Finance Monthly. 38 Business & Economy affordable home in areas such as Clearlake or Sacramento, among others. Both these markets are among the most affordable housing markets in California, with median house prices estimating around $206,200 and $435,600, respectively. Different elements have been driving buyers out of the market, even as property prices have been deflating over the last few months. Yet, for those paying in all cash, there’s still a tight line of disadvantages involved they should consider before making a cash offer on a new house. Decreased liquid cash availability Purchasing a house without financing can decrease a person’s liquid cash flow. This would mean that if you buy a new house or property using all cash, you might have fewer available financial resources to pay for unforeseen costs and other emergencies. Having a large portion of your cash or investment tied into one property is another risk a person should consider. In case of a financial downturn, or sudden change in personal wealth, you might end up being forced to sell the property at a loss, and finalizing the offer can take several weeks. Money that could be used for other investments Using a bulk of your cash, whether it’s savings or inheritance could potentially narrow your investment portfolio. The cash spent on buying a new home could have been used to fund other investment opportunities that could potentially have provided more long-term financial growth. Although the value of the house could increase, or decrease, investing your money in other assets will help diversify your portfolio, and also help increase your wealth as investments age. Cutting out mortgage tax deductions Financing a house or using mortgage funds could make you eligible for mortgage tax deductions. These deductions can help reduce your taxable income if it is itemized on your annual tax deductions. When paying for a home in all cash, it would mean that you are missing out on the advantages carried by mortgage tax deductions, and you could end up losing out slightly on your taxable income. Paying for fees Then there is the fact that once you have purchased a house with cash, you end up having a small room for any potential financial threats. While you may be able to sidestep mortgage costs, you are still required to pay property taxes, homeowners insurance fees, real estate transfer fees or duty fees, or homeowner association fees.
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