"Cash" Confusion

"Cash" Confusion

Investor · Phoenix · Member since 2015 · 52 posts · 14 votes

"Cash" in the real estate realm seems to be a relatively simple concept, but I'm often confused as a newer investor because I feel as if the term is thrown around often but has a different meaning for different instances. I'd like to once and for all be completely clear on what the word "cash" means in the following circumstances:

I want to purchase a property on the courthouse steps and need to have "cash" within 24 hours transferred to the selling entity. In this instance, can I have a hard or private money lender pledge/prequalify me with a note saying that "cash" is available for purchase? Or does there need to actually be "cash" equal to the amount of the property purchase price in a checking account in which I control?

When purchasing a property from a motivated seller or wholesaler for "cash," can I again use private or hard money to count as "cash" for the purchase?

Is a pre-qualification or pledge by a lender that funds are available at my disposal good enough for the "cash" identifier?

When you hear the term "cash buyer," does that mean that the person has mountains of cash lying around specifically used to acquire property? Or are they using non-traditional financing to buy their properties and then refinancing with other types of products since closing with hard and private money typically require less days for closing?

Thanks.

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Rental Property Investor · Arlington, TX · Member since 2012 · 788 posts · 640 votes
11y

A courthouse step purchase here in TX requires cashier's checks within minutes of sale.

Most hard money lenders and private lenders will require a deed of trust and title insurance before loaning on a property so using their funds at the courthouse is not possible.  You can use these sources when dealing with motivated sellers which I would encourage you to go after. 

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  • Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    11y

    Other than the court house steps, cash means....cash, in an account in the purchasers name, Period.  Anything else is "financed".  As for the court house steps, usually you need 5-10% cash deposit at the moment of the bid, with the balance due 24 hours , or whenever (some places 4:00 that day, some next day, some 100% at the time of the bid).  Again, the balance has to be actually Paid at that point.  How you get it is irrelevant.

  • Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    11y

    This isn't complicated at all.  Sometimes folks try to make it complicated by trying to equate some sort of financing with cash.

    When making cash offers you are expected to actually have that cash in a bank account with the same name as on the offer.  Hard money and private money are not cash.  They're financed.

    Yes, a true cash buyer has that amount of cash in the bank ready to make a purchase.  I know the idea of someone having $100K, $500K or a million dollars in the bank boggles folks minds.  But such people absolutely do exist.

    Court house auctions vary state to state.  Here in Colorado, you are required to have cash at the moment the hammer falls. Cash in this case meaning casiher's checks.  I've heard some counties have started accepting wire transfers.  Some counties stop the auction and you have to hand over the money on the spot or else they continue selling that property.  Others let you go to the back of the room.  Some allow you to run to the bank and get a check.  Its possible to buy with financing, but you essentially need the lender there with you with the money in hand.  If you have 24 hours in your state, that would be a little easier.  But you would still have to have a very cooperative lender.  Because they will have to hand over the payment within 24 hours.  

  • Rental Property Investor · Arlington, TX · Member since 2012 · 788 posts · 640 votes
    11y

    A courthouse step purchase here in TX requires cashier's checks within minutes of sale.

    Most hard money lenders and private lenders will require a deed of trust and title insurance before loaning on a property so using their funds at the courthouse is not possible.  You can use these sources when dealing with motivated sellers which I would encourage you to go after. 

  • Investor · Phoenix · Member since 2015 · 52 posts · 14 votes
    11y

    Thanks for the help on this subject, another question however...

    When entering a deal that is outside of the traditional financing methods (purchase from a wholesaler/motivated seller/etc.), is it wise to already have a pre-qualified document expressing what you're allowed to purchase? This would be similar to a pre-qual letter from a big bank, but in this case a hard money lender/private money lender. FYI I don't have a mountain of cash - I'm sure this would be the best way to go in the event I did.

  • Real Estate Investor · Rossville, GA · Member since 2014 · 218 posts · 96 votes
    11y

    I don't ever go to a seller with a pre-approval letter.  I make the offer and if they ask for a letter I will get one.  I work with a couple of different private money investors and it depends on the deal who I go to for the funds.  It has always been my opinion that it's none of the sellers business where the funds come from as long as they come and come by the date agreed to by both parties.  I make "cash" offers on foreclosures all the time without cash in my account but I know that I can get it.  Yes, it's still financed on my end but the bank got what they wanted and so did I.  

    As far as buying off of the courthouse steps, where I live, payment is required as soon as auction ends.  If I see a property I am interested in, I go to one of my investors and ask for the amount I am willing to bid on the property.  He cuts me a check and I either purchase or lose the auction.  If I lose, I give the money back.  If I win, we record a security deed and proceed as normal.  

    What I am trying to say is that I don't back away from a deal because it says "cash". I just make it work for me. As far as proof of funds letters go, I google POF Letters and there are plenty of HML lenders who will issue a POF letter at no charge without being qualified.

    Banks prefer "cash" buyers because they can close quicker so that is why I make "cash" offers.  

    Disclaimer: I have worked with and have known my investors for a while and an extreme level of trust has been built.  I would not make an offer if I was not sure the money was obtainable in the specified time frame and I would not advise you to either.    

  • Investor · Phoenix · Member since 2015 · 52 posts · 14 votes
    11y

    Thanks, Mike.

  • John HornerPro Member
    Flipper/Rehabber · Columbus, OH · Member since 2013 · 1k+ posts · 655 votes
    11y

    I just met with one of our hard money lenders a few weeks ago, they specifically told me that many of their clients mess up and write "cash" on the contract.  They make them go back and change it because a hard money loan is no different then a bank loan.

  • Investor · Phoenix · Member since 2015 · 52 posts · 14 votes
    11y

    Exactly! This is where the confusion sets in. When I listen to the podcast, sometimes the guest says they use "cash," but really mean hard/private money. I've once heard that, "it's pretty much the same thing..." while this instance is saying that it's most definitely not. Thanks for the input, John.

  • Scottsdale, AZ · Member since 2014 · 659 posts · 536 votes
    11y

    That's funny because in the commercial world cash means that there is not a financing contingency.  Nobody is concerned where the money comes from after that.  They just care that the earnest money is non-refundable after the inspection period.

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