Why paying cash for condo is not recommended

DEAR BOB: I am downsizing and plan on paying cash for my next residence. Are there any hidden dangers in paying cash? --Mark N.

DEAR MARK: Please don't do that unless you are: (1) very wealthy, (2) will be spending cash you never need to see again, and (3) you can afford to tie up a large amount of cash in one asset.

Purchase Bob Bruss reports online.

A better alternative is to pay a 20 percent or 25 percent cash down payment and obtain a fixed-rate 15- or 30-year home mortgage for the balance of the purchase price. Then, just in case you bought a "bad house" or a "bad condo," you won't have all your nest egg tied up. After a few years of owning and living in the home, if all turns out well, then you can pay off the mortgage (of course, be sure it doesn't have a prepayment penalty).

I still recall a nightmare letter I received a few years ago from a retiree who bought her retirement condo for all cash. Only after moving in did she discover the complex was badly managed and occupied by about 50 percent renters who caused many problems.

When she tried to sell her condo, she discovered mortgage lenders either refused to loan to new buyers or they charged very high interest rates because of the high risk with so many renters. The only way she could get her cash out was to sell to another all-cash sucker. I don't want you to become an all-cash sucker buyer like that.

(For more information on Bob Bruss publications, visit his
Real Estate Center).

Copyright 2006 Inman News