As I begin my investing career, I've heard more than once that one can get the "deepest discount" on an investment property if it is a cash offer.
Excuse my ignorance, but I don't understand why?
There still has to be a closing, with attorneys for each participant, right? If I'm buying a house the bank I am lending money from is going to write a check to the seller, much like I would if I am paying cash, no?
Does the lending piece delay the closing? In other words, if I am paying cash is the primary advantage the speed of closing? If so, what is the typical time difference between a mortgage closing and cash?
Thanks in advance!
We always go CASH ... no conditions, fast close.
(The days of financing for us are long gone.)
But we know the property VERY well before we buy it.
Title work can be a pita, but by that time you have a signed deal & we just blame the attorneys.
Some recent deals...
1. Foreclosed for $58,000. 1700 sq ft ranch, all hardwood floors & cabinets with leaded glass....Sat empty for 5 years. Mold from a roof leak in the back laundry room caused most conv. financing denials.
While viewing the home our agent called the bank in TX & we had a verbal for $21,000 CASH.
We did nothing to it but our new buyer restored it beautifully.
2. Two homes side-by-side. Listed for $79,900 for BOTH, sat for 12 months under contract twice but conv. financing took too long to close. They had a lot of "REHAB 4 $'s' kids looking at them.
Rental income was a low $1000.
We did a VERBAL bid of $53,000 cash or we walk.They came back @ $58,000 & we walked. A week later they agreed to $53K. Re-sold for $63,000 no work done & the new owner bumped the rents to $1300, no complaints.
The Rehabbed home next door is 'listed' for $87,000.
3. Large 3/2&3/3 duplex (built 1830, on a lot 130x823 with a 28x35 barn) on the mkt 18 months. Started @ $89,900, & finally dropped to $59,900 as the heirs (in the family >70 yrs) lost all the tenants. We threw out a VERBAL bid of $40,000 CASH, they said no way. 10 days later they came back @ $45,000 & we took it.
(They refused earlier bids in the mid $50's.)
It's currently being totally gutted. The pocket doors between the dining & living room & the front double doors are 9 ft tall.
The wall studs are hand cut 8" x 4" tree trunks. The brass claw feet of the old bathtub rest on 'crystal' balls.
But they did pull their g/grandfathers1929 Ford auto out of the barn & it had a few bullet holes in it!!!
I love this business.
I do not know New York laws - and it is critical to know your state real estate laws. I do, however, know Colorado and Texas laws and have been doing business in these states since the 1960s.
Involving an attorney can be a huge and costly delay. And many times unnecessary. The same can apply when a real estate agent is involved. It is my experience that if obtaining a loan is part of the purchase, the average closing time can stretch to 3-6 weeks. My cash purchases generally close in less than 2-weeks.
It is my experience that the brightest star of a cash buyer is a quick closing. Many of my purchases have closed in less than 2 weeks. The seller gets the money in hand very quickly. No problems due to the buyer not able to get financing or other delays.
The best and fastest is to take the real estate agent out of the picture. They can be a huge delay in delivering information or getting things done. My experience.
Before beginning the cash offer process, I recommend having all you ducks in a row. Establish a relationship with the closing company. They have a check list of what they need. Be prepared. If you need to get a loan, have this already lined up and ready to go without delays. They too have a check list of required information. Know all the process and those required to be a part of the process. Establish relationships before making offers.
Then, you can approach the seller and say with confidence you can solve their problems faster than all others.
Sometimes, I have had the seller turn down my fast closing cash offer. I thank them for the opportunity ... NEVER counter offer because I only give my Best Price the first time. I then tell them should they change their mind, my offer stands until ...
Hi Wesley Williams - this is a valid question. I've bought about 90% of my properties with cash (no financing needed), and it has indeed resulted in getting each property for significantly less than market value (so I can confirm that it does indeed help).
From my perspective, people are willing to sell for less with a cash offer because of speed, flexibility, and the perception of simplicity.
Speed can be a very important factor (depending on what your seller needs). Some people are at the end of their rope financially, and they need their property yesterday. I've won a few deals simply because I was able to close in 7 days (vs 30 days). If you have the ability to move fast and avoid bottlenecks, this could make your offer look much more attractive than your competition.
Flexibility is another huge plus to being a cash buyer. You'll be able to get around a lot of the red tape that banks like to wrap around things, and you won't be subject to some of the rules that make life difficult for investors.
And to your point about closing, if you're a cash buyer, you don't necessarily need to use a closing attorney, title company, or get title insurance. Now, most prudent investors would elect to pay for these things anyway (just because it's good practice) - but if you're buying a property all cash, you don't technically NEED to use these extra services if you feel like "rolling the dice".
I've never used an attorney outside of the purchase contract, and I don't use an agent for cash offers. Just me and the seller/seller's agent. There are a few advantages from a seller's perspective for a cash offer:
1. Faster closing. A cash buyer can close as soon as the agreement is finalized and the title research is done (or before the title search if you are willing to take the risk). A financed offer will take several weeks minimum and take a lot of work to get underwriting approval.
