Should I spend my cash....

College Student · Maumelle, AR · Member since 2016 · 13 posts · 5 votes

Hello,

After looking high and low, coming across deals that are under contract and in closing by the time I contact the real estate agent, I have found a nice duplex in a decent area for a great price. I have been saving my money since last year, incase an opportunity like this ever rolled around and the duplex is priced to where I can pay it all in cash. Does anyone recommend that I do this or should I go ahead and get financing?

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Steve Vaughan

Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes

Congrats saving at a rate high enough to purchase your first plex outright, @Aliyah Conley! That's awesome!

I would finance if all things are equal, but pay cash for a discount. My LOI offer would have 3 scenarios with 3 price points; $x for cash, $x + x% with bank financing, $x + x+% for seller financing. All amounts would be specific, like $91,473. Don't use lots of zeros like $90,000.

I prefer to pay cash and refi after 6+ months. Delayed financing only gets you 70% of value back.

Will this be a househack or investment? I'd be more likely to pay cash if investment. Househack may only require a 5% down payment at an awesome fixed rate. Congrats again!

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Lynn McGeein
Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
9y
A cash offer can definitely help close the deal, but make sure you still have a decent emergency fund and funds for rehab if necessary. You may want to look for a lender who will do cash-out refi on investment property ... easier if you live in one unit.. before you buy if you do want to get your cash out as it can be difficult finding a lender for that. Make sure you have your own representation or understand the process before making a cash offer as you'll still want inspections, due diligence period to ensure marketable title, insurable, time to study current leases, etc., to make sure it's a good deal before you buy.
2 Reply
Connor Heim
College Station, TX · Member since 2016 · 89 posts · 73 votes
9y
By paying cash you can often get a better deal. Then, you can utilized the delayed financing exemption to get (some of) your cash back out to utilize for your next project. Read up on delayed financing to learn more.
1 Reply
Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
9y
Congrats saving at a rate high enough to purchase your first plex outright, @Aliyah Conley! That's awesome!
I would finance if all things are equal, but pay cash for a discount. My LOI offer would have 3 scenarios with 3 price points; $x for cash, $x + x% with bank financing, $x + x+% for seller financing. All amounts would be specific, like $91,473. Don't use lots of zeros like $90,000.
I prefer to pay cash and refi after 6+ months. Delayed financing only gets you 70% of value back.
Will this be a househack or investment? I'd be more likely to pay cash if investment. Househack may only require a 5% down payment at an awesome fixed rate. Congrats again!
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Aliyah Conley
OP
College Student · Maumelle, AR · Member since 2016 · 13 posts · 5 votes
9y
@Steve Vaughan Thanks you and thanks for that advice. This will be an investment property. And wanting to get a discount is why I am looking to pay cash.
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Aliyah Conley
OP
College Student · Maumelle, AR · Member since 2016 · 13 posts · 5 votes
9y
@Connor Heim thanks for that advice! I'll do more research on delayed financing. :)
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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
9y
That's awesome that you saved up that much cash - kudos! A refreshing change to "I have no money and want to be an investor!" If you have a good cash cushion, I would definitely pay cash, get a better price and then cash out refi if you want later.
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Michael Lucero
Rental Property Investor · Pasadena, CA · Member since 2016 · 164 posts · 149 votes
9y
It kind of depends on what you want and if you can actually get a better deal with all cash. its simply a numbers game here. If you can get a 10% discount with all cash then maybe go for it, but you also have to consider the opportunity cost of having no cash for other investments. Typically when you use leverage/debt you can see higher returns, however this depends on the terms of the debt and the rent rates in the area. There isnt enough information to make a concrete suggestion.
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Aliyah Conley
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College Student · Maumelle, AR · Member since 2016 · 13 posts · 5 votes
9y
