{"id":172781,"date":"2024-05-31T05:39:28","date_gmt":"2024-05-31T11:39:28","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=172781"},"modified":"2024-05-31T05:39:35","modified_gmt":"2024-05-31T11:39:35","slug":"cash-is-not-king-how-to-win-with-financed-offers","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/cash-is-not-king-how-to-win-with-financed-offers","title":{"rendered":"No, Cash is Not King\u2014You Can Do Way More and Way Better With Financing"},"content":{"rendered":"\n

You hear it all the time on <\/span>BiggerPockets Forums<\/span><\/a>, podcasts, local meetups, from gurus, etc. It must be true if everyone says it is: \u201cCash is king.\u201d <\/span>The idea is if<\/span> you buy with cash, you can get better deals, more deals, better terms, etc. But in 20 years of doing residential real estate investments, I\u2019ve found that this is <\/span>actually<\/span> not <\/span><\/em>true. <\/span><\/p>\n\n\n\n

Don\u2019t get me wrong: Cash is good. It gives you flexibility and peace of mind and creates better <\/span>cash flow<\/span><\/a> on your investments through return on equity. However, it is not the end-all, be-all when it comes to investing, and in many situations, you can beat cash offers with financed offers if you understand where you have leverage and how to construct an offer that mimics cash terms. <\/span><\/p>\n\n\n\n

But What Is Cash?<\/span><\/h2>\n\n\n\n

Seems like a dumb question, right? <\/span>When it comes to<\/span> real estate transactions, cash means different things than just a pile of bills stuffed under your mattress. <\/span>In my opinion, cash<\/span> means you are making an offer <\/span>that you<\/span> do not need any third-party approval for any terms in your offer.<\/span> <\/span><\/p>\n\n\n\n

Ironically, many people think that hard money is cash, and they write offers as such. <\/span>Many <\/span>hard money lenders<\/span><\/a> require some <\/span>sort of<\/span> appraisal or due diligence, especially for investors <\/span>that <\/span>they<\/span> don\u2019t have a relationship with.<\/span> If you are writing cash offers with a hard money lender and no appraisal contingency, you might find yourself in a <\/span>tough<\/span> situation somewhere along the way, so be sure you know what the lender requires of you and your deal. <\/span><\/p>\n\n\n\n

HELOCs<\/span><\/a> are <\/span>absolutely<\/span> cash. <\/span>Once your HELOC <\/span>is funded<\/span>, the bank <\/span>no longer<\/span> has <\/span>any<\/span> say in what you do with that money.<\/span> I find it funny\u2014I have clients ask me <\/span>all the time<\/span> if they will get in trouble with their bank for buying real estate with their HELOC, but they don\u2019t think twice about taking their family to Disneyland for a week with that same line of credit. <\/span><\/p>\n\n\n\n

If you were to lend someone money, would you <\/span>rather<\/span> they blow it on a car or an experience or buy a hard asset with built-in equity and cash-on-cash returns? HELOCs are cash\u2014if you don\u2019t have one, get one. They\u2019re the best way to leverage your equity. <\/span><\/p>\n\n\n\n

How to Make Financed Offers as Appealing as Cash<\/span><\/h2>\n\n\n\n

As for the offer <\/span>itself<\/span>, cash buyers typically expect a discount for two pieces of leverage that cash provides: expediency and the lack of an appraisal requirement. <\/span>As a conventional or even VA and FHA buyer, you can <\/span>provide<\/span> a version of those to your buyers <\/span>that can make<\/span> your offer very competitive against a cash offer.<\/span> <\/span><\/p>\n\n\n\n

Why am I not talking about inspections or due diligence here? <\/span>That is <\/span>definitely<\/span> great<\/span> leverage to have<\/span> in your offer if you understand how to use it.<\/span> The thing is, banks don\u2019t care about your inspection. <\/span><\/p>\n\n\n\n

Did you know that you can get almost any type of Fannie or Freddie loan without having an inspection at all? Banks care about the appraisal\u2014that is <\/span>their <\/span><\/em>due diligence. They don\u2019t care what you or your inspector think about the property; they care about what the appraiser thinks. <\/span><\/p>\n\n\n\n

You can waive your inspection altogether on a conventional loan <\/span>if you choose to do so<\/span>, and there are some situations where you should.<\/span> <\/span><\/p>\n\n\n\n

