Cash Purchase vs Conventional Financing

Cash Purchase vs Conventional Financing

Lincoln, NE · Member since 2019 · 19 posts · 21 votes

Good evening from the Midwest!  I've come to ask for feedback while acknowledging that I'm early enough in my journey that I can't yet offer much in return other than gratitude and it's hard to pay the bills with gratitude, I know.  I'm building skills so I'll have more to offer soon!

I'm a new pro member and I will be making my first deal this year.  One of the issues I've been pouring over forum posts to try to learn about are the advantages and disadvantages of cash purchases vs conventional financing for a buy and hold investor.  I have the resources to proceed with way, but I'm having trouble being decisive about what will be best for my business.

A cash purchase feels like a better negotiating position for my offer and like a more compartmentalized risk if there are problems (as in, you can lose the cash without damaging your credit if the worst happens.)  Conventional financing seems like a good way to get more leverage/cash flow benefit out of less liquid capital, but a poor result could have a more lasting impact.  And around and around I go.

Would any more experienced hands out there be willing to offer a bit of guidance to help with my financing paralysis?

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Chris MasonPro Member
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Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
7y

If you can be a cash buyer, always be a cash buyer. Period. Then slap a mortgage on the property after the fact to recoup your capital.

This way you get the best of both worlds.

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  • Lincoln, NE · Member since 2019 · 19 posts · 21 votes
    7y

    Things got busy around here looking for that deal and I fell behind replying to each of you - so thank you everyone for your perspective and input.  My first deal is done and will be on the rental market soon (needs a bit of rehab.)  Now on to deal #2!

  • New to Real Estate · Coldwater, OH · Member since 2018 · 105 posts · 61 votes
    7y

    pretty new here. My only goal right now is to not to be afraid to ask questions :). well, that and soak up all this info.

    As Keller says in The Millionaire RE Investor, a cash buyer does not mean showing up to the closing with a suitcase full of cash. So are you guys referencing a cash buyer as someone who simply has financing in place?

    along those lines, is it possible for someone to simply go shop for loans? Tomorrow, what if I started asking a lot of different entities for financing? I would tell them I am anticipating buying a property in the upcoming months, maybe weeks. Is it possible for companies to then proceed to give you terms? for instance, "we will grant you a 15-year loan at x% APR up to $X amount of dollars. Once 60 days have passed this proposal is void."

    Would it be possible to get those types of terms lined up from different companies? If so, is that person now a cash buyer?

    A bit off topic here, but can you guys pinpoint me to where I can find some data about personal loans, or something like I was describing above(financing), and "hard pulls?" Could those temporarily lower my credit rating? 

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