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On the surface, it may seem that buying for cash is the best way to buy a property. However, appearances can be deceiving. It is not always best to buy a property for cash.

A lot depends on the circumstances.

There may be times when buying for cash will be beneficial; there may be other times when it will not.

1. What is meant by buying for cash? 

Buying for cash means buying without the aid of a mortgage. It means the seller has in their bank account the full amount needed to buy the property they wish to buy.

It does not mean paying cash itself for the property. In most countries in the world, and certainly in the UK, that is not allowed because of concerns about money laundering and the proceeds of crime.

A buyer purchasing without the aid of a mortgage may need to satisfy their conveyancer as to the legitimacy of the funds to be used. 

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2. The main benefits of being a cash buyer

The advantages of you being a cash buyer, which may encourage a seller to favour you over other buyers or agree a lower price, include:

  • Absence of a mortgage – reducing the risk of delay
  • Greater certainty that the purchase will proceed – giving the seller greater confidence
  • Ability to achieve a quick sale – important where speed is required.

The over-riding factor is that cash should give you greater bargaining power, heightening your status in the eyes of estate agents and sellers and enhancing your prospects of:

  • Achieving a price reduction
  • Agreeing other terms favourable to you – for instance, an early completion or a delayed completion, depending on your requirements.    


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3. Cash and property strategies   

The power of cash is probably at its strongest when it comes to achieving a range of highly lucrative properties strategies such as:

  • Option to purchase
  • Buy refurbish and refinance
  • Delayed completions.

Basically, cash can be used to buy a property and add value to it without the need to borrow the purchase price – thereby saving in terms of finance costs such as interest and charges.

Cash enables such transactions to be less risky, easier and cheaper.

However, in terms of your return on capital – return on your money invested – using your own cash may not be your best investment option due to the absence of gearing.

However, returns may not be the only goals in an investment situation. Other factors such as minimisation of risk and speed of completion may be of equal or greater priority. 

Overall, having cash gives you greater options.  


4. The downside of being a cash buyer   

The big disadvantage of being a cash buyer is that you do not get the benefit of good debt or gearing – also known as leverage.

When you borrow to buy a property, the property becomes an asset, an investment. The rent of the tenant pays your monthly mortgage payment, with perhaps something left over for you to put in reserve.

If you take out a repayment mortgage, where your monthly payments include not only interest but a part of the principal sum borrowed, you will owe nothing to your lender at the end of the mortgage term and will own a property of higher value (in all probability) and free of mortgage.

Borrowing to buy a property enables you to make your money go further.

Say you have £200,000 to spend. You could buy one property for £200,000 or you could buy 4 properties for £200,000 – contributing £50,000 to the purchase price and borrowing £150,000 in each case. 

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5. Should you buy for cash?   

So should you buy for cash if you have the money? There is no one size fits all answer.

It will all depend on the circumstances. For example, if you need to buy a property fast in order to get it, you will be pleased you have the ability to buy with cash.

If your objective is to make maximum use of your money, making it stretch as far as possible, you will want to borrow the optimum amount – using sophisticated spreadsheets to maximise your return on capital.

Are you in the lucky position of being able to buy a property for cash? Would you do so or not, and why? Please leave your comments below.

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Dalton Barrett
Rebel Property Coach

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