@Michael Lucero very true! I was looking to offer cash because it's such a great deal that I know other seasoned investors would be interested in purchasing. The listing price vs. what I intend on offering would still leave me with enough for a bank to provide a loan...maybe even using the investment as collateral.
It is a duplex surrounded by 4 other duplexes on the same side (1 rented, 1 just purchased yet vacant, 2 vacant - boarded up, maybe to be foreclosed on soon) . But I figured I had some room to wager with cash considering the listing price is low and the surrounding units vavancy. I'm not sure...if this is enough information or exactly what you had in mind as "enough information". I'm a newbie at this and can provide more info to anyone who can help me come to a conclusion and maybe even help with what room I have when making an offer with cash.
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Aliyah Conley
OP
College Student · Maumelle, AR · Member since 2016 · 13 posts · 5 votes
9y
@JD Martin thank you!! I'm highly considering it especially if it will make the bank jump at the offer....forgot to mention in my initial post that this was a foreclosure.
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Michael Lucero
Rental Property Investor · Pasadena, CA · Member since 2016 · 164 posts · 149 votes
9y
The information needed are the facts about the financing options- rate, terms, and fees. Also the price of the duplex, rent rates in the area, quality of the duplex in terms of old/new - are repairs needed or not, quality of tenants you think will rent, other investments or opportunities you would want to do, if any. Then you can start to calculate the type of return on this, and see if financing or all cash is better, and is it good enough to outpace other investment opportunities. For me, it's not about if I want to own a property, but rather, how much money can I get in return, represented as a % on money invested.
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Ron Flatt
Investor · Hillsboro, TX · Member since 2017 · 358 posts · 245 votes
9y
The foreclosures that I have purchased, seemed to go faster and I beat out others because I offered cash. I always do something with the property, whether it is a rehab, or just paint. I do something (putting paint on the pig) to justify a higher loan amount.
I then get it rented. When I go to lender, I will point out that I have made improvements, I have a tenant with a lease and provide some comparable properties to ask for a larger amount.
currently bought SFR foreclosure- $53500. after misc expenses and rehab, I will be all in $72K. I already have comps in the $130K range. I will be asking for 75% of ARV. That gets my cash back, some extra pull for the next deal and working capital. Rents will cover expenses, mortgage, including vacancy and maintenance. My bank changed bank managers so he will try to pull me down on the amount, so I have had to step out to other lenders. My credit union has expressed interest as well as several individuals here on BP
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Isiah Ferguson
Investor · Charlotte, NC · Member since 2017 · 321 posts · 157 votes
9y
Pretty much, this is the same thing i did. I paid ALLL cash. This gives me the opportunity keep the higher CF or i can refinance at any moment to pull my money back out plus more. Cash buy also give you the upper hand on getting a great deal on the purchase, it's a better negotiation tool. With cash you can close faster and sellers like a faster closings' instaed of having too wait for the banks etc.
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Isiah Ferguson
Investor · Charlotte, NC · Member since 2017 · 321 posts · 157 votes
9y
Also be careful with financing in general. It's not simple as it seem. There's mutiply qualifications you have to meet either way, to get the financing. Keep in mind your credit, DITI, Your current job or assets. They will consider all theses things.
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Ron Flatt
Investor · Hillsboro, TX · Member since 2017 · 358 posts · 245 votes
9y
Isiah Ferguson, has a great point. I was spoiled by my old banker. He realized my income as a landman is very sporadic and can have some rough dry spells, but he also understood, I took care of my lenders.
The banker who took his place, wants to play by the book always. He doesn't like to see income go from 6 figures to low 5 digits. He wants to go by purchase price and his evaluations are always around the tax appraisal districts numbers, which are usually low. Debt ratio is a big issue.
Find a great banker, but realize they move on, so always keep your options open for new creative thinking lenders. Sometimes you have to help them see the big picture. That is where your numbers need to show, you are allowing for vacancy, maintenance, unexpected expenses. Let them know what your outs are.
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David Faulkner
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