In terms of a difference in closing, I've been involved with a modest 8 purchases at this point; 5 financed and 3 cash. The fastest financed closing was with a lender I had used twice previously and still took 4 weeks. My cash offers took 4, 6 and 13 days to close since my county has very fast turn times and the title team I use is very good.
2. No chance of failed financing. Typically agents like a pre-approval to accompany any offer, but even then there is still a chance of the financing falling through. A cash offer can't fall through since they already have the purchasing cash on hand.
3. The seller is much more comfortable without an agent. Admittedly, I've never asked FSBO sellers to cover closing costs, or include more than 1 or 2 very simple terms in my contract but seller's seem much more comfortable with a simple cash deal.
4. This one sounds bad, but if the seller has an agent I've seen them try to push the seller into the cash offer. A lot of agents are more concerned with their check. A 10k difference in offers between
a financed and cash offer will only be a few hundred max for the agent, part of which typically goes to their company. If they can get the job done fast, they can wrap up and move on to their next client.
A cash offer won't always be superior. I think their greatest benefit is absolutely the closing speed. When going FSBO for sure, you can get a home closed before the seller can get cold feet or get competing offers.
Thanks for the suggestions thusfar.
I haven't the inventory with accumulated equity to be able to swing cash deals, but I was thinking of a workaround.
What if I buy a property using equity in my personal home? That is, I write a check for the full amount of the sale from my HELOC. Then, once the transaction is complete, I go and look for financing from a bank at my leisure - at that point putting the equity back into my home with the money from the loan. Is it worth the savings I would get on a cash offer? What's the downside?
I haven't the inventory with accumulated equity to be able to swing cash deals, but I was thinking of a workaround.
What if I buy a property using equity in my personal home? That is, I write a check for the full amount of the sale from my HELOC. Then, once the transaction is complete, I go and look for financing from a bank at my leisure - at that point putting the equity back into my home with the money from the loan. Is it worth the savings I would get on a cash offer? What's the downside?
I used a HELOC from my primary for my cash deals, but those were flips.
At first I was intending to hold one, but for a buy a hold you should know that if you plan on doing a cash out refi you will either be only getting max 75% of the purchase price or will be waiting a "seasoning period" of 6 or more common 12 months with your name on title before you can use the new appraisal for 75% return. Even then, the banks I intended to use wouldn't allow me to recoup 100% of the cash I put in since they wanted me to have skin in the game - which is why mine were flips!
I'm sure there are lenders that would let you recoup 100% of your cash but make sure you find where you intend to refi and know what you are getting into before you start up.
Here are a couple more reasons cash offers are viewed as having a better chance to close.
There is no appraisal required. Most banks will require an appraisal on the house and will on base the loan off that appraised amount. If it comes in low the deal could fall apart or the buyer has some leverage to try and negotiate the price lower.
Most loans will require the home to be in livable condition and if there are many repairs required the bank won't loan on it unless those items are fixed. Another way a buyer can negotiate.
With cash the only negotiating point after and offer is accepted is usually the inspection and sellers like that. Even with cash the idea is the buyer has the money for repairs and is not looking for a perfect house. Sellers usually assume here wont be many inspection requests if any.
Overall a cash offer gives a buyer a lot less outs and promotes the idea of security to the seller.
We always go CASH ... no conditions, fast close.
(The days of financing for us are long gone.)
But we know the property VERY well before we buy it.
Title work can be a pita, but by that time you have a signed deal & we just blame the attorneys.
Some recent deals...
1. Foreclosed for $58,000. 1700 sq ft ranch, all hardwood floors & cabinets with leaded glass....Sat empty for 5 years. Mold from a roof leak in the back laundry room caused most conv. financing denials.
While viewing the home our agent called the bank in TX & we had a verbal for $21,000 CASH.
We did nothing to it but our new buyer restored it beautifully.
2. Two homes side-by-side. Listed for $79,900 for BOTH, sat for 12 months under contract twice but conv. financing took too long to close. They had a lot of "REHAB 4 $'s' kids looking at them.
Rental income was a low $1000.
We did a VERBAL bid of $53,000 cash or we walk.They came back @ $58,000 & we walked. A week later they agreed to $53K. Re-sold for $63,000 no work done & the new owner bumped the rents to $1300, no complaints.
The Rehabbed home next door is 'listed' for $87,000.
3. Large 3/2&3/3 duplex (built 1830, on a lot 130x823 with a 28x35 barn) on the mkt 18 months. Started @ $89,900, & finally dropped to $59,900 as the heirs (in the family >70 yrs) lost all the tenants. We threw out a VERBAL bid of $40,000 CASH, they said no way. 10 days later they came back @ $45,000 & we took it.
(They refused earlier bids in the mid $50's.)
It's currently being totally gutted. The pocket doors between the dining & living room & the front double doors are 9 ft tall.
The wall studs are hand cut 8" x 4" tree trunks. The brass claw feet of the old bathtub rest on 'crystal' balls.
But they did pull their g/grandfathers1929 Ford auto out of the barn & it had a few bullet holes in it!!!
I love this business.