Advantages of paying cash to sellers

[J.j. McGuigan]

Hello, 

I have a question regarding telling sellers about the advantages of selling the house or unit for cash.  I think homeowners are willing to go down in price once they know you have a cash buyer (list) if it's about a 5% - 15% decrease.  But when you're asking for a 30%- 50% decrease for cash are there any potential bonuses for the seller in taking cash.  I know it varies from situation to situation but in general are there any specifics like concerning tax advantages, convenience, or anything like that that could be talking points I could use in trying to wholesale?  thanks!!

[JPaul Mills]

I always emphasize on the fact that they won't pay any realtor commissions, closing costs, or any other fees. And that's always been a huge thing for a seller cuz that could be almost 10% of the purchase price so therefore I tell them that's one of the reasons the price is what it is. Also I tell them that any one who is involved in this business wants to make 30% ROI(return on investment) on their money. Then tell them would you go to work and expect to not get paid for it?

[James Wise]

to a seller a cash offer is better than a financed offer because there is no chance the funds will not be there. Home should close in at least half the time & No bank appraisal to deal with either.

If your trying to wholesale the property do you have your own cash to close if you don't find an end buyer? If not your offer is actually far weaker than any financed offer. Your offer isn't really an offer at all.

[Wayne Brooks]

If the property actually sells, it makes no difference to the seller whether the buyer paid cash, or used financing.....it's all cash to the seller either way.

[J.j. McGuigan]

yeah i can see not paying realtor fees would be a big bonus.  That is a good point on a cash buy not being as risky in that the funds will be there.  

Let's say a house is going for $100,000 and I put it under contract and don't get a buyer, how much would I need in order to close on it myself if I have no other contingency plan?  Would I need to pay for it in full or could i finance it? I know if I finance it it's then no longer a cash buy but might help secure the contract if needed

[James Wise]

You need to contact a bank to answer that question.

[Guy Raveh]

Realtor fees 6%. No repairs needed that could be thousands of dollars. Can close very fast. After finally finding an end buyer the retail buyer may take 45-60 days to close and then they may default and property back on the market. If an investor buys the property the price that was negotiate is going to remain. The price that a Realtor quotes is a guess. There is no guarantee that it will sell for that price. It may sell for less. Inspections may reveal major issues that can cost a fortune and at that point the seller knows of the issues and will have to disclose / repair in the future. I can go on and on :)

[Wayne Brooks]

If you can't resell it, then you don't want to buy it at that price.

[Roland Paicely]

Keep in mind that one of the most valuable things that the seller will benefit from is Time.  Investor buyers can usually close within 2 weeks, sometimes sooner. 

A lot of retail offers ask for a 45 day closing etc.  If the seller is motivated the time factor is huge.

[J.j. McGuigan]

Thanks everyone !! This is all good information !! Appreciate it !

[Brandon Kargol]

Think about what you provide to the seller that no one else can…

Closing Times (No banks and No Realtors means you can close as soon as your end buyer is ready)

No Commissions (There's no 6% commissions)

No Closing costs (Seller saves a few thousands here)

An exact Net Purchase Price (Your seller knows exactly what he or she is getting paid, while listing with a realtor is simply an educated guess on what someone will pay for their property, but not guaranteed)

These are massive advantages with using a wholesaler. You need to really pitch this to the seller cause most don't think of the advantages. 

Another HUGE advantage is that the seller can sell their property in an "as is" condition. Why is this such a big deal? Well most realtors won't list a property unless it's in a retail condition. 

So tell your seller this "Mr/Mrs Seller, I am willing to buy your property "as is". If you went with a realtor then you're looking at "X" amount of dollars in out of pocket expenses for new carpet, new paint, updated kitchen and bathrooms, new flooring so forth and so on." 

I tell you what. When you tell a seller that in order for their property to be in retail condition that they need to spend $12,000 out of pocket… They will be much more open to negotiations. 

Example, Last week I was on the phone with a seller. His property had an ARV of $160,000. I gave him a cash offer of $95,000 and he laughed for a couple minutes at me. Does is sound like I was trying to rip him off? Not at all, his property was a rental. It was clean. But the house had been built in the 60's and looked like it hadn't been updated since. So there was NO WAY he was going to be getting anywhere near a 160k sale price given it's condition. We were looking at 17K in rehab/update costs. So heres what I told him (after he was done laughing) "Mr Seller I can take 160k and go buy a brand new comparable house (in my market) with a two car attached garage (which his didn't have), stainless steel kitchen, and a formal dinning room area. Does your house have that?" He hung up on me. Moral of the story is that even though a house might be clean and not damaged it still might need update work. Remember, ARV means repairs are made and UPDATES are made.

Hope this helps! 

[J.j. McGuigan]

That helped quite a bit, thank you !!  

I think part of my strategy will be to let them know all of what you stated, and if they still feel that it's a rip off on price, I can just let them know by saying something like this, "Hey I really do hope your house sales for what you want and your able to get that, it's just unfortunately that's not the case with some but as I stated the advantages of my offer will always be there.  If for whatever reason you do have trouble selling at X amount, just give me a quick call or email and we can still do something to help you out." Obviously don't have to say it like that word for word but that's somewhat of the idea is to plant the seed of what I can do by wholesaling their house as apposed to just hoping it sells for what the realtor lists and possibly waiting months for any kind of offer.  And if they are a motivated seller then TIME is important and they may after thinking it over come back to me and we can work out a deal.  

[Brandon Kargol]

Exactly, that's how I leave all my dead leads. "Well Mr/Mrs Seller I think we are looking for two different things here. Good luck with selling your property and if you ever change you mind down the road feel free to give me a call." 

  Most leads I get are from people who are just poking around trying to see what their property is worth. They are looking for a "make me sell" price which isn't what wholesalers do. When I ask why they want to sell and I get this response "Oh I don't know. You were the one who sent me the letter." Then I say "Okay? So you're not selling the house?" Then they say "I am just trying to see what your offer is." 

This is how I know they are not motivated and I don't waste my time. NEXT LEAD!

[J.j. McGuigan]

I think that's a great strategy !  I think the key is once you've planted the seed for them of what you do and what you can do for them, they will remember and when the time comes that they might become a motivated seller, then you might be the first one they contact back.  

[Mark Whittlesey]

All these are great points. Here is one more: If the end buyer is going to get an FHA loan and the property is not currently financable due to condition then....

[J.j. McGuigan]

@Mark Whittlesey So your saying basically that the home owner is planning on getting loan but because the house needs renovation they will not get the loan but I come in and am able to sell their property in a sense to a cash buyer with the property being "as is" ?

[J.j. McGuigan]

I'm not quite familiar with how FHA loans work to be honest.

[Brandon Kargol]

Originally posted by @Mark Whittlesey:

All these are great points. Here is one more: If the end buyer is going to get an FHA loan and the property is not currently financable due to condition then....

My end buyers need to be either cash buyers or have access to quick cash via open lines of credit or hard money. Otherwise I wouldn't deal with an end buyer going with FHA or conventional financing. I don't want to deal with banks at all.

If you find yourself in that circumstance though as Mark described then you are basically at the mercy of the FHA. Ive no experience with dealing with the FHA but I can only assume that you could call and try to haggle with them. They are probably going to want at the very least several repair cost estimates and home appraisals for licensed professionals.

[Mark Whittlesey]

@J.j. McGuigan 

Correct. Some houses may not qualify for financing at all- FHA or otherwise. So in effect you would be getting a discount because it could not be financed and then "getting paid" for making it financible. It is somewhat of a twist on the highest and best use concept.