Chapter 2: Buying a House for Cash
The adage reads, “Buy low and sell high” and nothing could be truer in the 2010 real estate market. With single family homes selling below $20,000 the opportunities to make money are endless. The key is finding the right property in the right area and managing it properly. You learn more from your mistakes than you do from your successes, so it is important not to make the same mistake twice.
The key to buying an investment lies in cash. Cash is king and 30-year and 15-year mortgages are not king they are debt and the only instant profit you can earn from them is reducing your debt unless of course you sell the property for higher than the outstanding mortgage balance.
To top that off, getting into debt and paying interest goes against many religious precepts. The three main religions in the United States, Christianity, Islam, and Judaism all speak against charging usury (interest) in their religious books.
In the Bible it states in Leviticus 25:35-37: "If one of your brethren becomes poor, and falls into poverty among you, then you shall help him, like a stranger or a sojourner, that he may live with you. Take no usury or interest from him; but fear your God, that your brother may live with you. You shall not lend him your money for usury, nor lend him your food for profit."
In the Qur’an it states in Chapter 2 verse 275 - 279 (Baqarah), “Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [dealing in interest or usury] - those are the companions of the Fire; they will abide eternally therein...”
The Talmud references Ezekiel 13 (Hebrew.): "He has lent on usury; he has taken interest; he shall surely not live, having done all these abominations."
With the admonition from the religious sector along with what reality shows us, buying houses with interest and paying a bank interest is like building a house with sticks and no foundation, when a big storm comes the whole thing falls apart.
While there are riches made every day by people who buy real estate with no money down and a totally financed mortgage by the bank, there is a lot of risk inherent in this practice. All we have to do is look at the crisis now with the banks closing down, foreclosure rising, homelessness, and unemployment and we can see the result of usury based economics. According to the Federal Deposit Insurance Corporation (FDIC), twenty-three banks failed in July 2010 in the United States.
Debt and plentiful credit has powered the United States economy for decades. But since the financial crisis of 2008, America has gone on a drastic debt diet. Families are paying down credit-card debt and attempting to build up cash reserves. Large and small businesses are learning to operate in an environment where cash once again is king.
The economic shift has been dramatic; bank lending has dropped at a frightening rate. In 2009 the banking system showed the largest decline in loans in the history of the FDIC. At the same time, the amount of commercial and industrial loans outstanding has fallen 19 percent since the fall of 2008—back to the level of late 2006. Even the financial sector, which shoveled debt into the economy like there was no tomorrow have seriously cut back on debt.
During the last two decades people spent and invested based on expectations of what they could borrow. But now things have changed and cash is making a come back. What better time and opportunity then to throw money to the winds and invest in a house with cash and avoid the mortgage trap.
I know it’s hard and you want your interest deduction write off on your taxes and like the regularity of making that monthly mortgage payment. But what about the freedom to lose your job and not have to worry about losing your house in the next month because you fear you will fall behind in your mortgage. There is something to be said for financial security after all. I know I enjoy it with six children between the ages of 2 and 13 and a husband who likes to travel to Europe three or four times a year.
You may wonder, how can I buy a house for cash. Well if you live in Fairfax, Virginia, or any of the other big money enclaves then it will be hard to buy a house for cash in that area, but there are other areas in Virginia where this is possible.
There are numerous areas around the country where you can find single family homes listed at prices under $20,000 with some going as low as $1000. Some of the distressed areas of the United States where you can get real bargains include Detroit, Michigan, Indianapolis, Indiana, Baltimore, Maryland, Memphis, Tennessee, Miami, Florida, Orlando, Florida, Atlanta, Georgia, and Cleveland Ohio.
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