Cash Offer
Rental Property Investor · Marlton, NJ · Member since 2014 · 125 posts · 36 votes
Cash Offer
Most Popular Reply
Real Estate Agent · Cape Coral, FL · Member since 2015 · 167 posts · 89 votes
10yThe two biggest bits of advice I have with a cash purchase is to prepare all your proof of funds ahead of time. Copies of bank statements are good... but if you are buying as an LLC or corporate entity, you'll also need your articles of incorporation showing you (and your cash) are tied to the buying entity.
Line up an inspector quickly or even ask if you can have an inspector at the property before making an offer (then you can write an even stronger offer by minimizing or negating the inspection period!). If the property is wood frame or significantly dated, be sure to line up a termite inspection. Also, some locations require water/well inspections too. Rare... but it can happen.
Lastly, and most importantly, ALWAYS do a walk through before closing. Make time for it no matter what. I've only had one buyer refuse (just couldn't wait to close) and when he got to the house, it had become infested with bees. I mean... 50,000+ bees! An hour earlier, that would have been someone else's problem.
27 Replies
- Real Estate Agent · Cape Coral, FL · Member since 2015 · 167 posts · 89 votes10y
The two biggest bits of advice I have with a cash purchase is to prepare all your proof of funds ahead of time. Copies of bank statements are good... but if you are buying as an LLC or corporate entity, you'll also need your articles of incorporation showing you (and your cash) are tied to the buying entity.
Line up an inspector quickly or even ask if you can have an inspector at the property before making an offer (then you can write an even stronger offer by minimizing or negating the inspection period!). If the property is wood frame or significantly dated, be sure to line up a termite inspection. Also, some locations require water/well inspections too. Rare... but it can happen.
Lastly, and most importantly, ALWAYS do a walk through before closing. Make time for it no matter what. I've only had one buyer refuse (just couldn't wait to close) and when he got to the house, it had become infested with bees. I mean... 50,000+ bees! An hour earlier, that would have been someone else's problem. - 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Harry Metzinger @Seth Nadreau when I was funding deals for rehabbers in Detroit.. we always looked at the house morning of closing.. and 1 out of 10 to 15 had been hit during the escrow period and stripped.. so we of course did not fund and close. walk through for sure is important.
as well as your other suggestions.. I have a package saved in one e mail with all my formation llc docs copy of drivers license etc.. so when they ask its just a click away... and I always use bank account as you state that ties to the entity.
cash sales are were the deals are.. I just closed one in Seth's neck of the woods Lehigh acres to be exact. !!!
- Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes10y
I will agree with @Seth Nadreau Proof of Funds Letter is Key, Insurance is a 10 min Phone call, Is this an REO? if so Seller generally sets up the Title and Closing, the only other thing is be prepared to Wire the funds the day prior to closing, Cash is King, and can equate to huge discounts, especially with quick closing. My advice on inspections, is, do it prior to the offer, and give them an AS IS price, I write mine with no contingencies, it makes a difference , and when im the seller, a Cash buyer is my prefered deal, I will take quite a bit less if its cash no contingencies quick close.
- Rental Property Investor · Marlton, NJ · Member since 2014 · 125 posts · 36 votes10y
@Seth Nadreau @Jay Hinrichs @Scott Schultz
Thank you very much for your insights!
As for proof of funds, a large part of my cash offer is a combination of HELOC funds and stocks that I would sell off. Therefore, only a small amount of the total purchase price is actually in my bank account right now. Should I have any reason for concern that a bank would not accept this as proof of funds? I planned to provide statements for the month that just ended showing that the stocks + HELOC limit is more than my offer. On top of that, the funds could be in my account quickly - within 48 hours - of an accepted offer.
When you have inspections done prior to the offer, do you already have a good feeling from the listing agent whether your ballpark offer is going to be accepted?
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Harry Metzinger I would think the securities accoutns would do you may want to move the funds from your heloc to your bank account prior so you don't muddy the water there.. a couple days of interest on the heloc is just cost of doing business. once approved move the money right back.
sometimes I need to pull from my credit facilities and will do that simply for the day.. and my bank will reverse it same day and not charge. me... but I have a VERY good commercial bank that I have been with for over 20 years.. so your results may not be same as mine.
- Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes10y
your cash letter Needs to accompany the offer, if as a prior REO listing broker. It's not cash unless you have it in your acct. ready to fund closing. As for the inspection, if you want the best deal, you have to be able to offer without a inspection contingency, Personally, I understand construction, and give it a look over, and roll the dice, my value gap is always wide enough if I miss something. It's got to be a Scteaming Deal or I don't buy. There are plenty of deals out there, if you have little room for error it's not a deal.
- Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes10y
I live closing with cash.. I just wire the funds, sign 3 papers and walk out with keys. my favorite..
I can inspect a house in 2 mins flat, always assume the plumbing is bad behind the walls. child's play, really for the general cookie cutter house from the 50s or 60s
- Rental Property Investor · Lindon, UT · Member since 2015 · 862 posts · 438 votes10y
Realize that if you are using a private money lender or hard money lender for the "cash", then your offer is NOT a cash offer! If a loan is involved, it will show up on the HUD and the seller can pull out of the deal if you misled them in thinking you had the cash available in your own account. A cash offer should NOT have a POF (proof of funds) letter attached, unless it is written from your bank. A cash offer could have a bank statement to show proof of funds (cross out your account number). I've seen buyers lose earnest money because they have not differentiated between their cash and someone else's cash. Good luck!
- Visalia-Fresno, CA · Member since 2009 · 1k+ posts · 863 votes10y
Get the deal into escrow and then start your inspections. Use the inspection period/contingency period wisely. Meaning gathering the information from your reports and see if your inspection findings warrant a price reduction or credit from the seller. Most agents in general will push you to the finish line and tell you just to close escrow. Do not let the agent bully you into not letting you request a reduction or information from the seller.
I know this discussion is more about what to do if we are paying cash and understanding the process of a transaction but I want to dig into to the real estate agent side of it. Agents are typically wired to think only... Open Escrow and Close Escrow. Go from Point A to C quickly so they can get there commission. If an agents only source of income is commission then they are going close the gap between A and C quickly. A good agent will focus on point B, which is the juiciest, most physiological intensive, and most uncomfortable period in the transaction. Point B is where you can create new equity and if needed discover this is a bad deal.
Franklin - Rental Property Investor · Marlton, NJ · Member since 2014 · 125 posts · 36 votes10y
Thank you @George P. @Darren Eady @Franklin Romine for your insights!
That's a great strategy you seem to have George.
Darren, I am not using a private or hard money lender in this instance...it is all my money. I was not planning on having a letter; rather, my statements would speak for themselves. Is that not enough in your opinion?
I know we are stretching the original topic a bit, but this is all great information.
One other question came to mind today - in your experience, does the amount of the escrow deposit make a difference? I know many look at $1,000 as par for the course when purchasing with a mortgage, but with a cash offer, does it make any difference at all to offer a greater deposit - 2%, 5%, or more - of the total purchase price?
- Rental Property Investor · Lindon, UT · Member since 2015 · 862 posts · 438 votes10y
$1000 is typically sufficient for EM.
Your statements will definitely get the job done showing proof of funds.
Great job!
- Real Estate Investor · Greenback, TN · Member since 2012 · 268 posts · 115 votes10y
@Harry Metzinger, I've done several "creative cash" purchases in the past without incident. I have to disagree with some of the previous posts that your offer is not a "cash" offer. In my experience, sellers have two broad categories that they label "Cash" or "Financed".
The Financed category is for someone that's going to put the house under contract and then apply for a loan to buy the house. The seller doesn't prefer this option because there's a decent chance the buyer can't get qualified to buy the house and therefore the deal falls through and the seller has to start over.
The Cash category is basically for every other way you could purchase the house that doesn't require you to get qualified for a loan. Hard money lenders operate similarly to banks so those are obviously Financed deals. Your scenario though fits into the Cash category because you're using "cash" (liquid assets, LOC, etc) that are already yours. You don't have to get anyone's permission to use those funds to buy the house. The idea that you have to have $20's & $100's in your possession to make a cash purchase is simply not true.
I use my business line of credit to make "cash" purchases all the time. Even though my bank does an appraisal, title search, etc before I buy every house, they are always classified as "cash" purchases. To get the seller on the same page, I always include a statement on my offer that says I am using my business line of credit to make the cash purchase and all associated fees on the HUD will be paid by me. I've never had a seller (private, bank, HUD, VA, etc) that would not accept this method. As long as they see that you have a path to get the money and you check the box that says you waive the financing contingency, they consider it a cash offer.
Regarding your original question about what kind of checklist to use, you should talk to an experienced (local) real estate agent. Hire them if you need to!! The cost of their commission can be minuscule compared to the trouble you get yourself into by flying solo. Good luck!
- Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 904 votes10y@Harry, for cash offers on REO, I usually have my contractor walk through it prior to me putting in an offer. This substitutes for the inspection. My offer is cash, no contingencies and close in 15-20 days, $5k to $20k down, depending on purchase price. Make sure your agent is registered if a HUD or Fannie/Freddie REO.
