Would you write "cash" or "financed"?

Question

I have the cash to purchase most of the properties that I want to make offers on and I also have a preapproval letter from a reputable known HML that says that I have more than enough cash for their required down payment and that they can close in 10 days.  I want to use hard money to finance the majority of these deals but I know that cash offers hold more weight.

So would you structure your offer as cash and provide proof of funds for the purchase price but then ultimately use hard money or would you be more up front and show proof of funds and the letter from the HML and structure your offer as financed?

Thanks for any replies.

J Scott · Answer

I sometimes do this, and when I do, I have a stipulation that essentially says, "This is an all-cash offer and proof of funds are attached. There is no financing contingency. Further, buyer has the right to switch to financing prior to closing. Buyer will pay cash if financing is not available or if buyer chooses not to switch to financing."

Sometimes sellers tell me I have to choose one or the other upfront, in which case I will just pay cash, and then refinance later if I want to.

J Scott · Answer

These days, in many areas, you don't get any discount for paying cash but you actually have a shot at getting the deal...  :)

A couple years ago when cash buyers were in short supply, cash offers warranted significant discounts.  These days, every serious investor is using cash, and if you don't offer cash, you have little shot of even competing for the deal.

Phil Z. · Answer

I would write Hard Money with a 7 day commitment, if that is what you intend to use (and your HML can commit that fast, mine can).

However, you can also use Hard Money and NOT have a financing contingency if you are that confident (you will lose your deposit if you don't get a commitment).

I've never had an issue securing a deal with a contingent HML with a quick commitment.

Account Closed · Answer

So true.  Active buyers in these markets now understand that their cash offer doesn't warrant a discount.  They are competing with other cash buyers.  But buyers in my farms re-entering the market seem to have a learning curve.  They still want to submit discounted offers because it used to work a few years ago.  Nothing less than asking price is pretty much the starting point where I am.

Jeremiah B. · Answer

I've never purchased in cash, but my perception from the sidelines is that you could get a SFR for around 3-5% less if you pay cash.  Is that accurate?

Jon Holdman · Answer

Yes, you can refi fairly quickly, as long as the "value" is the appraised value or the price you paid, whichever is lower.  No particular disadvantages.  Maybe a bit of extra costs and more hassle, but minimal.    Paying cash makes your offer stronger and makes the initial purchase easier because there's no lender involved.

Jeremiah B. · Answer

I know that I'm about 12 months late to this discussion, but can one pay cash for a buy-and-hold, and then refi immediately after closing?  What would the disadvantages of that be?

Bill Gulley · Answer

Yes. J. Scott is quicker on the board than I am posting.

A cash offer, as mentioned, just means there will not be a financing contingency, but you can always borrow if you can close it in time, the seller really has nothing to say where your cash comes from and any loan funded is cash to the seller. I have used cash offers with POF and then used loans, all the seller cares about is that you are able to close on the date agreed. Most sellers won't even know you had financing, so long as you can get the appraiser in.

You better do you due diligence during your inspection period or you can be had.....

Cheryl C. · Answer

I used to write in a provision ala J. Scott years ago.  Is my area unique in that the board of realtors contract already has this language?  I submit my offers cash with POF (in my bank account) and am permitted under the contract language to get financed without any addendum.  I was once told that asset managers "don't like that" - but I've never, ever had an issue.

David Duval · Answer

Great answer J Scott.  Thanks

Would you write "cash" or "financed"?

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