Your grandma died.
As part of her passing, a substantial amount of cash was passed down to you. Now what?
We often talk about the transformative power of cash, especially in real estate. It's a topic that frequently resonates with our readers, listeners and clients. Some folks have substantial cash reserves that allow them to enter the property market without breaking a sweat. They can make investments and purchases without losing sleep over their finances.
That's not everyone's story. Instead, we are going to talk about another type of person who might have cash reserves to invesst – the person who receives a generous gift, perhaps from a family member who has passed away. This gift may not involve millions of dollars; we're talking about sums like $100,000 to $200,000. Now, the question arises: Is it wise to consider alternatives to the stock market, like investing this cash in a home?
Real Estate vs. Other Investment Vehicles: A Closer Look
First and foremost, it's crucial to understand that while real estate is often the preferred choice, it's not the only option. People have made substantial profits through various investment vehicles, but the key is to consider the risks and rewards of each.
For instance, the stock market can be a fantastic place to grow wealth. Yet, it's not without its downsides. The value of your investments can fluctuate wildly, and there's always a risk of losing your entire investment if a company fails or faces legal troubles. Even if you opt for mutual funds, you still pay fees, which can affect your earnings.
Now, let's contrast this with the game of real estate. Yes, we call it a game because, like any game, there's strategy involved. But here's the catch – very few people have truly lost their entire investment in real estate over the long term. It's rare to find a real estate investor who has witnessed their entire investment vanish into thin air.
Real Estate: A Slow and Steady Game with Control
Sure, some might argue that the returns from real estate don't always match those of other investments. But here's the crux: real estate investments tend to be a slow and steady growth vehicle, often providing equity and a sense of control that other investments can't match.
At worst, owning a home provides a steady path to accumulating equity while giving you control over your living space. You can tailor it to your needs, preferences, and lifestyle. You have the reins for safety, security, design, functionality, and aesthetics.
Investing a Windfall in Real Estate
Now, let's address the original question: Should you invest a windfall of cash in real estate, especially if you don't have the entirety of the purchase price in cash? The answer is a resounding yes, and here's why.
Imagine you've inherited a $100,000. Typically, you would have only a ten percent down payment to purchase a home. In today's real estate landscape, it's smart to consider using that cash to reduce the debt you take on for your new home. Why? Because currently, interest rates are higher than they've been in a while, making borrowing more expensive.