No. of Recommendations: 10
If you could, would you rather pay cash for a house or invest that cash in Berkshire and get a ~6.7% 30-year fixed-rated mortgage?
This is a really hard question, almost the same as the more common question about whether to use money to pay down an existing mortgage or invest.
But a couple of random thoughts--
It's after-tax real money that counts.
So---
First, bear in mind that the (relatively) higher future inflation is, the (relatively) better Berkshire will look as the choice.
That's because Berkshire's revenues and profits and value will tend to get pulled up along with inflation being a wash (I expect inflation+7%),
whereas the money saved on debt will not: you're paying for real estate now in "big" dollars when you could be paying it back later in "little" dollars.
Inflation is good for people with big debts.
If you have some reason to expect inflation to remain high, that gives bonus points to the borrow-and-invest strategy versus the pay-cash-now strategy.
Maybe not enough to change the decision based on other considerations, but it's a big input to the decision.
And second, the tax matters a whole lot.
You have to estimate it on both sides: what you'll ultimately pay on your BRK profits, and what the net tax cost is of your interest, both with time value adjustments.
My usual first response would be to lean towards investing, provided one is in the situation that the mortgage in question is far from being onerous or disproportionate compared to the rest of your financial situation.
As you are considering paying cash for a property, my guess is that you aren't close to the line on that front.
Jim
