September 08th, 2016

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:
 
 
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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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