Cash only deal myths?

Question

Hey everyone, so as I’m trying to get into my first flip I’m finding the best deals as “cash only.” So before asking here where I knew I’d probably get the best answers I went to google first.  I’m finding (most notably trulia) that the main reason for a home to be sold cash only is because a bank won’t finance it mainly for 1 of 2 reason.  One, there is something wrong with the property that would take so much to repair that it’s not a good investment for them.  Or, their is some type of litigation going on with the home it’s self or the HOA.  I’m not saying there is anything wrong with trulia, but maybe the people on that forum are not in the flipping business.  Are these reasons actually the main reason someone only wants a cash buyer, or does a cash buyer just make that transition much easier and faster?

Christine Kankowski · Answer

I have some people that just want out ot he property.  A cash deal offers a quick close - I've done 7 days - no contingencies other that home inspection.  There are no repairs requested, no loan contingency, no appraisal contingency. typically no cold feet buyers who back out for no good reason, etc.

CAsh is just an easier deal and for that reason they get a discount.

Matt K. · Answer

Nice.... trying to answer the question yourself! You're answer is blend of both.... banks won't lend if house needs too much work (on a investment loan, there's other loans) and yes cash is easier. Cash can close much more quickly than bank can. You don't need inspections or appraisals with cash... and there's no chance of the loan falling through for something on the buyers side.

When you start going the condo route, in addition to what you said owner occupancy can also play a part in needing cash. The health of the HOA too... which kind of ties into the legal action.

Andrew Johnson · Answer

@Jason Holmquist I don't know if anyone has asked yet, but where are you sourcing your deals?  If they're on Craiglist (or some equivalent) you could be dealing with a wholesaler.  They literally can't wait for a traditional funding mechanism if their contract gives them 30 days and it takes 45 days (not uncommon) to get through a loan process.  Not to mention the 100 other reasons why a wholesaler would need a "cash buyer" so that was just an example.

If you're seeing "cash only" on listings through realtors that placed the deal on the MLS it could be any number of issues.  I would (randomly) guess that the owner either a.) knows the property wouldn't get approved for financing by a bank or b.) has been plagued by offers falling through, requests for owner-financing, etc.

And, as an aside, something in category "a" doesn't have to be nefarious.  It could be that the property is being sold for $35K and the owner knows that bank mortgage minimums are typically $50K.  Consequently, you could have a lot of well-meaning offers (without a pre-qual letter) that are just time-wasters on everyone's end.

Daniel Moore · Answer

All though listed as Cash Only deals - you can still use non traditional financing, such as a hard money lender or a private lender. The reason they are saying cash only is that the property will not pass traditional lending standards therefore forcing non traditional purchases.

Jason Holmquist · Answer

Thanks everyone! @Andrew Johnson I’m using propelio because they offer comps in dallas ft. worth where I’m at and a group I’m involved with on Facebook. It’s almost overwhelming to see the amount of properties going up for sale in my area for a flip, wholesale, or rental. It’s just the ones that make sense from an investor stand point are all cash deals, but the point you made about multiple deals falling through really makes sense to be honest. I also learned from an investor friend of mine today that most cash deals accept hard money loans as a “cash deal” as well. I was under the impression that any borrowed money wouldn’t qualify as “cash only.”

Davone Colbert · Answer

@Matt K. Hey Matt, My bad  that was not for you. New to posting but was trying to help out Jason. I just wanted to build on what you said, and add in stuff about zoning and liens. Those are silent killers.

Matt K. · Answer

Isn't this pretty similar to what I posted?

Davone Colbert · Answer

@Matt K.  The number 1 reason for cash only deals is speed) ability to waive contingencies such as home inspection, 2 do not have certain requirements for debt to income that need to be made with other types of loans so it is more likely to go through if they have the capital, 3) Liens,zoning , and other coding that is either not up to date or behind. Be very wary of number 3 as if you buy a house with undisclosed liens, or coding issues then the deal may be soured (fixing these things can  be costly depending on the issue) Wish you the best of luck bud.

Cash only deal myths?

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