Cash transactions have long been a preferred method in the real estate industry, offering buyers and sellers distinct advantages. While cash deals can expedite the process and simplify the transaction, they also come with their own set of potential drawbacks.
This article will explore the pros and cons of using cash in real estate transactions to help you make an informed decision.
Pros of Using Cash:
1. It is widely accepted
Cash is a universally recognized and accepted form of payment. It is used in almost every country and across diverse cultures, making it a convenient and straightforward medium of exchange in international transactions as well. Also, it is tangible and physical. People can see and touch it, instilling a sense of trust and confidence in the transaction.
2. Paying with cash helps you avoid accumulating debt
When you use cash, you are limited to spending what you’ve already earned and saved, which makes it difficult to overspend or accumulate debt. Unlike other payment methods, cash transactions enforce financial discipline and can prevent you from falling into debt traps.
3. They are generally more private and anonymous
When you pay with cash, there is no need to share personal information, such as your account details, as is often required with electronic payment methods. This anonymity can offer a level of privacy, making it harder for others to track your spending habits or access your financial information.
4. Make it easier to stick to a budget, as you physically see the money leaving your wallet.
When you use cash, you can see and feel how much money you have left. This visual and tactile feedback can act as a natural spending deterrent, making you more conscious of your financial decisions and less likely to overspend.
5. It typically doesn’t involve fees.
Cash is a physical object that is not subject to the same processing and infrastructure costs as other payment methods, such as credit cards and debit cards.
Cons of Using Cash:
1. Carrying large amounts of cash can be risky
Carrying a substantial amount of cash makes you a potential target for theft or robbery. Criminals may be more likely to target individuals they perceive as carrying a significant amount of money.
2. Cash transactions may lack detailed records
Cash deals often involve minimal documentation, which can include a simple sales agreement and a receipt for the cash payment. This lack of detailed paperwork can make it challenging to establish the transaction’s specifics. Also, in some cases, cash transactions in real estate are off the books. Parties involved may prefer not to report these transactions to regulatory agencies, leading to a lack of official documentation.
3. It is not suitable for online purchases or remote transactions
Cash is not protected by the same fraud protection as electronic
payment methods. This means that there is a greater risk of fraud if you use cash to make an online or remote purchase.
4. Inflation can erode the value of cash over time
Simply put, inflation is the rate at which the prices of goods and services in an economy rise over time.
When inflation occurs, property prices tend to rise as well. This is because the cost of building materials and labour also increases. This means that if you have cash saved up to buy a property, you may need more cash in the future to afford the same property.
5. It doesn’t offer rewards or cashback.
It is difficult to track cash transactions, as they are not subject to the same regulations as electronic transactions. This makes it difficult for businesses to track and reward cash transactions. These transactions can be inconvenient for businesses, as they require them to handle and store cash.
Deciding whether to use cash or financing depends on your financial situation, investment goals, and the current state of the real estate market.
However, using the bank is the best way to make payments for real estate transactions.