- Rental Property Investor · Marlton, NJ · Member since 2014 · 125 posts · 36 votes10y
Thanks @Darren Eady. In this case, I am going to go w/ $1,000 down. I talked to the listing agent today and I asked him a number of questions related to making a cash offer. He gave no indication that a larger escrow deposit would make a difference. He said having no contingencies and being able to close quickly (anything within 30 days was acceptable in his opinion) were superior factors to a larger escrow deposit.
@Michael Woodward, thanks for sharing your experiences and perspective. I explained to the listing agent what I planned to show as support for my offer, and he echoed your thoughts. Believe it or not, I am a real estate agent...a new one though, and one who is only holding my license for investment purposes. I talked to my broker later today to get his feedback too.
@Percy N. Thanks for your insights. I know someone who has been in the construction field for 30+ years, so my process has been I tour a property first, and then if the rehab seems within reason on first glance, my construction guy comes in, looks at it with me, and provides his perspective. In this particular case, no major areas of concern jumped out to either one of us, so I am not too concerned about making an offer with no contingencies this time around.
- Investor · Reading, PA · Member since 2014 · 196 posts · 118 votes10yHarry Metzinger I literally just closed on my first deal today, so take my experience with a grain of salt. It was a cash deal for an REO. During the negotiations, we were $20k apart. I came up $2500 and said it was best and final. My EMD in the offer was $500. They countered by dropping another $10k and upping the EMD to $2,500. Now, we are $7,500 apart. I was going to bump my offer up, but I paused, and asked my agent if the reason for the increased deposit was to make sure I wouldn't walk from the deal. She said, "Yes, that's exactly right." Bingo. That told me they were more interested in off-loading it than the price they would be selling it for. Instead of bumping my ("best and final") offer up, I told my agent to keep the purchase price where it was, but increase the EMD from $500 to $2,500. They accepted it. So, in my case, the larger EMD let the seller (bank) know that I was serious about closing. It appears closing and getting it off their books was more important to them than the price. Had I not paused and thought about it, I would have spent another $2,500-5000 on this property.
- Rental Property Investor · Marlton, NJ · Member since 2014 · 125 posts · 36 votes10y
First of all, congratulations @Jason Krick on your first deal! Hope that you will write about it in depth in the BP forums soon (feel free to tag me when you do so that I'm on the lookout)
I would be prepared to increase my deposit if it helped facilitate a deal. One way to look at it is your lower initial escrow deposit worked in your favor.
If you don't mind me asking, what was the PMP (Property Marketing Period) on the property you purchased before you had it under contract? (PMP is similar to DOM (Days on Market), but PMP also factors in time when a property may have been on the market for sale before, then it was taken off the MLS, then put back on at a later date.) My initial feel is that there is a direct correlation between a property's PMP and how flexible the lender is with accepting a lower offer on an REO.
Do you mind sharing numbers here? Estimated rehab costs? ARV? Will you look to flip or rent it afterward? No worries if not.
Congrats again! That's great news!
- Investor · Reading, PA · Member since 2014 · 196 posts · 118 votes10y
You would be right in this case. It was on the market for over a year. I have some theories as to why it sat so long, which aren't due to the house conditions. I will shoot you a colleague request and PM you the numbers. I don't want to hijack the thread.
And my plan is to write a detailed post recapping the process, as I believe my strategy to get into my first property is different than some others. That will happen once I get everything squared away and the renovations started.
- Rental Property Investor · Marlton, NJ · Member since 2014 · 125 posts · 36 votes10y
Thank you everyone for contributing to my thread. I greatly appreciate it!
I have a couple of follow up questions that I would like your input if you don't mind...
1) What percentage of IRA assets would be counted as assets available for a cash offer? Hypothetically, if I have $100k in an IRA, does a bank look at that as I have $100k available for a cash offer? Or do they look at it as being less knowing the tax implications and early withdrawal penalties. (Please note: I have no intentions of liquidating any of my IRA holdings due to the tax implications and early withdrawal penalties. But this question is related to Question #2...)
2) If I make a cash offer - an offer that is supported by the amount of my IRA holdings - but then, by choice, I choose to use a private money loan rather than liquidate my IRA holdings to fulfill my cash obligation, can I do that? (Please note: I am not using this strategy with my current offer. I am asking because if this current offer works out, my money is tied up for 6 months before I can do a cash-out refi at 75% of the value of the property.)
Tagging everyone who has participated in this thread...
@Seth Nadreau @Jay Hinrichs @Scott Schultz @George P. @Darren Eady @Franklin Romine @Michael Woodward @Percy N. @Jason Krick
- Real Estate Agent · Cape Coral, FL · Member since 2015 · 167 posts · 89 votes10y
I'm not honestly sure of the answer to #1... so I won't even try.
