Questions about buying RE with all cash
Investor · Indianapolis, IN · Member since 2023 · 6 posts · 6 votes
Questions about buying RE with all cash
Most Popular Reply
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3yQuote from @Zachary Bush:
Why are you employing an all-cash strategy?
Read a few books on real estate investing to learn the power of leverage. I like the Unofficial Guide to Real Estate Investing. Here's a very basic explanation to get your juices flowing:
Assume a house costs $200,000 and rents for $1,500. The market appreciates 3% per year.
Pay cash for one house and rent it for $1,500. After five years you'll have earned $90,000 in rent income and gained $34,000 in appreciation.
Buy four houses with $50,000 down on each. Mortgage payment is $1,000 on each house, so you're essentially earning $500 per house or $2,000 a month. After five years you'll have earned $120,000 in rent income and gained $136,000 in appreciation. You've earned $132,000 more by splitting your money and leveraging it.
The DIY Landlord Book4.7243 Reviews
197 Replies
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
Quote from @Benton Potts:
Quote from @James Hamling:
Quote from @Benton Potts:
Quote from @Ray Hage:
@Tim J. said it best. You can buy it in cash and then re-fi out of it afterwards. It will cost slightly more that way but if you are in a cash-competitive market, it's not a bad idea to buy in cash initially. You can easily do a conventional investor or DSCR loan right after.
I'm in a situation where I am going to have a lot of cash by the end of the year and my strategy as an Agent/Investor was going to be buying all cash and buying below market value and then immediately refinancing out but was told by several banks yesterday that by doing this I would have to wait 6 months before i could get a conventional investor mortgage on the property, Is this true?
Ok, let me explain this with a little story.
Back in the day, ~2011/12 when everyone was jumping on the band wagon of trying to get a deal, claiming they had the bigger offer, I would tell people I GUARANTEE I would bring them the BIGGEST check of ANYONE, and if I didn't I'd give em a free steak dinner for whole family just for hearing me out.
I'd pull up, and pull out from back seat of car my 3'x9' tri-fold check. Lol. I kid you not. Knock on door, say the hi's and just ignor the fact I have this giant thing in my arm, as everyone looks. Come in, sit down, start talking, again ignoring this giant thing. Until finally I said, "oh, and yeah, ok, I guess maybe wondering on this". Where I would say, I promised the BIGGEST check and, as i open it up and plop it down on table pulling out my pen to sign I say "true to my word, the BIGGEST check, right" as I look to get confirmation that it is, in fact, the BIGGEST check.
And I used this to break the ice but also emphasis the fact that all that jazz is just BS marketing, because it is. And I'd tell them that, everyone pandering for their buy, it's just that, BS marketing to get them to sell to em, and that I am a horrible liar, that this is as jazzy as it get's and I just won't play the games. I work in win-wins. My word is titanium, I mean what I say and I get things done, full stop. So if they want to work with someone REAL, no BS, then we can make something work. If they want BS slogans, catch phrases and jazz, it's just not me, good luck, see ya bye.
In all the years I did these, I lost 1 seller to being scalped, 1.
People get it, they see the BS through it all, there simply not that dumb.
ALL offers are CASH offer at closing. People DON'T care how you get the cash to closing, that's your problem not there's. Why do agents say they prefer conventional over FHA? The inspection, nobody cares where the bank wire comes from, it's about TERMS.
TERMS are what matter, nobody is going to hand you a discount and sell UNDER market value because you said the word CASH. That's a feeble venture to attempt.
People WILL discount for favorable terms, which isn't a discount then is it, it's a TRADE.
I am in an area that is somewhat rural where cash, real cash and close in a week mean something. These are the same type of people who leave so much money on the table because "I aint messin with no real-a-tor, and payin them fees" So cash and a quick close means something. My question was after I purchase the property thats worth 150k for 100k do I have to wait 6 months before I can apply for a mortgage and do i have to put a downpayment down if the property would be worth, in this case, 50k more than what i purchased it for.
Exact what home purchase, at closing, is NOT paid to seller in cash?
- Member since 2018 · 11 posts · 6 votes3y
@Zachary Bush
I buy all-cash but then take debt out on most property. What are your questions?
- 3yScott TrenchPro MemberRental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
I read OP's post as wanting to buy properties free and clear, without leverage. I'm a little alarmed to see folks saying that this is an "unsophisticated strategy".
