Trying to compete with cash buyers
Clarksville, TN · Member since 2018 · 24 posts · 7 votes
Trying to compete with cash buyers
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes
8yIf you are using financing, you need to have something better to offer to the seller who is looking at a cash offer. A grand or two wouldn't sway me in your favor if the other guy had a healthy bank account and his checkbook ready. I've beat several financing offers before because I've done cash. Two approaches, other than finding some other people in which you can join forces to come up with cash, is to either offer substantially more than the cash offer, or operate in zones that filter out most of the cash buyers. If you are looking at the tail end of markets, that's where you're going to be competing with cash buyers.
Skyline Properties
44 Replies
- Downers Grove, IL · Member since 2017 · 366 posts · 165 votes8y
Traci,
getting your real estate license. and MLS access, will put you in a better position to wrap your head around the market. In my area distressed properties from wholesalers usually are in distressed areas so the purchase is a gamble on the condition of the property, a gamble on the area than a gamble on hired contractors. What could go wrong?
- Downers Grove, IL · Member since 2017 · 366 posts · 165 votes8y
Regrettably a duplicate post.
- Real Estate Broker · Chicago, IL · Member since 2015 · 122 posts · 103 votes8y
Great question!
It is competitive right now in most major markets. Though I'm sure there are plenty of people out there willing to partner up, you'll still be at a competitive disadvantage if you don't have a lot of deals under your belt.
Have you done any deals yet? If so, you can create a report full of case studies so your potential partners can see what kind of returns you've made for yourself historically. If they are high enough, I'm positive you can find someone that will help with capital. If you don't have much experience, however, this may prove to be a challenge for you.
Here are a couple things you can do to be competitive in case finding a financial partner is not feasible:
1. Source your own deals - eliminate the competition by being the ONLY person offering on the house. If you're relying too heavily on your local MLS for deals, it's going to be VERY difficult in a lot of markets to buy correctly because you will be competing with seasoned cash investors that are able to cut costs.
Relying on brokers is not the best bet either, as most of them are retail-focused that don't understand the economics of the investor game.
You'll need to: drive for dollars, take note of every home that looks abandoned, or distressed, send them letters, knock on doors, become an ANIMAL on social media, get your name out there anyway possible, etc. Let everyone know what you do, and what you're looking for.
After a few months, the off-market leads should start pouring in. I'm not going to lie, it's a GRIND. But one day, you'll wake up, and you'll no longer have to log onto the MLS to deal-hunt because you'll have a steady stream of incoming leads in your inbox already.
2. Get your Real Estate license - just do it. It will give you a little more credibility in the marketplace, and you'll have access to all the broker's info on the MLS that you can contact who DO specialize in the types of homes you're looking to purchase. Once you have their info, call them up, arrange a meeting and discuss how you can help one another. I get great off-market leads from brokers all the time because I've taught them what to look for and I've asked them to CALL ME FIRST, before it's listed ;)
In summary: source your own leads. It's going to take time, but it's probably the only way to stay competitive in a super saturated market if you don't have liquid capital and a successful track record.
Don't give up, though! Every time I enter a neighborhood I think to myself: "There are five off-market, unknown deals here!!" The fun part is finding them!
Hope this helps!
- 8yDan BeaulieuPro MemberLender · Knoxville, Tennessee (TN) · Member since 2016 · 431 posts · 672 votes
@Traci Cameron Is your Fix and Flip loan able to close very quickly? Why aren't you making "cash" offers and then using private investors / private HML to fund the deal as fast as the cash offers can? Most of our HM borrowers, including myself, make all offers cash. Granted, most of the deals are off market deals so there will be no proof of funds required.
When using a realtor and using the standard TAR contracts, have your realtor check "other" and then write in "Private Lender." If the listing agent knows anything at all, they would consider that as good as cash. ANYTHING beats slow flaky bank loans.
PM me and I'll connect you to some local wholesalers. Your agent needs to know them too!
- Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes8y
Originally posted by @Michael Pearse:
@Traci Cameron Partnering with another investor is a great way to get started. My first deal was with another investor as well. I paid closing costs and he covered rehab costs. We both completed the entire flip process together and walked away with great returns and learned a lot. Definitely recommend working with someone else. Best of luck
Yes I wish I had done this myself. Great advice. I will probably do this on the next one.
- Pearland, TX · Member since 2018 · 5 posts · 2 votes8y
@Traci Cameron Like @Ian Walsh and @Dan Beaulieu mention. Have you considered hard money to secure the deals? Competition will be tough in the market and all things equal the ability to close quickly on a good deal can make or break a transaction. If the goal is fix and flip then you can be finishing the renovation in the same time to close a bank funded deal. Money can be expensive but it will be moving and can close in less than a week for most HM lenders. I like to believe Money in Motion with stay in motion. :) Add it to your holding cost in the original estimate and be mindful of the purpose. Hang in there and have fun.
- Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes8y
I have to compete with cash buyers all the time. so here are some things I do
1. offer much higher than them
2. offer no inspection contingency (you better know how to analyze a property yourself)
3. 30 day close (commercial banks are good at this)
4. higher than normal earnest check
5. no financing contingency (risky but favorable to a seller) - Nashville, TN · Member since 2018 · 5 posts · 2 votes8y
@Traci Cameron Sometimes it's best to find the best deals with those who can find off-market properties. If many competing investors are cash buyers, it would be best to find a partner or go through a hard-money lender and save the headache and time cost of a conventional loan.
I suspect the offering price is not high enough to win sellers heart. If you make an preemptive offer way higher than others, a month or 21 days (for our area) of loan processing, funding will not bother most home sellers. Bottom line is how much is you offer and whether you wrote a clean contract. Good luck.
- Union, NJ · Member since 2015 · 10 posts · 4 votes8yHello Traci , I’m from New Jersey and I have the same problems you have . If I find i house right now a few hrs or the next day it’s under contract. So I changed my Mindset completely. I’m now looking at Multi family housing that needs work. I have discovered that it isn’t as competitive as single-family flips. You can sale them to Investor or rent them out your self. Also if you already have a contractor lined up can ask them to partner up with you. Good luck with everything , Julio Anselmini
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes8y
Originally posted by @Traci Cameron:
@Joe Splitrock I am using a HELOC as well for my down payment. I was pleasantly surprised at how much buying power the bank was willing to preapprove me for. $5000 in earnest money is possible but takes weeks to get back if offer is not accepted and I'm not a fan of tying up my cash for a maybe. I'd definitely be willing to up my earnest money on an accepted offer though.
Maybe it is different in your market, but in mine we don't give the earnest money until the offer is accepted. It goes in the offer and is delivered within 24-48 hours of offer acceptance. It does tie up your money after that, but usually you are putting way more down for a down-payment, so the cash will go at closing anyways.
The reason the larger earnest money helps is sellers are afraid of closings falling through. If you have more cash on the line, they know you will work harder to make sure it closes. It is customary in my market to put $200 as earnest money, so when my offer comes in $5000, it really gets people attention.
- Real Estate Agent · Ft. Worth, TX · Member since 2016 · 10 posts · 5 votes8y
Originally posted by @Jim K.:
Please don't underestimate the importance of the face making the offer. Crazy as it seems, sellers in emotional distress and denial over whizzing away their parent's legacy would much rather whiz it away to a local agent who is deeply embedded in their community, who works the soft-serve at church festivals and reads off the bingo numbers at the VFW hall and brings some of his homemade kielbasi to the volunteer firemen's BBQ benefit.
Do not discount your local agents who have been eating rubber chicken to pass the card at Rotary events for the last twenty years. Most especially, if that agent knew dear Grandpa Harry and ever shared a beer with him on his porch, the seller feels he's selling out to one of Grandpa Harry's old friends, not just a starred name in that agent's Rolodex.
Make a good offer, by all means, but the face that presents the offer becomes ever more important the more emotional and distressing the decision to sell the house becomes. It's not a tech thing or a generational thing. Human beings are just wires that way.
