How can so many do all-cash offers?

29 Replies

I've been looking into yellow letters and other marketing and it seems like so many say all-cash offers. Do they all have "bigger pockets" than me?

@David Cohen ....Funny you should mention "all cash offers". I just spoke to agent on a listing i am interested in and he mentioned that it went under contract today for asking @ ALL CASH....

I am getting hammered out here with all these cash buyers!!!

I guess they have "biggerpockets" than we do.

Nice pun by the way. Really a lot of all cash offers aren't really all cash offers. For example, we make all cash offers, but usually put a private loan on the property when we buy it. If we can't find a loan, we buy it cash and then look to refinance. Some people who have partners (where they invest the time and the partner invests the money) will make all cash offers. Especially when investors are dealing with a seller directly instead of through an agent, they will say "all cash" even though they're going to a hard money lender or whatever. Is that dishonest? Yeah a bit, but it's done a lot.

There is A LOT of cash out there right now.  It's a different world from when I started in late 1990s.  Back then cash offers were often really hard money loans from a limited buyer pool. Today I'm able to sell almost everything for cash. Even in the $150-200K range.  

The yellow letters you are looking at are used by a lot of wholesalers.  They don't use their own cash, but that of their end buyers.  So no, not everyone has bigger pockets.

That being said, I think the cash offer message is overused to the point where sellers don't even notice it anymore.  I don't focus on cash offers in my marketing.  I focus on identifying and targeting problems I can solve.  The majority of people I buy from don't need cash as much as they need someone to take the reins, solve what they perceive as insurmountable problems and walk the sellers through getting it sold.  

A lot of wholesalers make "all cash" offers, in the sense that there is no financing contingency.  That is because there is some other contingency that will let them weasel out of the contract if they cannot assign it.  They have no intention of closing and paying cash.

We have bought almost all of our properties with cash, but as others have said, it doesn't always mean what it seems to. We took out a short term loan on our IRA to pay cash for a property, and as long as the money is put back into the IRA within 60 days, there are no taxes or penalties. So we refinance as soon as we close. To make sure you hit that 60 days, start the paperwork with the lender as far in advance as you can. We did a cash out refi on a property last year 2 days after we closed, and had the money back in the IRA a day after that.

That being said, we are under contract for a property now with a mortgage contingency. The seller had overpriced the property for 8 months and our offer, $15K less than listing price with a mortgage contingency, came at the time they finally decided to sell the property. As @Account Closed said, you need to solve a problem for the seller and there's not often a way to know what the problem is, or when they have reached the end of their rope with it. These sellers were divorced, and after 8 months on the market, they both wanted their money to move on. Right time, right place, and our offer was solid. 

Now we just have to make it to closing ;)

I am certain there are a ton of "creative" if not "deceptive" cash offers out there. All 3 of my purchases have been true cash from cash on hand. It goes against my intuition to use any type of borrowing when I have the cash in a money market account that I can use. I do impose limits on myself as to how much cash I want to have tied up at any one time.

My first deal had a self imposed limit of exposing no more than $40k of my own money. The second deal I raised my limit to $80k and the current deal I have once again raised my limit to investing a maximum of $95k of on hand cash. As I get more comfortable with these deals and more confident of the ARV's I will continue to raise my exposure limit until I reach $200k. Can't see having more than that tied up though.

Conversely to the OP, I have been somewhat surprised by the number of people who go to extreme lengths to finance deals when they are long time investors. The ROI on most deals far surpasses what is likely in other investments so why not use your own $$$?

Remember that when most investors make an all cash offer it is for about 60% minus repairs of the ARV (or after repair value) of the house. So they are getting a great deal. When you have a potential asset of $200,000 that needs $25k in work, that you can buy for 90-95k it's often easy to find the money, once you know where to look.

Many investors will use hard money, it's more costly of course, but if the deal is still profitable, who cares.  Once an investor gets more experience they learn to find private lenders.  These are private individuals who have cash to invest but not the time to deal with finding the deals, tenants, toilets, etc.  Instead of putting their money in the stock market (more risk) or in cd's making next to nothing, they see the value of investing in real estate which has an asset attached to it.  There is a lot of cash out there right now and a lot of people looking to lend and get higher returns than traditional means are offering

I've been buying houses since 1996 and I've bought hundreds of houses in my area - Colorado Springs, CO.  I've never gotten bank financing on any deals.  I started out using hard money lenders, then private lenders and owner financing.  

Not every seller can or will accept a 60% minus repairs cash offer, it's a number game.  Depending on the marketing you're doing, it will be about 1 out of 10 people you'll make offer to. 

Best,

Richard

All offers to buy with money (vs. owner financing) are "cash offers".  At closing, SOMEONE is bringing cash to the table - whether it came from their pocket, or hard money, or a bank loan, it's cash at the closing table.

That said, we've done a lot of testing and the word "cash" works well in marketing the REI offer. Sellers who are highly motivated are in a hurry to get cash, so they respond positively to this message/wording.

