Pay in cash now or take the long term payment route for a land purchase?

[chansondautomne]

Hi, Planning to purchase a land property of around 300sqms in a "first-class" subdivision in La Union. The initial price was 8600/sqm and after negotiating with the seller we got the price down to 7600/sqm (if paid in cash) but it's 8299/sqm if paid with 50% downpayment and the rest are payable within 2 years 0% interest (both options includes taxes)

So i try to run some quick mafs para po makita ko yung difference...

50% DP, 2 years payment: 8299 x 300 = Php 2,489,700

Cash payment: 7600 x 300 = Php 2,280,000

Diff: total dp price - total cash price = Php 209,700

Now that raises a question kung worth it po ba yung extra 209,700 php na cash flow o mas better po ba na bayaran ko nalang ng full cash yung lupa?"

For some context:

- Savings = 1.5m

- Stock investments = 2.1m (pero baka mapilitan po ako bawasan 'to kung cash)

- Mutual Funds - 100k

- 23/yo (M), wala pa po akong business pero gusto ko po mag-aral at mag explore ng ibat-ibang klase ng business (kaya napasali po ako dito sa r/phinvest para mamulot ng mga kaalaman sa mga masters) ideally sa software development po yung gusto ko na i pursue na business since eto po yung battleground ko ngayon.

Question po... alin po kaya mas okay, i give up ko nalang yung extra cash flow para sa peace of mind na wala na ako babayaran for 2 years kahit 0% interest pa siya o gamitin ko po yung 209,700 para mag silbing matrikula sa hard knocks university of business? hehe

 

[foofy]

@chansondautomne Kung 50% babayaran mo, may 1,244,850 kang remaining balance. Now, if may investment vehicle ka lets say at 6% annually (like MP2) for 2 years, 1,398,713.46 ang magiging value non netting a gain of only 153,863.46 which is less than the amount saved na 209,700.

Makes the cash option better. Unless you have an investment vehicle like a business or stocks that has an average gain of larger than 6% that can exceed the amount saved, paying in cash would be better.

 

[markstrimaran]

@foofy if you think about it that 209k is the interest. with 6% p.a, non-taxable, and OP has an extra of 51k every month to pay for the installments his total interest would be 55.8k for a 1.244M "loan" for 2 years.

 

[seekerfinder]

@chansondautomne yung 50% dp, dapat asa 1.25m na lang babayaran mo in 2 years which is about 50k a month. kaya mo pa ba yun? kasi cash mo na lang if hindi

 

[chansondautomne]

@seekerfinder Hello po thanks sa reply... Yes, kaya naman po yung 50k/month na hulugan for 2 years pero ano pa po kaya iba niyang advantage (bukod sa extra cash flow) compared sa cash?

 

[markstrimaran]

@chansondautomne if 50% dp, then balance ilagay mo sa bank at dun mo kukunin 51k monthly mo, kailangan 17% p.a interest nun para mag break even ka sa 209k discount. kahit digital banks nasa 4-6% lang may capping pa. unless makahanap ka ng investment vehicle na 17% growth at pwede mag withdraw monthly for payment mas better cash pa rin.

pwede rin naman 10.5% p.a lang basta kay extra ka pang 1.244M pang 51k monthly mo.

 

[chansondautomne]

@markstrimaran I guess kahit maalin naman po sa cash o loan dapat hindi yun makakapigil sa'kin bilhin yung lupa. I think, masyado ko lang po ino-overthink yung opportunity cost kung kukunin ko siya ng cash pero it seems na malabo po makahanap ako ngayon ng 17% na investment vehicle just to break even so mukhang cash nga po yung mas better na option sa case ko

 

[neophyte365]

@chansondautomne I think best not to pay in cash. At least you have remaining liquidity in case you want to invest if another opportunity arises.

 

[markstrimaran]

@neophyte365 i did some calculations. that 209k is equivalent to18.3%p.a effective interest rate. assuming OP is still liquid and didn't touch his EF. he can actually reduce that 18.3% by investing his 1.244M.

so it depends on how liquid and how his portfolio ratios will be.

 

[jesusfreak_2008]

@chansondautomne If you're able, pay in cash. IMO, worth it yung peace of mind na wala ka ng iisipin na bayarin at worth it yung feeling na may property kang paid.

 

[foofy]

@chansondautomne Kung 50% babayaran mo, may 1,244,850 kang remaining balance. Now, if may investment vehicle ka lets say at 6% annually (like MP2) for 2 years, 1,398,713.46 ang magiging value non netting a gain of only 153,863.46 which is less than the amount saved na 209,700.

Makes the cash option better. Unless you have an investment vehicle like a business or stocks that has an average gain of larger than 6% that can exceed the amount saved, paying in cash would be better.

 

[resjudicata]

@chansondautomne Pay it in cash para wala ka na iisipin na stress sa utang. Iba pa rin yung peace in mind nakukuha mo knowing na debt free ka. My thinking is always like this, if you cant afford to pay it in cash, it means you cant afford it.