Cash offers - how MUCH more attractive are they?

Question

I've placed a bunch of offers this year, seeking to pursue a buy and hold strategy to build a rental portfolio. The county records show that a recent house settled for $125k cash, while my offer was $135k with 20% down. The house was on the market for 500 days, not a short sale or a foreclosure.

SO - how much more attractive in quantitative terms are cash offers? Should I make ALL my offers in cash and then refinance them?

Bryan L. · Answer

@John Mountain

- I have mostly bought REOs. And I usually make a cash offer, with proof of funds, no contingencies, and a large e-m deposit. And there have been several times that my offer was accepted even though someone else made a higher $ offer.

Doug P. · Answer

@John Mountain Obviously a cash offer is more attractive, but how much that benefits you depends on the seller's motivation. Yesterday I made a multiple choice offer to a seller.

1. Take over payments - seller didn't want that because he's got $100k in equity.

2. Lease option assignment - seller doesn't want to be a landlord.

3. All cash - seller discounted only $5k.

So in this case it didn't matter what I offered, the seller just isn't motivated enough.

Walt Payne · Answer

@John Mountain I have won and lost several bids with a fair difference due to cash offers. And in fact I have $325k personal residence for sale and based on what I have seen I would take $20k less for a cash offer.

Doug P. · Answer

@Brian Gibbons Not that much different really. All of the things you listed are about the same here. One of the biggest things to keep in mind in Canada is that mortgages have to be 'renewed', typically every 5 years. Basically all that means is that the interest rate is renegotiated, sometimes in your favor, sometimes in the bank's (depends on current rates). So long-term sub2s, installment sales or lease options are less viable.

Mitchell L. · Answer

It all depends but cash with no contingencies and quick closing is always preferable to financing, especially in todays market with financing and appraisal issues we all face. There are many factors that go into this but if you do submit a finance offer, try removing at least the inspection contingency and put in 20 days or less for loan commitment.. That is the only way you may have an edge, otherwise CASH is KING.

James Wise · Answer

It really depends on the situation.

REO's with a lot of competition the banks want cash offers.

Seller that needs out of a house yesterday wants a cash offer.

Someone who wants to sell but doesn't NEED to sell an occupied rental would hold out for a higher offer.

Brian Gibbons · Answer

The cash or terms model

Type 1 - Ugly and Alot of Equity

All Cash only

Type 2 - Pretty and Alot of Equity

All Cash, Lease Purchase and sublet, sub2 and note, contract for deed, some cash now and some later in a note, lease option assignment, wrap - aitd

Type 2.5 Free and Clear - Installment Sale

Pay 105% of FMV with little interest or no interest - acknowledge imputed interest issues from IRS

Type 3 - Pretty and Little Equity - Best Terms Play in a Sellers Market

Sub2 and no Note, installment sale, Lease Option Assignment, wrap and re wrap.

Type 4 - Ugly and No Equity - Short Sale, Deed In Lieu, BK, etc, no play.

@Doug Pretorius may want to comment. I know Canada is a whole different finance planet.

Glenn McCrorey · Answer

I don't make all cash offers very often but recently offered "above" the asking price, all cash, no contingencies. The house was in great shape, was a short sale, and a great deal. I didn't get it. The realtor said I was in 3rd position and the bank wanted to work with the first offer. How crazy is that?

Wayne Brooks · Answer

On the retail side, listed properties, cash makes some difference, but not that big. The $135k vs $125k may have been a timing thing? I have financed buyers preapproved with a lender I know, regardless of what preapproval they have. Most preapproval s aren't worth the paper they're written on. If someone doesn't trust/verify a preapproval, they'll give cash a bigger advantage.

Joel Owens · Answer

Hi John,

Cool name. First time I have heard mountain as a last name.... : )

All cash with no contingencies or putting up a bunch of non-refundable earnest money gets a sellers attention. Even though an all cash offer is lower it screams CERTAINTY OF CLOSE versus the risk of underwriting a borrower for a loan and the deal falls apart.

It depends on how long you want to wait before you can refi out if that strategy works for you or not.

What is your particular strategy for buying the smaller rental houses versus other assets classes if you have that kind of capital to work with??

Cash offers - how MUCH more attractive are they?

Cash offers - how MUCH more attractive are they?

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