Are you able to pay for your next deal? You might need it for your next deal. 

Estimated read time 4 min read

In the last few years, buying a house has not been an easy task. Cash buyers are also putting pressure on would-be home buyers. They have to deal with rising interest rates, decreasing purchasing power and housing shortages.

In April, nearly a third (33.5%) of U.S. homes were purchased with cash, marking a nine-year record, according to data from Redfin . This trend began during the pandemic.

Cash-purchased homes are at a level not seen since the housing market recovered from the Great Recession in 2014. The housing market looks different today. What’s the reason for this surge in cash buyers?

Rising Interest Rates

Mortgage rates have increased due to inflation, which is the main reason why cash buyers make up a larger portion of real estate.

Although rates fell slightly in June they are still high compared to last year. The average 30-year weekly rate at the end June was 6.67%, close to a 15-year record. This has increased borrowing costs and put many buyers off a mortgage.

The buyer has two options: either pay in cash to avoid monthly payments, or get a high-interest loan. Sheharyar Bukhari, Senior Economist at Redfin, explained that buyers who cannot pay cash must either leave the market or pay higher interest rates.

All-cash home buyers have found that the rise in interest rates makes it less appealing to buy a house, since they can invest their money in other assets, such as bonds, which are more attractive at higher rates of interest. Home sales fell 41% compared to the previous year, while all-cash purchases declined 35%.

Inventory

Cash buyers have become the kings of the housing market due to competition. In some metro areas, it is not as common, but the shortage of housing forces cash buyers to outbid those who require a mortgage.

While high rates have driven away many buyers, they’ve also made a number of potential sellers decide not to sell. There’s still an issue with supply.

According the data of the National Association of Realtors , housing inventory in May was down 6.1% compared to last year. It is still at about half of what it was prior to the pandemic.

How to Come up with Cash

Cash buyers have an advantage because of the rising interest rates and more demand for houses. Cash buyers are more likely to win in a bidding battle and save money over the long term.

Cash is not available to all buyers. There are several ways to get cash. These include a Self-Directed Individual Retirement Account (SDIRA) and a Home Equity Line of Credit ).

Self-directed IRA

Real estate can be held in an individual retirement plan, although it’s not as common. To do this, you will need a self directed IRA.

Some prefer SDIRAs to other types of IRAs, because they give you more flexibility in deciding what you want to invest in. They also help you save taxes.

You cannot purchase property outright with a self directed IRA. However, the IRA as a whole can. Due to this, you are only allowed to purchase property as an investment. Your family and you cannot use the property as a home or a vacation destination. You must also have enough money in your account to cover the entire transaction.

HELOC

You must already own a house to be able to use a HELOC. You can use a HELOC to get a revolving credit line that is secured by the home you own.

A HELOC may be a different kind of loan but it is similar to a mortgage. You’ll have to use your home as collateral for the HELOC, so you need to be sure the investment or loan is worth it. You could lose both properties if you don’t.

Conclusion

Even though not everyone has the cash to buy a home, investing in real estate doesn’t have to be ruled out. You can expand your real-estate portfolio by doing some research.

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