I don't know if I'm a sophisticated investor or not (probably not), but I am pretty wary of the market here in Denver over the next few years, both for rent growth and appreciation.
Right now, I am doing hard money lending on moderate flip projects, because I believe that I have less exposure to downside in this scenario. I reasoned that in the near-term, as I don't expect appreciation and cash flow is hard to come by, I can get a solid 10-13% return without having to do much besides solid due diligence on each note.
If I were in a better cash flow market, I'd be tempted to instead be buying the properties with zero leverage. A 5-6% Cap Rate deal, once you factor in all the tax benefits, and maybe assume 1-3% appreciation over the next few years, is a pretty comparable after-tax return to the simple interest I'm getting on a hard money loan and achievable in some markets. I worry that without a great deal, there are real risks of being cash flow negative on certain deals in certain markets in the next few years, and/or seeing valuations decline moderately, which would limit my exit options with a lot of leverage.
I think it is very possible to do a rational assessment of certain markets, and come to the conclusion that a free and clear property provides the best tax advantaged returns and cash flow combination for someone with a certain risk tolerance and viewpoint on the market.
To that end, I hope that folks who are buying deals this way do respond and provide legitimate advice. And that the OP makes their own conclusion.
That said, this is a great discussion, and the points about leverage as a rule do make sense. My portfolio of rentals is, of course, levered.
Quote from @Benton Potts:
Quote from @Ray Hage:
@Tim J. said it best. You can buy it in cash and then re-fi out of it afterwards. It will cost slightly more that way but if you are in a cash-competitive market, it's not a bad idea to buy in cash initially. You can easily do a conventional investor or DSCR loan right after.
I'm in a situation where I am going to have a lot of cash by the end of the year and my strategy as an Agent/Investor was going to be buying all cash and buying below market value and then immediately refinancing out but was told by several banks yesterday that by doing this I would have to wait 6 months before i could get a conventional investor mortgage on the property, Is this true?
There is truth in this. Most lenders will make you wait that 6 months for the property to "stabilize". I have heard of some lenders not making you wait but it is not common. Waiting 6 months could be frustrating.... @Ash Hegde or @Eugene Neal want to weigh in on this?
- Lender · Member since 2022 · 217 posts · 149 votes3y
If time is of the essence to close, close with your own cash in a few days and then apply to put Delayed Financing on it within a few weeks. This is not a refinance. It's purchase-related financing done post-close.
Quote from @Joe Villeneuve:
Quote from @Ray Hage:
@Tim J. said it best. You can buy it in cash and then re-fi out of it afterwards. It will cost a bit more that way but if you are in a cash-competitive market, it's not a bad idea to buy in cash initially. You can easily do a conventional investor or DSCR loan right after.
Linear return...and slow. Starting out using same cash on multiple properties as DP's is an exponential return, and is a much better use of funds.
Oh I agree it would be better to get it from the start but if someone is coming with cash and no appraisal contingency, it puts you behind in this competitive market.
- Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes3y
As many have mentioned here "why are you paying cash"
The whole point of RE investing is leverage.
Unleveraged real estate returns are historically lower than stocks.
If you're not going to leverage purchases, then you're better off buying a low risk index fund or even some low return fixed income funds.
Over the past 10 years my RE gains have blown my stock gains out the water, but if I'm going to retire I'm going to move my assets into low risk index funds where I will get a better return on $ than with unleveraged properties, and I'd have less headache.
I'm not by any means saying it's wrong and not to do it. There are many people that will advocate for buying RE in cash, but I personally don't see the point.
- Lender · Fort Lauderdale, FL (Lending in FL CT GA MI PA) · Member since 2022 · 470 posts · 349 votes3y
Hey @Ray Hage, if you are purchasing all cash and just want to cash out based on the purchase price, you can use delayed financing for this with no wait period. It is not ideal for a BRRRR with significant rehab as you won't be able to use a higher appraisal to take out more cash than the original purchase price though.
- Real Estate Agent · Kansas City, MO · Member since 2022 · 28 posts · 19 votes3y
Probably best to leverage that cash with a hard money loan IMO
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes3y
I use cash when speed and or the condition of the property requires it- and I get a fat discount.
My last cash buy had all of $417 in closing costs. The 'sophisticated ' leverage folks take on at least $5k more in costs plus less probability of having your offer accepted.