As for #2, remember that a real estate offer is drafted on a legally binding real estate contract. Once you and the seller have signed the contract, you are both bound to those terms. Changing from cash to conventional or private money could create issues with the contract.
Many times, private money simply does not close as fast as cash and could end up extending the contract beyond the specified closing date.
When I put on my realtor hat and have an REO under contract with a cash buyer and then they try changing the terms of financing, I almost want to find them and break their legs. Remember, your strong cash offer was accepted for a reason.
I would almost recommend writing the offer with the private money first. No one will get upset if you then chose to close with cash instead. Make sense? - Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes10y
Originally posted by @Harry Metzinger:
Thank you everyone for contributing to my thread. I greatly appreciate it!
I have a couple of follow up questions that I would like your input if you don't mind...
1) What percentage of IRA assets would be counted as assets available for a cash offer? Hypothetically, if I have $100k in an IRA, does a bank look at that as I have $100k available for a cash offer? Or do they look at it as being less knowing the tax implications and early withdrawal penalties. (Please note: I have no intentions of liquidating any of my IRA holdings due to the tax implications and early withdrawal penalties. But this question is related to Question #2...)
2) If I make a cash offer - an offer that is supported by the amount of my IRA holdings - but then, by choice, I choose to use a private money loan rather than liquidate my IRA holdings to fulfill my cash obligation, can I do that? (Please note: I am not using this strategy with my current offer. I am asking because if this current offer works out, my money is tied up for 6 months before I can do a cash-out refi at 75% of the value of the property.)
Tagging everyone who has participated in this thread...
@Seth Nadreau @Jay Hinrichs @Scott Schultz @George P. @Darren Eady @Franklin Romine @Michael Woodward @Percy N. @Jason Krick
Your #1 a % will be with held from the IRA when you pull the money, Im not sure, but i think its like 40% so I would guess $100K would be looked at as $60K, I really advise against liquidating an IRA, but maybe look into rolling it into a self directed, and have the IRA hold the property for your benifit, lots of rules with that though.
If you are buying an REO and try to switch from cash to financing, the seller may kill your deal, I've seen it happen, if the PM Lender is funding without being party to the closing, it may fly, but generally Cash has to be Cash, mine are done on a Line of credit, and my banker produces a letter that i have cash to close. I do not recommend you playing the seller, they remember who you are if you try and switch a deal, When I was a Listing Broker, I found that asset managers moved around, but no mater who they worked for, they remembered who the good buyers, and bad buyers are.
- Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 904 votes10y
@Harry Metzinger, if you want to keep your money in the stock market and buy real estate as well, some brokerages (like Merrill Lynch) will let you have a CMA account and lend you margin (at a cheaper rate than private money and certainly hard money) against the equity.
You can use that as CASH by transferring to your bank account.
Note: this is for non-retirement funds only.
- Investor · San Francisco, CA · Member since 2016 · 314 posts · 153 votes10y
Not sure how appropriate this is where you're buying, but both my real estate agent and mortgage broker were comfortable with me submitting a cash offer and concurrently starting a mortgage application, with the understanding that I'd pay cash if the mortgage failed to close in time (closing for the cash offer was set for 30 days)
- Rental Property Investor · Marlton, NJ · Member since 2014 · 125 posts · 36 votes10y
Thank you @Seth Nadreau @Scott Schultz @Percy N. @Wes Brand for your replies to my latest questions.
Wes, what you recommended is the action I may try in the future. A lender I know - and have great trust in - told me that in a number of instances, a "cash" buyer comes to the table w/ a mortgage. Sounds like as long as the lender approves of this possibility at the outset and I have the cash funds if the mortgage falls through, then it works for all parties involved.
- Real Estate Broker · Chicago, IL · Member since 2015 · 531 posts · 266 votes10y
For cash deals you need to bring 10% in earnest money to be taken seriously.
As for cash really being cash or cash being someone who can pay cash, but comes to the table with a mortgage all depends on the seller. A true cash buyer can close in 2 weeks, not the case with some other offers I have seen who really intend to cash in another investment.
It sounds like you need to have a discussion with your banker to determine what kind of letter they will write for you. You don't need to show anyone your statement, its better to have your bank write a letter confirming assets.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes10y
Read posts by @J Scott in this next link for how to word a cash offer but still be able to use OPM financing:
As to using a line of credit. The funds from a line of credit are there for you to use, but they are typically accessed by writing a check. That check could take a few days to clear, so be prepared for that. I have at times gone in person to the bank where I have a line of credit and make a cash withdrawal (in terms of clearing immediately) and get those funds either deposited into a checking account with the same bank or I get certified check(s). Once you have those funds sitting in your account, you can then have funds wired from your account.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.