All cash buyers....how do you compete?

Question

Just recently I have taken the property search(for a flip) to a more serious level. I've been working with a realtor and have MLS access and check it multiple times daily.

Just recenlty a few deals have come up that strike my fancy (80-100k under assesed value). Being a newbie I work slowly, i'll ask that day about a property and maybe set up a tour for the weekend to scoope it out before going any further.

These deals that caught my eye were already posted as "off market" the following day they were posted. The realtor followed up and both had multiple all cash offers, slightly above ask.

How can a little guy like me compete? I am just starting out (24 yrs old) and have never owned, have no debt but I can only afford so much house on my salary. Looking in the 150-200k range and approx 20k renovation needs.

Clearly the deals I spotted where good, other investors jumped in fast and snagged them with all cash offers. Do I basically have to settle for deals that other investors snubbed?

I'm just feelin like I have no chance at getting a real deal under contract. Thanks for the advice

Lynn Z · Answer

In my neck of the woods, you must check MLS "Hot Sheet" and cull out all of the FSBOs (that just listed because they didn't sell) and the relists that your agent doesn't recognized as an old listing.  Then, get on the stick that day and look at the house.

We call the banker, tell him what you plan to offer, call the termite guy to crawl the space, and make the cash offer.  Banker may know the property and not ride by, make need to ride by and then let you know if he's on board. You insist on the owner's disclosure (required by our state and contract signing),  write up the contract not contingent on financing which is a cash offer.   Inspection is a right in the contract and should never be waived.  It is a way to exit the contract should inspection findings be too horrible.  Also, negotiate the important findings with the seller.  Stipulate the termite bond to be performed by your company as well as the Heating and Air letter.   Pay for the letters yourself if you have to but use your companies.   In our area, if it's not bondable you need to know before you  
buy.  Also, termite bonds are transferrable for $150-$200 from the owner's company sometimes.  Buyers just ignore these points usually.  Why oh why?

Bank loan officers say they issue pre-approval letters all of the time but basically they  say they don't mean anything.  They are contingent on all that stuff you have to document so a decent earnest money check will actually be preferable here.   Offer to close "on or before" 30 days and try and make that happen.

Anthony Sulecki · Answer

Yea, thats the way I would go too. You could start out wholesaling, and say you buy houses cash. Just assign to a cash buyer.

Brendan D. · Answer

if at all possible find out who the cash buyers are in your town and wholesale properties to them. also, you want to have more than 1 way of finding properties to avoid this type of situation. 
check back in the mls, too, just because a property goes under contract it doesn't mean it's actually going to close.

Account Closed · Answer

And now comes my little piece of advice.

"If you can't beat 'em, JOIN 'EM".

Go out and get Equity Partners, Money Partners, Private Lenders. Apply for Lines of Credit either personal or business ( Business is preferred).

That way you can make the offers. Now I also contend that cash offers happen more on lower priced properties, so move your target there.

Timothy W. · Answer

No - what I was referring to was a line of credit loan already secured, closed, completed on another property or a private lender whom I already had lined up and knew was writing the check.  That being said, I did have a situation where a private lender suddenly had no cash 2 days before closing.  I was able to get out because the listing agent advertised "move in condition" and REO reports found after the property went under contracte revealed damage from freezing.  Never did use that "private lender" again.  There are bad things that can happen with privte lending.  It's not a cure-all for financing woes.

Jon Holdman · Answer

You should get pre-approved because you'll have to include that in your offers.

If you are relying on financing, I'd be leery of doing an offer without a financing contingency.  You would lose your earnest money if you could not secure financing.

Dave Kennedy · Answer

Jon,

Thanks for the tips!

Dave Kennedy · Answer

So if I was getting the deal financed by a lender I would be considered an "all cash" buyer as long as I don't put a financial contingency in?

I haven't even gone as far as getting pre-approved for a certain amount of a loan yet. Is that something I should have already done so I can place an offer immediately if it meets my criteria?

Are these guys also waiving inspection contingencies as well?

Timothy W. · Answer

I have seen "cash" buyers put a property under contract....then suddenly not be able to come up with the cash once it's under contract and have to modify it to a financed contract.  When the process is underway, many folks are unwilling to start the whole process over again.  This is a highly unethical practice but it will explain to you some of the "cash" offers.

I make "cash" offers all the time on a line of credit or a privte loan.  It's the same "cash" to the seller.

Ryan Webber · Answer

If you are waiting days to look at a deal, you won't get it.  Cash or no cash, you have to jump, especially if its on the MLS.

When you hear it was a "cash" offer that can mean several different things.  Someone using hard money or a line of credit will normally put in their offer as cash.

The bottom line with a cash offer is that you're making your offer without a financing contingency.  How you phrase it on a contract is really semantics, but making it a "cash" offer always makes it look prettier.  The less contingencies you have in your offer, the more value it has.

I just bought a house that had two other offers on it for MORE than our offer.  Our offer had no contingencies and close in a week.  We got the house.