Difficulties in borrowing, tensions on the most sought-after properties, desire to save money: several reasons can encourage buyers to make a cash real estate purchase, without a bank loan. Are you considering using the money from a previous sale to buy without credit? Do you have enough capital to afford a cash real estate purchase right now? Discover the advantages and limitations of this credit-free purchase.
The main advantages of a cash real estate purchase
A simpler procedure
In a real estate purchase project, resorting to a bank loan complicates and lengthens the processes. Buyers must attend several meetings to negotiate the credit and prepare all its formalities, and are not able to transfer the money immediately to the seller.
When you buy cash, you eliminate all the steps of negotiating interest and preparing a loan file. It is a valuable time and energy saving on such a complex project.
“A bank loan complicates and lengthens the processes in a real estate purchase project.”
A more favorable negotiation
When a seller receives two purchase offers, one of which is cash, he will naturally be tempted to accept the cash real estate purchase rather than the offer from a buyer planning to borrow. Indeed, the buyer who already has the necessary money to validate the transaction is less likely to withdraw. It is the guarantee of signing a compromise more quickly, with less stress involved.
On exceptional properties, some do not hesitate to use the argument of cash real estate purchase to avoid missing out on a house or apartment that they particularly like.
A solution for buying when you are a senior
The older you get, the more reluctant banks are to grant a mortgage. Many retirees sell their family home and use the money received to buy an apartment or smaller property in cash. They know that taking out a loan will be complicated – not to mention that loan insurance becomes more expensive as borrowers age.
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The best way to buy cheaper
Logically, a cash real estate purchase costs less than a credit purchase. Any loan costs you money: beyond the amount you need, you repay bank interest and pay loan insurance every month. Buying without credit remains one of the most effective ways to save on the operation.
Preserved debt capacity
When you choose not to borrow, you give yourself the opportunity to do so later for another project. Indeed, banks are reluctant to grant a new loan to a household that accumulates a certain number of them, especially if the amount to be repaid each month reaches (or exceeds) one third of the total income. If you make a cash real estate purchase today, it opens the door to another loan for another property (a second home, a rental investment) or even a car, for example.
What are the limitations of cash real estate purchase?
Buying cash involves touching your savings… And preserving them can be a more prudent solution. Indeed, one is never safe from an unforeseen event involving significant expenses, for which one will naturally look into savings.
In some cases, you can benefit from leverage by borrowing to buy a property that you then rent out. Very concretely, this effect is activated when the rental yield of the property exceeds the interest rate. Make this calculation carefully before deciding on a cash real estate purchase!
Ultimately, cash real estate purchase can be a good option to finalize the operation more quickly and potentially save on this acquisition. But since it is not always the most profitable alternative in every situation, do not hesitate to seek the advice of a real estate professional to guide you.
