what do you think about CASH ONLY?

Question

Would you do it? it's my first investment property. not that i have the moeny to cash out a property now anyway. but is it worth it to do so when clearly something major would be worng with a cash only property? it seems like you what you'd pay to fix it up is what you will be pay to get an OK property that needs a facelift. Thoughts?

If it's worth it. are there ways to go around cash only offers to get the property?

Taylor Dasch · Answer

Just because a property says that it is cash only doesnt necessarily mean something major is wrong with it. I have seen the come up a few times where the seller just needs to move it due to expenses or other opportunities and they list at a discount and say cash only.

Sasha Mohammed · Answer

Hi Maryam! you're correct in that cash-only usually means there is something preventing traditional financing on that property. You can get a hard money loan, or private money, or sometimes even institituional investors (not fannie/ freddie or FHA/ VA tho) to finance the property.

Hard money is equity-driven. you might put something like 35% down and they loan you the rest. and then yes, it would be up to you to fix up the issues with the property. these are often shorter term, say maybe 3 years, and carry high costs.

Another option is a rehab loan, which will allow you to put sometimes less down (i've seen them as low as 10% down) AND they will finance up-to 100% of the renovation budget. These loans are usually VERY short term (12 months, typically, with a usual max of 24 months) and interest-only payments. AND the renovation monies is provided in the form of a draw... so you have to have the cash to say, renovate the bathroom, and then the lender will reimburse you for the bathroom reno. Rinse-repeat with the same capital.

Lastly, private money - friends, family, private capital sources (plenty of people here on BP who are hungry looking for investment opportunities)... those terms are all negotiable based on what you can find.

As for the 'would you do it' -- depends on the property and project. i suggest you focus strictly on the numbers. purchase price, renovation costs, after repair value... carrying costs during that time when its not generating income... and then exit strategy: do you intend to sell? or put tenants in and keep it as a rental?

the "is it worth it" part should sort itself out once you've filled in all the above boxes, and it will be different for you than it would for another investor.

GL!

Anaim Murcia · Answer

Honestly, it may or it may not. Analize the numbers because at the end... that's what really matters

Evan Polaski · Answer

@Maryam Mostafa, to echo others, the most common reason you see cash-only is there is a large amount of rehab.  But as Taylor noted, it could be a speed thing, and depending on the scenario is could very likely be both.

Typically, when I see these listings, it is both.  It tends to be a wholesaler/investment group that is selling the property, and they want a no-contingencies cash offer that can close in 14 days.  In this instance, using a hard money lender tends to be fine, since it doesn't slow down the process, but you would still likely need to show a proof of funds with offer, regardless of where the money truly ends up coming from.

Konstantin Ginzburg · Answer

There may be a few different reasons why someone is asking for an all-cash offer. There may be something wrong with the property that would prevent it from being able to be financing by a lender so they are trying to bypass that problem for themselves. In this case, yes, you would need to come up with additional out of pocket costs for the repairs. It could also mean that they simply want to close on the deal quicker and all-cash offer does allow for that. There is no way to know for sure without knowing what the sellers motivation is. If they are asking for all-cash, then they are hopefully asking for a discounted price as well to compensate for that concession. I personally would not be happy with an all-cash offer since I prefer having financing leverage in a real estate transaction. If the property is still a good deal though, then you always have the option of purchasing the property as all-cash and then doing a cash-out refinance afterwards.

Chris Seveney · Answer

@Maryam Mostafa

Have done several of them. Typically it’s less competition so pricing may be slightly more appealing.

As the saying goes cash is king.

Justin Moy · Answer

If you have the cash and the deal makes sense to you, sure.

Like the others have said, it could mean there is a financing difficulty with the property or the seller just wants to move the property quickly.

It'd be fair to expect a fairly noticeable cash discount since you can't use leverage and it's a much quicker process for everyone involved.

what do you think about CASH ONLY?

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