Nothing wrong with buying all cash, especially if you get a discount and are confident that the value is there. Money is made on the deal when you purchase, not when you rent or sell ... the only thing worse than overpaying on a property you bought all cash is overpaying on a property you leverage to the hilt. As long as it is a great deal, though, and you have done your thorough due diligence comping it out to validate that it is a good deal since you won't have an appraisal as part of your escrow, then no problem buying all cash.
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Alexander FelicePro Member
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
9y
The benefit to cash is speed in deals. You can close quicker and less complicated.
The detriment to cash is that it has a high opportunity cost (In direct relation to my statement above) so having it sit as equity in a highly non-liquid asset during a time in the market where rates are very low is really inefficient.
Pay cash to purchase, finance your cash back out immediately afterwards
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Account Closed
Contractor · Los Angeles, CA · Member since 2015 · 887 posts · 323 votes
9y
@Aliyah Conley I definitely agree with @Lynn McGeein have some emergency funds put away in case something goes wrong before the rental income can provide that type of capital. All the best to you!
Jorge
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Aliyah Conley
OP
College Student · Maumelle, AR · Member since 2016 · 13 posts · 5 votes
9y
@Ron Flatt awesome!!!! Thank you and thanks for the breakdown as to how you're justifying asking for a larger loan amount
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Aliyah Conley
OP
College Student · Maumelle, AR · Member since 2016 · 13 posts · 5 votes
9y
@Isiah Ferguson thank you! I definitely leaned on advice from you and a lot of others and submitted my cash offer. And I definitely agree getting financing is difficult...especially with me still being in college and not much to offer or show that I'm worthy of this loan. Thanks for your input.
1 Reply
Aliyah Conley
OP
College Student · Maumelle, AR · Member since 2016 · 13 posts · 5 votes
9y
@Alexander Felice I definitely considered that...paying in cash and then financing it, being a newbie at this I didnt know if that was typical or if I was thinking crazy. Thank you for your input.
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Aliyah Conley
OP
College Student · Maumelle, AR · Member since 2016 · 13 posts · 5 votes
9y
@Account Closed yes I have an emergency fund seperate from what I have been saving. Thanks so much for your input. Have a great day
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Parrish Weaver
Rental Property Investor · DC/MD/VA (DMV) · Member since 2015 · 7 posts · 5 votes
9y
@Aliyah Conley. One thing that I learned in Finance course was that Cash is King. With that being said...
if (and only if) you dont have an ownership interest in another property, then you might want to check out NACA BEFORE you spend your CASH.
NACA offers:
100% financing (including rehab costs)
No down payment ... save your money!!!
No closing costs...No attorney fees...no PMI...no minimum income or credit scores!!!
go to:
Sign up for free seminar to learn more
Hope that helps!!!
Parrish
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Janel F.
Investor · Brooklyn, NY · Member since 2015 · 65 posts · 18 votes
9y
I'd definitely look into delayed financing. It's like the best of both worlds. You get a better price paying all cadge but then you can pull some of the cash out to try and purchase or finance something else. If you do refi, you may need to show 6 months of reserves of the future mortgage payment for the property so that's something to keep in mind. I'm doing a cash out refi now and the lenders want to see 6 mos reserve for each property.
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Bill Goodland
Rental Property Investor · Allentown PA, United States · Member since 2016 · 567 posts · 442 votes
9y
I agree with pretty much everyone else that posted. Consider all the factors such as whether or not delayed financing would be a possibility and align with your goals, or if traditional financing would maximize your COC returns(once again if that aligns with your goals).
If you think you can get a considerable amount discount cash then go for it, but if the seller really doesn't care about waiting for financing then you might as well in my opinion. Laying out multiple options to the seller, even if all of them are heavily in your favor is a good negotiation tactic because although they may be somewhat low ball, when the seller gets to choose, he or she felt like they won the transaction.
1 Reply
Janel F.
Investor · Brooklyn, NY · Member since 2015 · 65 posts · 18 votes
9y
Parrish Weaver does the property have to be owner occupied to qualify for naca?
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