Does Cash Still Talk in Real Estate?
© 2016 by M. Mitch Freeland
It is understood by most successful real estate investors that cash has a way of talking to people and I would agree. Nearly every offer I write up is not contingent on financing; I make it a cash offer. That doesn’t mean it is my cash all the time, it’s somebody’s, but not mine. Other times it is cheaper after you have done a few deals to buy bargain basement, fixer-upper property using your own cash and financing it after you’ve completed the repairs if you plan to hold it for a while. This way you get a lot more cash out of it should you decide to hold the property for a longer term. Here is an example of how it would work:
You find a fixer-upper and get it under contract for $110,000. You tell the seller you will pay all cash and you can close fast, within two weeks or upon receiving clean title. The seller is motivated; however, he does not want to hold any paper (seller financing). You cannot get a traditional loan because the house is uninhabitable; besides you have average credit. You can go to a hard money-lender and get a loan, but that will cost you 2 points and 15 percent interest and it will be due in a year. You have some money saved, so you decide to use your cash of $110,000 and another $25,000 for the repairs. You know the house will be worth about $300,000 when you’ve finished. You decide to refinance the house for $250,000 once all repairs are completed. The house is finished two months later and the house, being in excellent condition, is appraised at $315,000.
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