Plain vanilla deal where the Seller is willing to wait 45+ days and take on lender risk, I'll use leverage.
OP - doesn't seem you care, but I don't 'partner' with cash. Control is key, especially if you're new.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes3yReally? Better to be thought a foo... than to open your keyboard... LOL.
Quote from @Nick Benjamin:
Probably best to leverage that cash with a hard money loan IMO
- Real Estate Agent · Kansas City, MO · Member since 2022 · 28 posts · 19 votes3y
Quote from @Steve Vaughan:
Really? Better to be thought a foo... than to open your keyboard... LOL.Quote from @Nick Benjamin:
Probably best to leverage that cash with a hard money loan IMO
?
- Member since 2023 · 5 posts · 2 votes3y
Quote from @Ray Hage:
Quote from @Benton Potts:
Quote from @Ray Hage:
@Tim J. said it best. You can buy it in cash and then re-fi out of it afterwards. It will cost slightly more that way but if you are in a cash-competitive market, it's not a bad idea to buy in cash initially. You can easily do a conventional investor or DSCR loan right after.
I'm in a situation where I am going to have a lot of cash by the end of the year and my strategy as an Agent/Investor was going to be buying all cash and buying below market value and then immediately refinancing out but was told by several banks yesterday that by doing this I would have to wait 6 months before i could get a conventional investor mortgage on the property, Is this true?
There is truth in this. Most lenders will make you wait that 6 months for the property to "stabilize". I have heard of some lenders not making you wait but it is not common. Waiting 6 months could be frustrating.... @Ash Hegde or @Eugene Neal want to weigh in on this?
I am in discussions with a local bank who would keep the property as a portfolio loan so there may be a work around for that 6 month period. The only reason I'm doing it this way is to buy right and conserve my cash to not get nickeled and dimed for 20% on everything. I just can't understand why if I bought a property for cash and then decided to get a loan on it why they would say "No, we have to wait 6 months to be able to lend to you." Seems like a bad business model for the bank. Almost certain that this is a Freddy/Fanny rule but may not apply to banks who would keep the loans on the books. If it's true all the way around I could only do 2 deals a year. I gotta scale ALOT quicker than that.
- Member since 2023 · 216 posts · 133 votes3y
Quote from @Joe Villeneuve:
"The one upside if you have equity all pulled in the form of a HELOC or cash out refi and are responsible with that "cash" you've pulled out is you have quick buying in the future where you don't need to worry about the hassle of obtaining financing"Quote from @Chris Merchant:
I feel the only time an all cash purchase is beneficial is if you plan on pulling the equity out in the form of a refi or HELOC. Which some will say that by just purchasing the property with a loan is no different. The one upside if you have equity all pulled in the form of a HELOC or cash out refi and are responsible with that "cash" you've pulled out is you have quick buying in the future where you don't need to worry about the hassle of obtaining financing. Cash talks and many times from my experiences puts you in the driver's seat at the negotiating table, all cash quick close deals are easier to obtain. I've gotten several good deals based solely on the cash and quick close offer.
But to really answer the question it will all depend on the strategy you plan to use, IMO 6 of 1 half dozen of the other, however if you have NO desire to pull equity out "quickly" then leverage your money and use loans to get the properties and if you have 100k in cash instead of buying 1 100k home buy 4 100k homes. It really is dependent on your end goal/exit strategy.
Isn't a refi and and a HELOC also "financing"? Also, how long will you be paying for the money you are buying through the refi, that is just sitting there...unused at a cost to you with no return?I guess you missed the part where I said, "IMO 6 of 1 half dozen of the other" and yes refi and HELOC's are forms of financing but the entire BRRRR strategy is based off of paying cash for a property rehabbing it, then refinancing it to pull the equity back out. It is a great book written by David Greene and published by Bigger Pockets, you should order a copy and read it, you can even finance it and put it on your credit card! Here is the link: https://store.biggerpockets.co...
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesYou missed to point
Quote from @Ray Hage:
Quote from @Joe Villeneuve:
Quote from @Ray Hage:
@Tim J. said it best. You can buy it in cash and then re-fi out of it afterwards. It will cost a bit more that way but if you are in a cash-competitive market, it's not a bad idea to buy in cash initially. You can easily do a conventional investor or DSCR loan right after.
Linear return...and slow. Starting out using same cash on multiple properties as DP's is an exponential return, and is a much better use of funds.
