Real Estate Investor · Mountain View, CA · Member since 2008 · 53 posts · 6 votes
I placed 3 offers in the last month in California, one of them over asking price. Lost all 3 to cash buyers. I'm offering 20-25% down and have an excellent crredit rating. What's a body to do?
One of my best contacts told me that an REO listed for 180,000 sold for all cash, 225,000.
This is common place in So CAL for REO properties on MLS.
Banks have been pricing properties lower on purpose to get 20 offers and have a bidding war between the buyers.
This is exactly what NOT to do as an investor. Why would any ionvestor pay $45k OVER the ask price, when they could have had the ability to work the ask price below $180k and get it before it ever hits the MLS.
There are a lot of variables to consider here. What is your exit stratigy? Are you offering on REO's? If you are, go to a local bank and get set up on their portfolio loan program so that you can offer cash. Also you need to offer on a lot more than 3 properties if your bidding on REO's... I do 4 to 5 offers a day and get 1 to 20/25 ratios... You could also get in front of the biggest REO Realtors in your area. Let them know your serious and that you want deals and are ready to spend money... Be honest about what you bring to the table and they will respond... Good luck ...
You're at a big disadvantage when going against cash buyers .... even if your offer is higher, good chance seller will opt for the cash buyer to avoid all the variables that go with someone trying to finance a property. I'd suggest making more offers with the understanding you will have a low acceptance rate.
Learn about the kinds of financing that allow you to make "cash" offers (hard money, private, loc's on other stuff). Every offer I've made for the last 3 years has been a "cash" offer when I didn't have a dime (well, at one point I may have had a couple grand). Being a "cash" buyer allowed me to buy at the level that financed buyers can't touch.
Even though I'm a novice, I agree that cash is king. Out of the 3 homes we have bought (one yet to close), two of those homes were REO's and our offers were cash and we got them. The third and most recent one we are going to finance and chose to do that with this one because it's an actual owner. Well, it's an estate situation but there wasn't a risk of getting out bid since they accepted our offer and no bank involved. I say definitely see if there is a way as the others have suggested where you can be in a position to offer cash.
Our next REO we'll offer cash and will be able to do that because we are financing this most recent one and keeping the cash in reserve for the next bank owned.
Wow Dustin, 3-4 a day?? I'd be scared to get accepted offers on all of them LOL! But then again we wouldn't be in a position to afford 3-4 at one time. Right now we are just going after one at a time and so far I'd say since we started this we've only put in maybe 6 offers and ended up with accepted offers on 3 (one a non-REO). So not too bad I think :D
The point about "cash" is it doesn't need to be your cash.
Line up a short term private money loan, bring in a short term partner, make a cash offer and get a loan anyway (just leave enough time to get the loan).
I've always found that the cure all is a bigger earnest money check ... it's a little more risky for you but it satisfies the seller's concern that you're serious.
Ok....I'll admit one thing that I did that I can't recommend as a practice. One time I made a "cash" offer that 1 day before closing I had to change to a "financed" offer.... Yeah....I was an a-hole and pissed off just about everybody but since they had the whole thing scheduled and everyone was waiting for it to close they went ahead with the closing. Don't make a habit of it and play dumb if you try it (well golly I thought my loan meant you were getting "cash" from the bank). Being "from Indiana" makes it easier to play dumb to "dem big city banks" he he heee.
We used to hit 1 out 3 with agents we have had relationships with. From June until now we've made 300-400 offers and only bought 4 properties (2 over asking price). We are cash buyers.
According the REO agents I know the asset managers do not put a huge advantage on cash offers unless the property is un-financable.
I'd suggest you wait until the winter. I think California is going to see a lot more inventory (but it depends what end of the market you're dealing).
Ok....I'll admit one thing that I did that I can't recommend as a practice. One time I made a "cash" offer that 1 day before closing I had to change to a "financed" offer.... Yeah....I was an a-hole and pissed off just about everybody but since they had the whole thing scheduled and everyone was waiting for it to close they went ahead with the closing. Don't make a habit of it and play dumb if you try it (well golly I thought my loan meant you were getting "cash" from the bank). Being "from Indiana" makes it easier to play dumb to "dem big city banks" he he heee.
I do something similar with Shorts, If I haven't found a buyer or need to postpone it a little longer I'll tell the bank my funds are tied up with another property that was accepted before they did and I need a few weeks to cash out that one or line up some financing. Most of the time I'm successful. I feel b/c we've already gone through the work, but a few times the bank told me to F-off and I lost the deal :cry:
The point about "cash" is it doesn't need to be your cash.
BINGO! Private money, HMLs, lines of credit, whether personal or commercial are considered cash.
It has been very rare that we use our own money, sitting in a money market or checking account to pay for a deal. The few times we have done it is to have funds for a super quick closing.
Wow Dustin, 3-4 a day?? I'd be scared to get accepted offers on all of them LOL! But then again we wouldn't be in a position to afford 3-4 at one time. Right now we are just going after one at a time and so far I'd say since we started this we've only put in maybe 6 offers and ended up with accepted offers on 3 (one a non-REO). So not too bad I think :D
99.9% of our REO purchases have been countered by the bank. Even if a REO "accepts" an offer, the second they require an addendum (which they always do), the offer becomes a counter. So, there is your opportunity to bow out if you have too many deals going on.
