When investing in real estate, you could say that buying a condo is a good choice—especially when living independently alone—as it is a more affordable housing option than a house & lot. Of course, you will need to consider many things when you decide on your preferred housing option: the location, the condition of the place, its convenience, and—most importantly—the price and affordability of the condo or home you'll be buying or even the payment options and flexibility available.
If you have the funds to buy a property outright, you've undoubtedly heard a lot of advice that suggests paying spot cash for a house or condo is the finest move you can make—but is this really true? Let's say you have found a good condo or real estate to invest in and have the money to pay it full instantaneously in just one transaction. Would you pay spot cash, or would you still choose to pay it in installments?
What is Spot Cash?
First of all: What does spot cash mean? Spot cash is an immediate transaction, whereas as opposed to payment at some future time like installments, you pay in cash immediately in real estate investing, paying in installments rather than in spot cash because it's a more feasible mode of payment for most people. Spot cash initially appears to be an excellent choice since there will be no mortgage payments or price interests to worry about. It seems a whole lot better to pay it whole in just one transaction than think about paying monthly and budgeting yourself. However, it isn't as easy and good of an idea as it sounds.
Now, here is the question: Is buying a condo in an all-cash transaction a good idea?
Pros and Cons of Spot Cash
Aside from needing enough cash in your account to cover the entire cost of a condo or home in this kind of payment, there are the pros and cons of spot cash that you need to take note of before going all-in with your purchase.
Pros of Spot Cash
Owning your home outright
You are now the single owner if you pay for the unit in cash. Knowing that you owe no one anything for your home can be a freeing experience. Not only that but there's no risk of the lender seizing your home if you default on your mortgage.
While your name may appear on the title, you do not own the property outright if you have a mortgage. Instead, depending on how much equity you have in your home, the lender owns a portion of the property. The prospect of not having to make any monthly mortgage payments is highly appealing. You will not be leveraged; thus, you will not have to make mortgage payments to a lender. You could say that once you pay spot cash, you are now the owner of the home you bought.
Paying in cash is cheaper
For sellers, one of the benefits of spot cash payment is that they will receive immediate payments right then. As for buyers, one of the apparent benefits is that the total amount to be paid is cheaper than installments.
When you pay spot cash, you are away from huge interest rates and hidden fees that will be added once you choose to pay in installments.
Cons of Spot Cash
Tying money in one investment
One of the significant benefits of installment payment is that you can split a large amount of money you have for other things while saving consistently to pay the monthly price. When you pay spot cash, you're tying all your budget into only one investment.
While paying spot cash for a condo may increase the unit's value, it also ties up all of your available funds in one place. This is likely the most significant disadvantage of paying cash for your next home. If everything is invested in one thing, you won't be able to diversify your investments. If you put all your money into one investment, you won't have much left for anything else.
Less money for other expenses
As said on the previous point, you tend to have less budget for other things if you spend all your money on paying spot cash.
What if you have an emergency financial situation in the future and you could not do much about it since you spent almost everything on buying a condo? Always save extra money for emergency expenses. The rule of the thumb is always to keep an emergency fund equal to 3-6 months of spending. Paying in cash and not having enough money for future expenses is not a good idea.
Spot Cash vs. Installment
Both spot cash and installment payments have their benefits and drawbacks. Spot cash payments have the advantage of being simple. They are settled and reported in accounting ledgers the same day, boosting the seller's cash flow immediately. They can, however, hurt the buyer's cash flow. If you spend all of your company's cash reserves on a significant asset, your budget may be limited until you can replenish your accounts. On the other hand, installation payment options allow you to save more money for emergencies and spread out the expense. Compared to a cash transaction, they frequently come with interest rates that raise the cost over time.
There are some benefits of spot cash payment when buying a condo. However, some drawbacks must be addressed. So, if you have that large amount of money to pay in full immediately, carefully consider the advantages and disadvantages before choosing what path to invest in real estate.
Let's bring back the question: Is buying a condo in an all-cash transaction a good idea?
This will depend on your cash flow condition. Having a big amount of money right at this moment does not mean you should also be spending everything right at this moment. There is a time and a place for both installment and cash purchases. When you won't be financially burdened by forking out all that cash, or when you don't have another area (personally or financially) where you'd prefer to invest your money, paying spot cash might be a decent solution.
Ultimately, it's always better to buy what you can comfortably afford right now, so in the meantime, keep your money, think about it seriously, and spend them wisely.
Looking for a condo to invest in? Check out Vista Residences!
For more information on Vista Residences, email [email protected], follow @VistaResidencesOfficial on Facebook, Twitter, Instagram, and YouTube, or call the Marketing Office at 0999 886 4262 / 0917 582 5167.