A cash offer is one with no financing contingency.  To say that all offers are cash offers because eventually cash changes hands is just rationalization.  If you are making a "cash" offer without cash, you are intentionally deceiving the seller. 

This sort of nonsense is why all of the regulations that so upset the BP community exist.

The seller deserves to have the information necessary to evaluate the offer.  An actual cash offer for $100k is worth more than a offer for $100k contingent on a conforming mortgage, which is worth more than an offer for $100k with weasel clauses allowing a "wholesaler" who fails to assign the contract to walk.

@Richard C. What's the difference in % from a cash 100k to a contingent 100k? Isn't it all cash and one just come sooner? Closing can be done in two weeks or less and a personal check can be cashed today? Banks take longer to process and submit and a hold is also on the check to when the funds are available. Is this the difference?

Yes.

A cash offer is a cash offer.  It is within the buyer's control, not dependent on a third party.  A buyer with cash in the bank sufficient to cover the sale price is a much, much safer bet than one without the money.

This is not a minor thing.  Maybe you would gladly pay me Tuesday for a hamburger today, but I rather you pay me today, thanks just the same.

A cash offer is a better offer, all else being equal.  And so if you are claiming to be making a cash offer when you are not, you are taking advantage of the seller.  When enough people do that enough times, regulations result.  And then people come on BP and complain about the regulations.

Great question! I'm also encountering a lot of "cash offers" that beat us out and I've wondered what that even means and what's the advantage to the seller.

When advertising that you buy utilizing "Cash" which implies cash at close you should have the ability to actually buy with cash and without any contingencies. Entering an agreement without the ability to perform and hoping you can assign or get a HML is wrong

That said just because you advertise "Cash" doesn't mean that cash is always the option which the seller agrees to. A cash purchase represents the lowest value paid.  However always an option for the seller to choose when advertising that option.   Most sellers will opt for offers which allow a higher value to them i.e. seller terms whether they're options, sub2 or direct financing. 

And the only deals that are not "Cash" are exchanges if you define cash as something that is paid at close or a date forward. 

I'm honestly bewildered.  

If you were selling your lawnmower, and some guy walked up and said, "I'll take it, here is $100" isn't it obvious that that would be a better offer than, "I want your lawnmower.  I want you to refuse to talk to anyone else who wants to buy it, and hold it for me for a week, and if my brother will lend me the money, I'll give you $100?"

OF COURSE the cash offer is better.

Certainly you don't have to actually use cash, if you can arrange financing within the same timeline.  But that is on you as the buyer.  

There is a lot of capital moving in the marketplace. People have been hording cash for years trying to time the market cycles.

I am on the commercial real estate side of things.

A seller has to UNDERWRITE buyer risk if they are putting some down and getting a loan. Conversely a buyer paying all cash showing they have the money in their bank account valid within the last 30 days AND they will put up substantial non-refundable earnest money once it goes from LOI to purchase and sale shows they are credible.

Any buyer contacting me on one of my sellers listings will be heavily vetted. We want to know their liquidity, net worth, assets, track record, etc. If they balk we will not give them the time of day. The market doesn't have time for pretenders because to many real players are in the marketplace.

Show me you have the cash directly and show me you are willing to put it on the line to get the deal. That's what the seller wants in many cases with looking at accepting an offer. They usually like cash if there is an immediate need to sell. If the market is on an upward swing then they will generally take a chance on a financed buyer for a higher price. Many, many variables come into play. 

There is lot of hard and private money for the experienced rehabers, that is why ypu see so many offers, if the rehaber have enough money to purchase only 3 houses a year probably he will get private money to get another 3 and keep as busy as possible and doing more money

Cash offer typically means for the buyer quick closing and no problems coming from the bank financing

I agree the sooner the better

Our strategy is CASH, close in x days, no contingencies other than clean title etc.

Our offer(s) are presented with a signed contract, (refundable) earnest money & a legit proof of funds verified by our attorney & agent. 

We have often 'beaten' higher offers that are subject to an array of financial contingencies etc. In fact our recent buy was up against a number of potential buyers but the out of state seller took our 'clean offer' just to be rid of a $40,000 'paper' loss.

Making an offer with a line of credit that is already established and set-up (check-book type line of credit with funds available) is also considered a "cash" offer.

Originally posted by @Michael Q.:

When advertising that you buy utilizing "Cash" which implies cash at close you should have the ability to actually buy with cash and without any contingencies. Entering an agreement without the ability to perform and hoping you can assign or get a HML is wrong

Q, you know I love you, but this is crazy, wholesaler-hater talk. =) Many of the big volume investors in our system use HMLs, private money, etc. - that's how they do the volume of deals that they do. I use HML for rehabs - the return on cash is MULTIPLE times better than tying up all our cash for months in a single property.

If the seller walks out with a check that they can deposit in their bank, it's "cash".

Do you other guys go to closings with a big briefcase filled with money? 

@Dev Horn  

If someone already has cash, a HML lined up, or line of credit secured I see nothing wrong with entering an agreement with cash purchase terms.

And frankly it is offensive that you implied that I was a hater..

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