Ok....I'll admit one thing that I did that I can't recommend as a practice. One time I made a "cash" offer that 1 day before closing I had to change to a "financed" offer.... Yeah....I was an a-hole and pissed off just about everybody but since they had the whole thing scheduled and everyone was waiting for it to close they went ahead with the closing. Don't make a habit of it and play dumb if you try it (well golly I thought my loan meant you were getting "cash" from the bank). Being "from Indiana" makes it easier to play dumb to "dem big city banks" he he heee.
Tim, I can't even tell you how many times we have done that. Luckily, our lender and closing companies can move pretty fast and adjust. That is the great thing about investing in smaller towns. The banks, closing companies and realtors know one another on a first name basis.
As an example...I am just accepting a cash offer 7k lower than an FHA offer. Why you ask....there is nothing more frustrating than having the deal fall apart late in the game. Cash is King
Wow Dustin, 3-4 a day?? I'd be scared to get accepted offers on all of them LOL! But then again we wouldn't be in a position to afford 3-4 at one time. Right now we are just going after one at a time and so far I'd say since we started this we've only put in maybe 6 offers and ended up with accepted offers on 3 (one a non-REO). So not too bad I think :D
Kel S.
I would venture to say that our exit stratigies are different. I could never offer on 6 and get three because I wholesale these. Therefore, I offer so low that my ratios are 1 property for every 20/25 offers. I would love it if I was getting that many accepted, but if I started to see a 50% return on my offers then that means I'm offering too much. But again this is why understanding your end goal is important and then working from the end to the beginning of what your investment goal is...
The best little nuggett I can give you is this.. Find 2 to 3 REO realtors and become buddy buddy with them!! This way you can get the inside track on your offers and I promise you.. You will get more offers accepted!! I use some realtors to put some offers in but the majority of the time I call the realtor who has the listing my self and put the offer in with them.. This way they get both sides of the commision.. You close 1 or 2 with them.. They will call you eveytime they get a listing!!
As for cash offers.. Go to your local bank and get a heloc on your primary residence or a different line of credit and that will suffice as a "cash offer"
"According the REO agents I know the asset managers do not put a huge advantage on cash offers unless the property is un-financable."
I totally disagree with this statement. Doesn't matter if a home is in complete disrepair of in move in condition - doesn't matter if it is $5,000 or $500,000 - Cash does have a huge effect on asset managers - The REO agents you know are not telling you truth about real estate.
Asset managers love cash they will often take a lower cash offer VS a financing offer.
"Why do you think there will be a lot more inventory this winter? "
Banks put a hold on foreclosures earlier this year waiting for the current administration to deliver it's new plans - so in most areas from December to March or April no foreclosures were done. In addition some states or counties or cities have had their own moratorium on foreclosures for various reasons.
On a national level foreclosures are back on and working through the system - takes anywhere from 1-12 months depending on the state for properties to get from start to finish - so as the year goes on more and more should be hitting the market.
"According the REO agents I know the asset managers do not put a huge advantage on cash offers unless the property is un-financable."
I totally disagree with this statement. Doesn't matter if a home is in complete disrepair of in move in condition - doesn't matter if it is $5,000 or $500,000 - Cash does have a huge effect on asset managers - The REO agents you know are not telling you truth about real estate.
Asset managers love cash they will often take a lower cash offer VS a financing offer.
It depends on the property. If the property is trashed and a bank won't loan money on it, they will only take accept cash offers. But if a property is totally financable, cash may get a 5% discount, but for sure not a 10% discount (at least in California). We get beat out to conventional or FHA offers all the time, for it to fall out of escrow 3 and 4 times because the bank will not loan on the property.
Some asset managers really like cash, but we can't come in 20-30% lower just because it's cash.
Learn about the kinds of financing that allow you to make "cash" offers (hard money, private, loc's on other stuff). Every offer I've made for the last 3 years has been a "cash" offer when I didn't have a dime (well, at one point I may have had a couple grand). Being a "cash" buyer allowed me to buy at the level that financed buyers can't touch.
This is exactly what I do.... have a good hard money guy or 2 or 3 ready to give you the cash to buy if you are at 70% ltv or below of ARV. If you get enough experience behind you then you can solicit and find your own private funds from Doctors, Lawyers and high profile people who want a higher payout on their money than having it in CDs or savings.
Having private money is the way to go.... you can close as soon as you have a clear title commitment.
Having been a Realtor in Southern California for many years, up until the 1990s, I still have a few contacts in the business. They are telling me that even the foreclosed homes that the banks own are being released to the market very slowly. One of my best contacts told me that an REO listed for 180,000 sold for all cash, 225,000.
On top of that, the banks are actually fixing many of the homes up to "move in" status, so an owner occupied buyer is moving in.
What this will do in the long run is back up inventory, create a false price appreciation, thus causing a glut and price reduction just to turn RP assets into Cash assets.
California investing is going to take patience in 2009 and 2010. Deals can be made, but pick and chose, and don't get caught up in a bidding war.
Banks are pricing properties very well here. A lot of people offer over asking and hope for the appraisal to reset the purchase price. Banks are starting to force buyers to sign something saying they will pay over appraised value.
Two of the last four houses we've bought are for over list and they are still great deals. It does take patience though and some "investors" are paying way too much.