to pay off the bank first. You’ll actually see the full value of any upgrades you made along the way.
• Since the first few years of mortgage payments ago almost solely to interest payments, if you sell a home every few years, you’ll be lucky to see much profit in your pocket at all.
3. Financial Freedom
If you save up the money that had been going toward your mortgage, after a year or two, financial doors which otherwise wouldn’t have been open are suddenly viable options.
• You can take an overseas weekend trip on a whim, purchase a new car for cash, allow your spouse to stay home on a full-time basis, or pay for private school or college with cash.
• Instead of spending the excess, try living frugally for longer in order to retire early. After all, you’ll be able to fully invest in your retirement if your monthly expenses are minimal for the next 20 years.
Saving Cash for Your Purchase
In a two-income household, you can turn a dream into a reality by learning how to live on just one income. If you can set aside one salary strictly for the goal of retiring early, it can happen in a hurry. In order to make it happen, you’ll need to trim down your monthly expenses to the bare necessities.
To reduce or eliminate the expense of rent and utilities, you could look into the option of moving in with a relative for a few years. If the idea of moving in with family makes you shudder, try these alternative ideas:
• Downsize to a smaller home
• Rent out a spare bedroom or two in your current home to a college student or young professional
• Move to a less expensive part of town where rents are less
• Cut down on groceries by using coupons
• Sell your car and use half of the proceeds to purchase an older vehicle with cash and save the other half
• Don’t spend your tax refund!
• Send your children to public school rather than private
• Get a second job
• Eliminate cable television from your monthly expenses
• Trade in your monthly unlimited data plan for a discount carrier
• Shop at thrift stores for clothing rather than retail stores
• Sell high-value spare items around the house
• Apply annual vacation funds toward your savings and have a stay-cation in your own area.
Some of the ideas mentioned above may be a tough pill to swallow. It will be well worth it in the end. Once you achieve your savings goal, you can purchase a home outright and say goodbye to high interest loans and costly rental payments.