Many responsible first-time homeowners are proud of having the funds to pay for their properties in cash.
While it’s always fantastic to have a healthy bank balance, Seeff looks at other financially savvy routes to take along your real estate journey.
What does cash is king mean in real estate terms?
Money talks and this rings true in every aspect of modern society. Some of the main focuses in developed countries are financial literacy and property investment. South Africans have long been acquainted with the rise and fall and rise again of the repo rate, unsteady markets and risky economic indicators. This has only served to enforce the logic that cash buys are the best way to go. However, in real estate, this is not always the case.
When settling on a property and preparing to take ownership, many underlying costs can quickly add up. While you may have only budgeted for the listed price of the house, this is not the sum you end up parting ways with. It also leaves space for no valuations to be done on the property, as the bank will not have a reason to seek a fair asking price. When buying cash, you will need to pay your own third-party valuator to assess the price tag.
The upside to financing your dream property
If you can afford to buy your property in cash, chances are you can afford a home loan. Regardless of the fluctuating repo rate, calculating your monthly expenses and leaving room for changes is vital. Your bank or independent financing authority will be able to bear the brunt of the risks involved with a drop in property prices and you won’t lose as much if you decide to sell when the market is low.
When you decide not to put all your eggs in one basket and invest with a lump sum in one asset, you are free to make other investments and financial decisions. Spreading your wealth over a myriad of options can result in you turning over a considerable profit, rather than diluting your funds in a singular asset. While properties are always regarded as great assets to have, they can be stagnant and difficult to sell when you need to. Protecting yourself from possible losses is wise.
Property financing on practical levels
Whether you are buying a house to add to your property portfolio or viewing it as a long-term investment as a family home, weigh up the potential pros and cons. While markets are unstable at best, you have control over your personal finances. When deciding on fixed lending terms between accredited institutions, you can stabilise your monthly cash flow expectations. Paying off a home loan does not seem as daunting as investing all of your money at once.
There is no one-size-fits-all approach
Along with easing your financial burdens, taking advantage of the perks that come with having a home loan is recommended. You can increase your credit score and level up your opportunities to be approved for future loans. Alternatively, if you insist on being a cash buyer and don’t want to go the home loan route, an agreement could be drawn up between you and the seller to formulate a payment plan over time. This contract can be overseen by a legal practitioner and will result in you owning a home on your own terms.
Once you’ve gathered enough knowledge to confidently buy a house, we can assist you in calculating your bond costs, identifying properties within your price range and streamlining the admin process. Seeff aims to equip you to enter the real estate market with experts on your side.
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