In Real Estate, and Life, Cash is King

4

You have a deviated septum.  That’s what the doctor said to me.  Have you ever broken your nose, he asked?  No.  He then explained it’s possible my nose developed this way over time.  How does that happen?  Well, if you combine an already somewhat crooked nose with a rash of sinus infections you may end up with a deviated septum.

Based on my doctor’s diagnosis I scheduled an appointment with an ear, nose and throat specialist.  My ENT doctor concurred.  I did in fact have a deviated septum that required surgery to repair.  A CAT scan would be needed first to determine the extent of the damage. 

Now I’m self-insured so whenever I hear the words CAT scan and surgery together I get nervous.  In 2005, I had ACL surgery on my knee.  That little procedure cost me $5,000 – my entire family insurance deductible for the year.

When I showed up at the hospital’s outpatient clinic last week the lady working the front desk cheerfully informed me that the co-pay for the CAT scan was $658.  My insurance company would pick up the other 80% of the bill.  Isn’t that nice?  If my math is correct that’s about $3,290 for a procedure that takes 4 minutes.

I asked Ms. Cheerful what the CAT scan would cost if I paid cash.  She didn’t know.  I asked her to find out.  After about 10 minutes of waiting she called me back to her desk.  It would be $912 cash.  Of course, she reminded me, if I paid cash none of it would go towards my insurance deductible.

Then I really started thinking.  If I was to buy a new TV or digital camera would I do it at the first place I stopped?  No.  Shouldn’t I shop around to get the best price on a routine medical procedure?  Needless to say, I called another clinic down the street and they quoted me a cash price of $225 for the CAT scan.  No wonder health insurance reform is such a hot topic right now.

Cash is always king, especially these days.  According to a recent Wall Street Journal Report, in 2010, 42% of homes sold here in Arizona were paid for in cash.  The National Association of Realtors reports that last year 28% of all homes sold in the U.S. were paid for in cash.

Yes, life is good for cash buyers.  First of all, they are financially intelligent.  Most of the ones I know were smart enough to save money when times were good so they could snap up cheap real estate when times got bad.  And here’s the icing on the cake – some would argue we’re at or near the bottom and these cash buyers are picking up houses for 70% of that. 

From 2004-2007, the market became artificially inflated because of all the financing available.  Today, it’s artificially deflated because of a lack of financing available to homebuyers.  There are homes here in the Phoenix area selling for less than it cost the developer to buy and develop the lot that the house sits on.

It would bring me great pleasure if I could say I was part of the cash buyer fraternity.  Unfortunately, I was one of the overleveraged investors that lost their assets (with emphasis on the first three letters of the word) when the housing bubble burst in 2007.   Even though I was cautious, never borrowing more than 70% of a property’s value, I still got creamed.  The market tanked here by more than 50%.

Since I can’t buy these for myself I did the next best thing – I partnered with investors that have cash and we split the profit.  I have a working knowledge of the market, a successful business model and trades.  Most importantly, I have buyers. Investors find that very valuable and are eager to partner once they review our track record.

I’ve found that there are two types of people that want to get into real estate investing – those with no money but lots of time and those with lots of money but no time.  If you have time but no cash go find a deal, the money to close the deal will find you. 

If you have cash but no time find an investor and partner up.  Just be sure to review their financials.  Ask to see HUD settlement statements, P&Ls, balance sheets, that kind of stuff.  After all, they say money talks – you don’t want yours to say goodbye.

About Author

Marty (G+) is the Chief Financial Officer for Rising Sun Capital Group, LLC, a real estate investment firm based in Gilbert, AZ. His firm purchases homes at the courthouse steps and public REO auctions. They have two exit strategies, either fix and flip or seller financing.

4 Comments

  1. Charles Bradford on

    Marty — Nicely presented! I find investors in much the same category: those with money and no time and those who have time and market knowledge but no money. To suggest they “partner up” is ideal! Well put my friend.

  2. Cash indeed is king. Growing up parents said money can’t buy you happiness. Boy were they wrong! Cash can buy you pretty much anything. I read in the L.A. Times that over 29% of all home purchases last quarter were cash which is an all time high. Huge number when the media leads us to believe the entire economy is in shambles when there is still quite a bit of cash floating around.

  3. When you can move fast with all cash, sellers will sell you their homes at a discount. If you have had credit problems, you can still buy houses for cash and make a living in this business while you are cleaning up your credit.

Leave A Reply

Pair a profile with your post!

Create a Free Account

Or,


Log In Here

css.php