Cash or Crash?

Most of the advice about buying as opposed to renting is NOT TO BUY! The reasons are numerous and am starting to understand at least some of them - but most quote the amount of interest paid compared to rent. I have a question. What about people who do not need a mortgage - cash buyers?
With interest on savings accounts also crashing and banks (scary enough anyway) demanding you lock your money into their care for a year before they pay any decent interest.
Excuse my maths but say you have 400,000 to spend. You can buy a house straight off with no debts. Is it still financial sense to wait and see? Is the value of the 400,000 diminishing as the crash and recession continues? Is there as point in which the cash is crashing at a faster rate than the market?

Almost forgot am renting a 4 bed at 1000 per month

IMHO, if you are a cash buyer for your own home (Principal Primary Residence), then go for it, but haggle and haggle hard.

Understand that the tide has begun to go out on the property market and it will be a very, very long time before it turns, let alone returns.

If you see a property you like then ensure that you let the vendor know you are a cash buyer and not in a chain (i.e. needing to sell an existing property before you can complete the transaction). All of that makes you a very, very rare and valuable commodity in this market.

Remember, this is a business transaction, do not be afraid to slash the asking price. If the vendor was dumb enough to pay over the odds in the past or comes up with some other sob story, ignore it. It’s your hard earned cash and don’t let the vendor or their EA steal your money by perpetrating a con job on you.

Haggle hard, then haggle again. And don’t forget, there are no shortage of houses out there … and more to come. Be prepared to walk away from any blind auctions.

The market is falling and will continue to fall from the levels of today. If you believe that you are getting something you need at a price you feel is fair then you have a bargain. Otherwise, get a discount.

Blue Horseshoe

Thanks Blue Horshoe. My gut feeling plusmore importantly from reading all stuff here is to wait. Am watching the same houses here in Galway for sale for months to a year without dropping a cent. I am a cash buyer me and my partner have both sold our homes originally to buy together but we both lowered prices to sell and since then are renting and waiting.

I thought we’d be valuable and reasonably rare too but don’t think the EA’s think we are rare and valuable. One (nooneherathemoment) didn’t bother to return our call, another place I personally called into office and the receptionist said ‘there’s nooneheregivemeyournumberandhe’llgetbacktoyou’ without raising her eyes from whatever it was she was reading under the desk. He never rang back either.

There may come a time when buying a house for cash will be a wwise hedge against a massive financial catastrophe which renders paper money virtually valueless.

I don’t think it’s now but I could be wrong.

Buying for cash and bargaining hard may be a good idea as long as you understand it is to guarantee ownership of a house and not to generate a profit.

I disagree. If there was no oversupply and in fact a little undersupply then your argument has some merit as long as you are willing to loose a chunk of your money.
In the above case I think your money won’t disappear, is what I’m saying.
The fact is we do have a ginormous oversupply and many properties will be worthless in time and the ones that have value are going to plummet (albeit slowly so far) so much your eyes are going to be on stalks.
The situation is getting worse by the day. The economies of the world have built up a reverse momentum now. There is no stopping this.
A number of people in my work place have bought gold bars (I shit you not) and have them deposited in safety deposit boxes. These are people who, how do I put this, way ahead of the curve when it comes to smelling the future.

I’ll take a shotgun and tin of beans over a gold bar any day of the week… :wink:

Think I mentioned in another thread that you don’t need gold, beans, water, petrol or anything really but one thing. A gun. With that you can take all the gold, beans etc that you want.

That’s what I’m doing.
When the shit hits the fan I’ll be turning rocks with my Model 870 WingMaster SuperCell RecoilPad Pump Action over my shoulder. If you come scurrying out from under a rock with a tin of beans then God help you. :smiley:

I’m a good shot with a tin of beans… If you’re within ten feet, you’re a goner… It’s all laid out in Leviathan by Thomas Hobbes, that’s quite a heavy book and a useful projectile aswell… :nin

Fair enough I’ll capture me a slave and he’ll do the rock turning. I’ll be 100 meters back with my “Model XR-100 Rangemaster single shot target rifle”. You’ll just see the white of my eye and the brilliant glint of my smile from behind the 26-inch hammer-forged varmint-contour barrel with concave target crown.
You’ll have enough time to see the flames burst from the barrel before your consciousness separates from your earthly body. You’ll drift off towards the light watching me pull the tin from my slaves forehead. I’ll look up and give you a nod as I spoon the beans into my portly orifice.


And after that ghastly vision of the future, back on topic folks!

Reading that I find myself thinking I don’t think I’d be good at the Mel Gibson stuff! Might be a good idea to stash tins of sardines, cheaper, more nutritious and take up less space.
However I survived the last recession despite having a HFA loan with an interest rate of approx 15%, payments only hitting some of the interest for years. I worry for people taking these new loans - there are catches. I didn’t understand til much later what I got myself into and took a long time to get out. I borrowed twenty thousand, tried to remortgage - nobody would lend me a red cent - because the amount I wanted was too low for them to be able to repossess if I defaulted…These things aren’t new…

I only started to understand when I started reading the property pin but I really worry about going back to those times. It really wasn’t funny.
My worry as I said is that the house money stashed away to buy a home will fall in value along with everything else. I always looked on a house as home. And thats what I am waiting to buy - a house I can grow old in, do my own thing in and all that.
Do people really think things could get that bad that money will become paper - half of me isn’t entirely dismissing that possibility, the more I read the pin, the more I see what’s happening with jobs, gov etc.
I am starting to understand why renting is better now and trying to grasp the income multiples in relation to house prices but I worry that people are forgetting that renting can go on forever, whereas mortgages end - or they used to end prior to retirement which was good because most people incomes decreased on retirement.
Now I fear that pensions will no longer exist but rent will go on. No matter how cheap rent is it will seem expensive when you hit your seventies, eighties etc and your only income is baked bean vouchers because the pension money been used to bail out the boys again.
Apologies for getting waffly here, have some painful recession memories.

