you hear it all the time BiggerPockets Forumpodcasts, local meetups, meetups from the masters, and more. The idea is if You buy with cash, you get better deals, more deals, better terms, and more. actually no real.
Don’t get me wrong: Cash is great. It gives you flexibility and peace of mind and creates better cash flow Impact your investments through return on equity. However, when it comes to investing, this is not the end all be all, in many cases you can beat a cash offer with a financing offer if you understand your leverage and how to build an offer that mimics cash terms.
But what is cash?
Seems like a stupid question, right? to that moment In a real estate transaction, cash means something different than a pile of bills stuffed under your mattress. In my opinion, cash means you are bidding and you No third party approval is required for any terms in your offer.
Ironically, many people think of hard currency as cash, and they write their quotes that way. many hard money lender need some A bit Valuation or due diligence, especially for investors That them Has nothing to do with. If you make a cash offer to a hard money lender and don’t evaluate contingencies, you could find yourself in hot water difficult somewhere along the way, so make sure you understand what your lender requires of you and your deal.
HELOC yes Absolutely cash. Once your HELOC get fundedbank no longer have any Tell me what you did with the money. I find it interesting – a client asked me all the time They would get into trouble with the bank for using a HELOC to buy real estate, but they would not hesitate to use the same line of credit to take their family to Disney World for a week.
If you were to lend money to someone else, would you do it? quite Are they spending their money on cars or experiences, or buying hard assets with built-in equity and cash returns? HELOCs are cash – if you don’t have one, buy one. They are the best way to leverage your assets.
How to make a financing offer as attractive as cash
As for the quotation itselfcash buyers often expect a discount on the two leverages cash provides: expediency and lack of appraisal requirements. As a traditional buyer or even a VA and FHA buyer, you can supply Make these versions available to your buyers Can make Your offer is very competitive with the cash offer.
Why am I not talking about inspections or due diligence here? That is really great Leverage owned If you understand how to use it, include it in your quote. The problem is, banks don’t care about your checks.
Did you know you can get almost any type of Fannie Mae or Freddie Mac loan without any inspections? Banks care about appraisals – that is Their due diligence. They don’t care what you or your inspector thinks about the property; they don’t care. They care about what the evaluator thinks.
With a conventional loan, you can waive the inspection entirely if you choose to do thisand in some cases you should.
Let’s look at two advantages that cash offers and how financing offers compete.
expedient
How quickly can you close? You’ll need a good lender for this, so don’t try this Use lowest bidder That You find it online – you need a local connection. usually, maximum Time wasters in trading yes The time it takes to order an assessment, provide a report, and underwrite coverage.
You can shorten the deadline by one to two weeks by: simply Once your offer is accepted, request an estimate—possibly more if you pay a rush fee. Write this term into your offer and make sure the seller understands the purpose behind the term. I’ve done regular deals in two weeks and you can do the same.
Assess unexpected events
This can be A difficult one to swallow If you don’t have much experience, especially if you don’t have any actual cash or a HELOC waiting for you. You can waive or modify the estimated contingency for a traditional quote. Notice I’m not saying you can give up the actual evaluation, but you can give up the contingencies surrounding the evaluation. evaluate.
Here’s how it works. If the property appraises less than the contract amount, the buyer simply Increase your down payment to make up the difference. If your contract states that you will pay $200,000 for a property and the appraised value is $190,000, you need Mount your horse Additional $10,000 down payment for Follow the terms of your contract.
I can feel you rolling your eyes correct Now: “What kind of idiot would pay more than the appraised value for a property?” A lot of idiots. It’s not suitable for every investor or every situation, but it keeps happening.
could be you owns substantial land on both sides of the subject property and plans to develop it, so overall return on investment Make this deal worth it. perhaps you Seeing the highest and best use of a property makes the risk worth the reward. or perhaps This is your dream house.
remember The assessment is literally Opinion of value, not actual market value. Think about it: Once you close on a property at the contract price, it becomes a new property. Compare for this area and your purchase has actually Regardless of the appraiser’s opinion, the value of the home you just purchased will increase.
Revising your concept of evaluating contingencies can be a real rabbit hole. I could write 10 more articles on how to do this, what languages to use, and the pros and cons of each language. Just know that you control the process and the language. If you work with a knowledgeable agent who fully understands the situation you’re facing, it can a very valuable tool.
final thoughts
To use the method I described, You will most likely have to pay more for the property a real Cash offer. However, if you use HML, pay Thousands of dollars more upfront with a conventional, VA or FHA loan Absolutely Leading to significant reductions in holding costs and transaction costs. You will definitely come out ahead.
Try these methods in a competitive market and you’ll keep getting beat. Even if you don’t have that much cash, you might be surprised how competitive your offer is.
Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.