Jim that is right on the money and although it seems super obvious it is oftentimes forgotten by many, myself included.
- Investor · Leander, TX · Member since 2016 · 28 posts · 4 votes8y
@Traci Cameron The most important thing is to not give up! My wife and I are looking for just our third property right now, our first property I feel like we got lucky, it was only our second offer that got accepted and went to close. We've only used traditional financing so far. You could try more earnest money down to sweeten it a bit.
Our second property probably took 15-20 offers before we actually closed on one. We had 4 of those accepted, but other things didn't work out.
Of course a hard money lender is going to tell you that hard money is the way to go.... they want that interest!
If you trust your realtor, keep working with him/her, stay at it. If you know the neighborhood you want, there are ALWAYS more houses and more deals out there, you'll get one. Stay positive and good luck!!
Joe Swanson
Originally posted by @Traci Cameron:
@Joe Splitrock I am using a HELOC as well for my down payment. I was pleasantly surprised at how much buying power the bank was willing to preapprove me for. $5000 in earnest money is possible but takes weeks to get back if offer is not accepted and I'm not a fan of tying up my cash for a maybe. I'd definitely be willing to up my earnest money on an accepted offer though.
My market is the same as Joe's above. I don't pay Earnest Money until the contract goes through
- 8yDan BeaulieuPro MemberLender · Knoxville, Tennessee (TN) · Member since 2016 · 431 posts · 672 votes
Originally posted by @David Zheng:
I have to compete with cash buyers all the time. so here are some things I do
1. offer much higher than them
2. offer no inspection contingency (you better know how to analyze a property yourself)
3. 30 day close (commercial banks are good at this)
4. higher than normal earnest check
5. no financing contingency (risky but favorable to a seller)30 Day close?
- Clarksville, TN · Member since 2018 · 24 posts · 7 votes8y
wow! I’m pleasantly overwhelmed by all the great advice you’ve all given! Instead of replying one by one, I will try to address all your questions to me in this post.
1, this is technically my first flip as an investor. I’ve fully renovated 2 properties that I had personally owned and several more as a volunteer through churches. Long story short, I don’t have a “deal” under my belt yet (I’d like to think I make up for it in my enthusiasm, willingness to continue educating myself and a never give up attitude).
2, I've taken a HELOC loan on my personal residence for down payment. A small local bank has approved me for a commercial loan since I'm putting it under my LLC name with me as the guarantor. The terms are 12 month loan with 20% down at 5.25% interest on the amount I use. I have to put the 20% down only on the purchase price and then I can use the remaining prequalified amount for renovations. Average close time is 3 weeks for them.
3, I’m hesitant about using wholesalers though not completely opposed. I’ve read some not so great things here on BP that has made me a bit gun shy.
4, my realtor is really great about working with me but sometimes her inexperience shows but my conscience and personal integrity keeps me from side stepping her when she’s been the only one to give me the time of day.
As I said earlier, I work a full time job currently which has made it difficult to find off market properties. I don’t quite know yet how to right an offer without a realtor.
5, all of my offers thus far have been right around asking price. I’m not opposed to giving higher earnest deposit on an accepted offer.
6, I would love to partner with another investor (or contractor for that matter!) but have yet to find anyone interested.
All in all, I will keep working at it and educating myself. Every day and evening I'm not at work, I'm working on REI in some fashion.
You guys are awesome and I truly do appreciate all the helpful feedback!
- Rental Property Investor · Closter, NJ · Member since 2015 · 884 posts · 722 votes8y
@Traci Cameron While I am not knowledgeable on the TN market, here in New Jersey it's definitely a Seller's Market. Whenever a property comes on the market, within hours there are multiple offers and bidding wars taking place. I am a licensed Real Estate professional and saw this same scenario taking place in 2008 when the real estate market collapsed. Once that happened, there were bargains to be had. My suggestion to you is, be patient - don't rush into an overpriced purchase, or be pressured into "partnering" with someone. Wait for the market correction. Then you will get some awesome deals, that you can purchase on your own.
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