Taking two examples:

  1. Buy the house for €400k & watch it depreciate by 10% p.a. for 2 years.
  2. Continue to rent & keep most of the cash in a 5% fixed term savings account, the rest being kept in your current account or demand savings to pay your rent.

In 2011, under the first option you will own an asset worth €324k. Under 2) you will have cash of (€400k-24 months rent = €376 + interest of 29.5k = €405.5k. If the house is still for sale, you then buy it, if not you buy another house that you like for €324k.

Even if the house price is still €400k in 2 years, you will be 5.5k better off for renting (plus, if the house you rent is better than the house you would buy, that’s also a benefit). On the other hand, even if you put the €400k in a sock under your bed and forego bank interest, you will be 76k better off.

You should adjust my calculations based on 1) the actual house price 2) the % you think it might drop over the next 2 years & 3) the interest rate you can get for your money. Most likely though, it will still make sense to keep the cash.

You should also weigh up the non-monetary pros and cons - buying gives proprietary security and people have all sorts of reasons for wanting to own instead of rent their home. Renting on the other hand has mobility in that you can move to a nicer house or to a different country relatively easily. As a renter, you are also not exposed to a lot of the hidden costs of home ownership and have a landlord at the ready to make any necessary repairs.

As regards the end of the world scenarios, then I agree with BB that all you really need is the ability to defend yourself and to take what you need. All property is theft afterall, and money is merely a more gentlemanly form of theft than, say, buldgeoning someone to death with their own shoes. Ironically though, if things get really bad but just short of anarchy, owning property is a great idea. Money will be meaningless anyway, and at least you will have installed yourself somewhere nice before it all goes to hell, and you might have that little bit of extra impetus to defend a property that you feel you legitimately own.

What amazes me about the whole ‘50% fall in prices’ are the ones claiming that we are already 40% off 2006 prices. Not in Waterford. For example, our last house (now sold) was valued at €300k in December 2006. We felt its real market value at the time was €275k-ish.

We sold for €240k in September. However, if you use the rationale currently being propagated by people that we have seen 40% come off 2006 prices, this does not tally with local figures.

Therefore, a house in our old estate should now be on at €140k or so. There are still several houses for sale in that estate ranging from €210k (in the worst condition) to €280k (best condition).

None of these have moved in 12 months. And there ain’t no sale agreed signs at the moment.
These are conventional 3-bed semis in a nice area.

I’m not that up on things property, economics, or such. Just a plain Joe Soap who sees a huge variance with the picture being presented…and the reality on the ground.

Have you considered building your own home ?

If I was in your position that would be my choice. Think of it, a home to suit what you want, not a compromise.

The price of a site is much more malleable than a house, because it has fallen more already & it doesn’t have issue with the seller being convinced that because they’ve lived in it its automatically worth more. Plus, if you waved a handful of cash in front of a builders nose, they’d start bouncing up & down like a puppy.

You’d also have the ability to build an BER A-Rated home that will save you money on heating for ever day you own it. You can’t buy too many of them 2nd hand.

Building a house is something I have given little thought to. It sounds like a good idea in theory but I would find it hard to trust a builder and I don’t know enough about it to be able to know when I was being ripped off or not.
I think I will keep holding off - the biggest worry I have is which bank is safe or not.

Update on this. Was approached by an EA today regarding a 3-bed semi in a nice area of Waterford (Williamstown). They were selling at €410k at one stage. Dropped to €390, €350, and then €329.

This one’s on for €280k. Viewing it on Thursday next. Thinking of offering €180k on basis of one third reduction later in the year. I’ll probably be told to eff off, but I’ll give it a stab. Will let you know how it goes.

The one scenario you have not mentioned is you may have your money on deposit with an insolvent Irish bank and be depending on the government ‘guarantee’ to get it back.They have guaranteed you will get your money back, funny they never specify the timescale.Why should bank deposits remain unscathed when property, pensions,jobs, shares,even public service wages suffer a cut.The utility value of your house is the most dependable asset you have, unless we have complete anarchy.

That’s the interesting question. If you buy now and try and get a ‘realistic’ price through bargaining at least you have somewhere to live.
One of the banks (UK) I spoke to when trying to decide where to deposit cash proceeds of house sale said ‘the gov. guarantee is the stick everyone uses to beat us with (as we don’t have it) but it will take you a very long time to get your money - if guarantee scheme has to be used.’
Don’t want to be panicked into buying too soon. Don’t want to keep house proceeds under bed, don’t want to be panicked into withdrawal, don’t want to keep head in sand…Am stuck! Gold bars? If you kept them in a safety deposit box couldn’t they disappear with the bank? Anyone any other ideas??? Postbank?

Our local CU has a safety deposit box system. Am seriously considering it. On another topic, went to see a new development 7 miles outside of Waterford City yesterday which was built in 08.

4/5 bed with sunroom. 1600 sqf, reduced from €335k to €240k. The builder, who I spoke too, said there were many bookings, but only the next week will tell.

I’ve got house proceeds in NIB, Rabo, and EBS at the moment.
The EBS money is unfortunately tied up for several more months. I’m not really good with financial matters but have moved large sums into Rabo and NIB (divided up a 6-figure sum that we had exclusively with the EBS) due to advice I’ve picked up from here.
I am very nervous about the current situation, particularly any mention of the IMF. Also about the notion of bank deposits possibly being frozen. This money will be used to buy a family home for us and is all we have. The idea of bonds, gold etc is alien to me and might not be suitable as I may need this money at short notice, should a reasonably-priced house come up for us.
Can anyone advise?