Oh I agree it would be better to get it from the start but if someone is coming with cash and no appraisal contingency, it puts you behind in this competitive market.
- Member since 2023 · 32 posts · 17 votes3yThis is great news to hear! I am getting ready to buy my first investment property. I have excellent credit, a high 700s FICO score, but a poor work history, so I doubt I would be approved for financing. I know I must sound like a total newbie, and I am. I am house rich and cash poor, and intend to sell here where it's expensive and move to an area with a lower cost of living and house hack by living in one unit of a quadplex I plan on buying for cash. Crazy to think that I can buy a four unit apartment building for less than my SFH, AND still have money left over!
Quote from @Tim J.:
In any event, BUYING all cash can be a powerful way to get into more and better deals. After the property is closed you can refi, and re-deploy the cash for other deals. Buying all cash give A LOT of weight to offers - and allows shorter closing times, lower price and essentially puts you on sellers' and realtors' speed dial for deals.
At this point, I will be very happy to be debt free, so, at least at this point in time, I would prefer to buy for cash too. This may change in the future though.
Much like everyone here, I'm looking to get as good a deal as possible, so that's very encouraging to know of the benefits to an all-cash offer. In the future, if the timing is right, I could look into getting financing on another building using the equity in the first one, etc. But, one step at a time, for me anyways.
Good question, and good points! - Member since 2023 · 32 posts · 17 votes3y
Quote from @Luka Milicevic:
As many have mentioned here "why are you paying cash"
The whole point of RE investing is leverage.
Unleveraged real estate returns are historically lower than stocks.
If you're not going to leverage purchases, then you're better off buying a low risk index fund or even some low return fixed income funds.
Over the past 10 years my RE gains have blown my stock gains out the water, but if I'm going to retire I'm going to move my assets into low risk index funds where I will get a better return on $ than with unleveraged properties, and I'd have less headache.
I'm not by any means saying it's wrong and not to do it. There are many people that will advocate for buying RE in cash, but I personally don't see the point.
I really appreciate reading these things from those who are much more experienced than me. Forgive me for my naïvety, I'm a new investor, but not new to buying houses (my own, over the years). Maybe it's different from an investor standpoint, but I would think saving money on the interest would be a good thing?
Granted, you're not leveraging, but that is not the goal of every investor. Maybe in the future, I will consider it, but I'm also a cash buyer as have a house worth a sizeable amount and a small mortgage. At this point, I just want to have as little debt as possible, so paying cash for a quadplex and living in one of the units, and no mortgage, seems appealing to me. I also don't think I could get approved for a mortgage, despite a good credit rating, but not so good work history.
Incidentally, I also want to invest in some low risk ETFs or Index Funds, also something new for me.
- I'll just throw this out there. One of the partners in a few of the deals I was in last year is extremely liquid. He doesn't need any more exposure to bond or stock market. His preference for buying with cash last year made a lot of sense for us - it allowed us to to get to deals that people who needed financing were not going to get - and we got more favorable terms. Don't kid yourself - cash does speak volumes. Maybe not all the time, and maybe not in the deals some of you are doing, but it does make a difference. I have been on the buying end of leveraged deals and all cash deals. It's nice to be able to buy cash...
Before I teamed up with this person I never had the ability to buy with cash. I had the same single-minded viewpoint that "OPM is the best way to WIN" (tm)
It sure can work well. But I chafe at the notion that risk-averse people or others who buy with cash for other reasons are unsophisticated or naive. That just is not true.
For some investors cash is NOT the scarce resource. Good deals/deal flow are the scarce items. Calling someone who can purchase $2M+ in real estate in one year with cash "naive" seems to miss the point. This is not a one-size-fits-all arena.
Not all investors have the "leverage up to my eyeballs and hope for the best" mentality.
Anyway, I will go back to minding my own business and continue with my unsophisticated playbook now. - 3yRose JonesPro MemberMember since 2019 · 57 posts · 18 votes
@Benton Potts - I would invest somewhere else until you have enough built up to invest at home - if you want to by that time.
I am interested in stocks as well as real estate, but it the big advantage to real estate is that it is it can be leveraged.I am going to be investing in tax liens and deeds and have taken money out of my 401K as a loan to do so.
That is a nice option, but there will be a time when I run out. I want to be able to go with other investors to increase my ability to invest.