Let\u2019s look at two advantages that cash offers promise and how an offer made with financing can compete. <\/span><\/p>\n\n\n\n

Expediency<\/span><\/h3>\n\n\n\n

How fast can you close? <\/span>You\u2019ll need an excellent lender for this, so don\u2019t try <\/span>this<\/span> using the lowest bidder <\/span>that<\/span> you find online\u2014you\u2019ll need a local relationship.<\/span> Typically, the <\/span>biggest<\/span> time suckers in a transaction <\/span>is<\/span> the time it takes to get an appraisal ordered and a report supplied and underwritten. <\/span><\/p>\n\n\n\n

You can cut one to two weeks out of your closing time frame by <\/span>simply<\/span> ordering an appraisal as soon as your offer is accepted\u2014possibly more if you pay a rush fee. Write this term into your offer, and make sure the seller understands the purpose behind the term. I\u2019ve closed conventional deals in two weeks, and you can do that, too. <\/span><\/p>\n\n\n\n

Appraisal contingency<\/span><\/h3>\n\n\n\n

This one can be<\/span> a <\/span>tough <\/span>one to swallow<\/span> if you don\u2019t have much experience, especially if you don\u2019t have any actual cash or a HELOC waiting for you.<\/span> You can waive or modify the appraisal contingency for a conventional offer. <\/span>Note that<\/span> I didn\u2019t say you can waive the actual appraisal, but you can waive that contingency around the <\/span>appraisal<\/span>. <\/span><\/p>\n\n\n\n

Here\u2019s how it works. <\/span>If a property appraises for less than the contract amount, the buyer <\/span>simply<\/span> increases their down payment to make up that difference.<\/span> If your contract says you\u2019ll pay $200,000 for a property and the appraised value is $190,000, you\u2019d need to <\/span>pony up<\/span> an extra $10,000 in your down payment <\/span>in order to<\/span> perform per your contract terms. <\/span><\/p>\n\n\n\n

I can feel you rolling your eyes <\/span>right<\/span> now: \u201cWhat kind of idiot would pay more than the appraised value for a property?\u201d Lots of idiots. It\u2019s not for every investor or any situation, but it <\/span>happens all the time<\/span>. <\/span><\/p>\n\n\n\n

Maybe you<\/span> own a lot on either side of the subject property and plan to develop it, so the overall <\/span>ROI<\/span><\/a> makes the deal worth it.<\/span> Maybe<\/span> you<\/span> see the highest and best use for the property that makes the risk worth the reward.<\/span> Or <\/span>maybe<\/span> it\u2019s simply your dream house. <\/span><\/p>\n\n\n\n

Keep in mind<\/span> that an appraisal is <\/span>literally<\/span> an opinion of value, not actual market value.<\/span> And think about this: Once you close on a property at the contract price, it becomes a new <\/span>comp<\/span><\/a> for that area, and your purchase has <\/span>actually<\/span> increased the value of the house you just bought, regardless of what an appraiser\u2019s opinion is. <\/span><\/p>\n\n\n\n

This concept of modifying your appraisal contingency can be a real rabbit hole. I could write 10 more articles about how to do it, what language to use, and the pros and cons of each. Just know that you can control that process and language. If you are working with a knowledgeable agent and fully understand what you are getting into, it can be <\/span>a very valuable<\/span> tool. <\/span><\/p>\n\n\n\n

Final Thoughts<\/span><\/h2>\n\n\n\n

To use the methods I\u2019ve described,<\/span> you\u2019ll most likely have to pay more for a property than <\/span>a true<\/span> cash offer.<\/span> However, if you are using an HML, <\/span>paying<\/span> a few thousand dollars more upfront on a conventional, VA, or FHA loan will <\/span>absolutely<\/span> result in significantly lower holding costs and closing costs. You\u2019ll come out ahead for sure.<\/span><\/p>\n\n\n\n

Give these methods a shot in competitive markets where you keep getting beat out. You might be surprised at how competitive your offers can be, even without that pile of cash.\u00a0<\/span><\/p>\n\n\n\n \n

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You hear it all the time on BiggerPockets Forums, podcasts, local meetups, from gurus, etc. It must be true if everyone says it is: \u201cCash is king.\u201d The idea is […]<\/p>\n","protected":false},"author":613697,"featured_media":171780,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4433],"tags":[],"class_list":["post-172781","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-opinion"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/172781","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613697"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=172781"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/172781\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/171780"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=172781"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=172781"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=172781"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}