Is “cash only” really cash?

Question

Found a property I really like in but it’s a total reno and our agent is telling us the purchase is cash only. The property has 7 acres with a 3/2 main house and a second separate 2/1 house (which also needs renovation) with its own drive.
I’d like to buy the place, renovate it, and then live in it for a few years as my primary while renting out the 2/1, and then ultimately selling or renting out the main house too.
wondering what the best purchase strategy would be considering I don’t have the full purchase price in cash on hand? The ask is 300k.
Can I use a hard money loan or some other financing to get a cash deal? Would that loan include the renovation costs based on the ARV?

We have an LLC that holds real estate but have run into issues refinancing through the LLC when family is renting or ultimately living in the property so I'm also not sure if this should go through the LLC or be a personal purchase?

Thanks!

We have an LLC that holds real estate but have run into issues refinancing through the LLC when family is renting or ultimately living in the property so I'm also not sure if this should go through the LLC or be a personal purchase?

Thanks!

Bradley Buxton · Answer

@Jessica Medvec

Usually when a seller wants cash the property is not lendable. The condition is so bad the home is not worth the purchase price for collateral. Whether that is actually true can be debatable and the seller might not want to deal with complex lending situations. A "total reno" can mean it's all original and very outdated but livable or it can be an absolute disaster with foundation issues and sewer and water problems. Find out from the seller agent why they think it's cash only.

Jessica Medvec · Answer

Thanks everyone!

Stuart Udis · Answer

Normally when a  property is advertised as "cash only" the property is in poor condition and/or the seller wants to reduce contingencies and opts for a cleaner transaction. It's also common for the "cash only" advertisements to come from brokers or sellers who are misinformed. Typically when you see "cash only" the agent doesn't believe the property can pass a home inspection which isn't relevant for construction loans in most instances and there are plenty of banks, hard money lenders etc. who offer construction financing on distressed buildings. Buildings in any condition are generally lendable to a certain extent. If the building cannot be salvaged,  a lender could still provide financing for land value less demo cost. Title issues tend to be the fact pattern where properties are truly not financeable but that's rarely the case when you see the "cash only" adverts.

Ultimately, proceeds will be transferred through a title company and its not as if the buyer is showing up with a duffel bag filled with cash. Unless there's access restrictions and access is required for an appraisal or lender inspection, there's no reason why a buyer can't use financing even if the property is advertised as cash only. They may not be able to use financing contingencies and may have to show proof of funds equal to the acquisition price but the money that hits the sellers bank account is the same whether its "cash" or a financed transaction.

Jonathan Greene · Answer

Right, but that's not cash or functionally the same as cash because the lender can change the terms at the last minute, as often happens with less experienced hard money lenders. Cash has no limitations or second parties that can capsize the deal.

Robin Simon · Answer

yes, but you can still bid with lender approval - without appraisal contingency - you send in deal (app), it gets approved by lender its functionally the same as cash (except in true lightning speed situations where there is a quick auction with little time to prep but thats generally pretty rare I'd think)

Henry Clark · Answer

Talk with your normal lender.   Ask them if you deposit say $250k with them as MM or CD with them having control over it.  Will they do a $300k loan or working line with you in this property.

Then just write a check.

Jonathan Greene · Answer

The lender still has to ok the deal, appraisal or not. With actual cash, you just transfer it.

Robin Simon · Answer

There are lots of hard money options (or maybe not "lots" but not too uncommon) with no appraisal required - that makes the offer equivalent to cash (closing within a couple days and no appraisal contingency - its out there)

Jonathan Greene · Answer

To me, cash only is just cash. Second to cash in the bank is HELOC cash because you can use it however you want (you just have to see it already in an account). The reason hard money is not cash (although some think it is) is because there is still an appraisal attached to it. Anything that has a contingency is not cash.

Listings here will say cash, hard money, or 203k only if they want all three. Best practice is to ask them if they consider hard money cash.

Is “cash only” really cash?

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