Buying property with cash

16 Replies

Hello all,

I will be looking at a property in a neighborhood that is in a great location for near future growth/very easy commute to downtown. The house is a 4-plex style that is very old and would need quite a bit of work. Let’s go with $100K in repairs. The only issue that I am finding is that the seller wants cash for the deal. I have used financing to purchase a house, but I have not used straight cash, which is making me a bit hesitant/not really sure how to move forward if say I wanted to buy the house.

Any help would be greatly appreciated.

You can use your cash, private money cash as a loan.

I'm sure you couldn't get a traditional loan given the condition of the property.

You can buy with cash, fix up and then do a cash out refinance.

I buy most of my properties with cash and it is much faster and less headache than jumping through the hoops that a bank requires.

Once you own it it will be much more relaxed to refinance it later.

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@John Underwood

This is great information.

I am very new to this. I am assuming that the seller is not wanting me to show up with a couple hundred, hundred dollar bills or even a check in that amount. How will the seller expect a cash payment? Is this done through ACH wire?

Thanks.

Often times a "cash only" sale means that the seller knows/suspects the property won't qualify for a loan. Often these are also sold "as is" where you are buying any faults or defects as well. If the buyer has the cash, then usually there will be few delays in closing. Being a cash buyer doesn't mean you have to personally have all the money in your bank account, it just means if you are borrowing the money in some fashion, that has to have already been accomplished and the funds are currently available. Having a loan prequalification/preapproval does not make you a cash buyer. Having a line of credit (HELOC) on your home you could use would make you a cash buyer. We buy all our investment properties as cash buyers and it does make offers more appealing to the seller.

And "cash" means available funds, not folding money. The closing would look like any other with you wiring/transferring funds to the title company or closing attorney just like anyone else would. You're just leaving a lender out of the loop.

Originally posted by @Samuel Genung:

@John Underwood

This is great information.

I am very new to this. I am assuming that the seller is not wanting me to show up with a couple hundred, hundred dollar bills or even a check in that amount. How will the seller expect a cash payment? Is this done through ACH wire?

Thanks.

 Closing will still be with an attorney I imagine. I generally take a certified bank check, but you could wire the money to the closing attorney.

He doesn't mean a suitcase full of $100 bills. He just means no mortgage because he knows the property will not meet the standards for a bank to loan against and he may also want a quick closing.

My guess is that they are telling you they want cash due to the condition.  They assume it will not finance due to the condition.  Most traditional lenders won't lend on homes in bad condition or that have structural issues, like foundation repairs.

If you want to finance you might be able to use "hard money".  You and your realtor should discuss this with the seller.

You should not use real cash to pay the seller.....what they mean by a cash sale in most cases means NO financing.   Most title companies will not take a briefcase full of cash.  They want you to use a cashier's check or wire transfer to them and they will in turn do the same thing for the seller....give them cashier's check or wire transfer when it closes.

Make sure you are closing at a title company.

Based on your questions....I would encourage you to have a realtor or attorney on your team and advising you on contract, closing procedures, and structure of the deal.  It will keep you out of a heap of trouble.

@Bruce Lynn

Thanks for all of that.

Will bring a few things to my attorneys attention on the few deals that I am looking at. This will be my first time working an investment deal for real estate. I deal with contracts as a primary responsibility, through my day job, but I assume these will be a bit different.

Truly trying to be as educated as possible going into this one. I have been studying finance route for the most part, but the location of this place and the possibilities of working the price down, makes this property desirable.

Buying the property with cash simply means there is no financing contingency for your contract with the seller. Cash deals are generally cleaner and quicker, and like others have said, the seller probably knows that no bank will finance the purchase anyway (in this case). You should still close through a title company or attorney's office (and you will wire the funds to that office, regardless of how you come up with them).

Paying with your own money can certainly be a bit more risky since you don't have the lender's extra set of eyes on the transaction, but if you know what you are doing, you should be able to pull much of your money back out after repairing and renting out your 4-plex. Your lender at that point may require a seasoning period of 6-12 months before you can refinance, though.

Good luck!

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@Samuel Genung

Can you get a hard money lender, i.e. friends or family, to loan you the money? Negotiate terms with the lender. Perhaps 5% down payment with 5.5% APR over 30 years. Another option would be a short-term loan with you getting standard bank financing after a couple of years. The seller might even be willing to finance the sale. It doesn't hurt to ask.

Refinancing allows you to lock in better long-term terms and pay off the hard money or recapitalize (pull out your own cash). If you want to keep your own money in the deal, that's fine. But you'll want to pay off the hard money with more traditional financing, I would think.

Search for "BRRRR" on this site and you will find a lot on this topic. The second-to-last R is for refinance. This assumes you have significantly improved the property's value with the repairs.

@Jamie Bateman

Funny enough, I just spent the last hour listening to the BRRRR method. Definitely answered this question. Will be refinancing and moving on to the next project. Great advice and awesome strategy.

Thanks!