Don't be afraid of leverage.
- Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes3y
Markets dictate what happens - not investors. In my market, like many others around the country, you can make financed offers all day and all night and you will not buy a single property. All cash or nothing are the choices presented here.
- 3ySally FairchildPro MemberInvestor · Newport Beach, CA · Member since 2016 · 106 posts · 84 votes
@Joe Villeneuve
Best explanation ever!
- 3ySally FairchildPro MemberInvestor · Newport Beach, CA · Member since 2016 · 106 posts · 84 votes
@Tim J.
Another great explanation! Thanks.
- Lender · Member since 2017 · 7 posts · 7 votes3y
Quote from @Benton Potts:
Quote from @James Hamling:
Quote from @Benton Potts:
Quote from @Ray Hage:
@Tim J. said it best. You can buy it in cash and then re-fi out of it afterwards. It will cost slightly more that way but if you are in a cash-competitive market, it's not a bad idea to buy in cash initially. You can easily do a conventional investor or DSCR loan right after.
I'm in a situation where I am going to have a lot of cash by the end of the year and my strategy as an Agent/Investor was going to be buying all cash and buying below market value and then immediately refinancing out but was told by several banks yesterday that by doing this I would have to wait 6 months before i could get a conventional investor mortgage on the property, Is this true?
Ok, let me explain this with a little story.
Back in the day, ~2011/12 when everyone was jumping on the band wagon of trying to get a deal, claiming they had the bigger offer, I would tell people I GUARANTEE I would bring them the BIGGEST check of ANYONE, and if I didn't I'd give em a free steak dinner for whole family just for hearing me out.
I'd pull up, and pull out from back seat of car my 3'x9' tri-fold check. Lol. I kid you not. Knock on door, say the hi's and just ignor the fact I have this giant thing in my arm, as everyone looks. Come in, sit down, start talking, again ignoring this giant thing. Until finally I said, "oh, and yeah, ok, I guess maybe wondering on this". Where I would say, I promised the BIGGEST check and, as i open it up and plop it down on table pulling out my pen to sign I say "true to my word, the BIGGEST check, right" as I look to get confirmation that it is, in fact, the BIGGEST check.
And I used this to break the ice but also emphasis the fact that all that jazz is just BS marketing, because it is. And I'd tell them that, everyone pandering for their buy, it's just that, BS marketing to get them to sell to em, and that I am a horrible liar, that this is as jazzy as it get's and I just won't play the games. I work in win-wins. My word is titanium, I mean what I say and I get things done, full stop. So if they want to work with someone REAL, no BS, then we can make something work. If they want BS slogans, catch phrases and jazz, it's just not me, good luck, see ya bye.
In all the years I did these, I lost 1 seller to being scalped, 1.
People get it, they see the BS through it all, there simply not that dumb.
ALL offers are CASH offer at closing. People DON'T care how you get the cash to closing, that's your problem not there's. Why do agents say they prefer conventional over FHA? The inspection, nobody cares where the bank wire comes from, it's about TERMS.
TERMS are what matter, nobody is going to hand you a discount and sell UNDER market value because you said the word CASH. That's a feeble venture to attempt.
People WILL discount for favorable terms, which isn't a discount then is it, it's a TRADE.
I am in an area that is somewhat rural where cash, real cash and close in a week mean something. These are the same type of people who leave so much money on the table because "I aint messin with no real-a-tor, and payin them fees" So cash and a quick close means something. My question was after I purchase the property thats worth 150k for 100k do I have to wait 6 months before I can apply for a mortgage and do i have to put a downpayment down if the property would be worth, in this case, 50k more than what i purchased it for.
Hi Benton, as a hard money lender, if someone brings me a property that they recently purchased and they want to cash-out, I wouldn't bat an eye at it. I would cash you out the next day at 70% LTV. LTV would be based on appraisal, not to exceed 100% LTC. If the appraisal came in for $150K and you paid $100K, I would give you up to $100K.
Unfortunately I can't speak to conventional lender rules in this instance.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes3yNice. Can you give us a ball park as far as points, rate, length of loan please?
Quote from @Andrew Benton:
- Lender · Member since 2017 · 7 posts · 7 votes3y
13% and 3pts. 9 month term. I lend in the S and SE, but I do like Wenatchee. Grew up in WA :)
Join the conversationCreate a free account to reply, vote on answers and follow this thread.