Such a dilemma is not faced by most real estate buyers who would take too much time to collect cash to buy. In order to live in their own “M” they have to borrow in a bank. However, what if we have sufficient funds to buy? Should you then use a loan or spend all your funds to buy real estate?
Purchase of an apartment or a house for own needs
Most probably think that taking a loan is a last resort. No repayment installments results in a greater sense of security. In the event of job loss or a crisis in personal finances, you do not have to worry about the bank wanting to bid on our apartment. It is difficult to refuse rationality in such an approach, but let’s consider the pros and cons of this solution.
We buy an apartment without a loan
When we buy an apartment for cash, we spend practically all the money saved on it. If after the purchase our financial situation changes, we will lose our job and we will get in big trouble anyway. We will not be able to cover your current expenses. No one will give us any credit that would allow us to wait out the difficult period. Non-bank loan companies may be the only way out. However, it is hardly necessary to convince anyone that it is difficult to break free from such a trap.
Or maybe a loan?
Let’s think now what would happen if the apartment was partly bought on credit. In the event of job loss, we would have funds not only to pay loan installments for several months, but also to a fairly normal life. It would give us a chance to calmly look for a new job. We would also have enough time to sell the property, if any. Therefore, it seems that it is better not to invest all savings in buying real estate.
The situation of people running a business is even different. For them it is always necessary to have some savings because they do not have a fixed monthly income. In addition, spending too much money for their own needs may prevent them from investing in business development. A mortgage is, after all, the cheapest form of borrowing money. It is always worth considering whether for the future of our business there will be better investment in the company, and not in your own apartment or house.
Purchase of real estate treated as an investment
For some time, there has been a lot of talk about our future pensions, and especially about the fact that they will not allow a normal life. So many people try to secure their own future. A popular form of investment is the purchase of an apartment for rent. Although we have cash for such a purchase, it is always worth considering financing such a transaction at least partly with a loan. First of all, it may allow us to buy not one, but e.g. two apartments. The rent obtained from the rent will allow us to cover part of the installment. In addition, we make investments while we are professionally active and have some financial surpluses. If we do not have to spend part of the income on the loan installment, it may turn out that instead of saving we spend money completely unreasonably. Some of us need some motivation to save money. Repayment of a loan for an apartment bought for investment purposes may prove to be the best way to force savings.