Cheapest way to make a cash offer???

Question

Hey there,Let's say I have $1M worth of stocks including my 401k. I find a property that is worth $700k.In theory I can make a cash offer to this property. When it comes to actual execution, I have to sell those stocks and then pay that towards the escrow. This can have huge tax implications.Margins are an option but they are usually given at 50% of your portfolio (in this case 500k or even less after excluding 401k).In case if anyone's wondering why I'm doing this, it's because some buyers sell it much cheaper when it's a cash offer with 15-20 days closing. After closing I will be going ahead with refi on conventional loan.I already have cashflowing 3 properties. So I'm guessing I can get a DSCR loan; my basic googling shows that they cost around $10k to close; which seems very high for my strategy; considering I'd be holding this for 2-3 months maximum.Getting HELOC seems another way, but I don't necessarily have that much equity that I can tap into. It's probably 300k maximum for the combination of 3 and I have to get them re-appraised. They also cost some money (like $3-4k per loan) so that's also excessive.Is there any other way, that may be cheaper than these?

Patricia Steiner · Answer

Price cheaper with cash sale? That ship has sailed and it was never at the discount you're suggesting. My investors acquire with cash as a routine investment strategy to secure properties quickly and eliminate competing buyers using financing. It also negates the need for insurance - although that isn't our MO. You're not in the position to be a cash buyer...as a former wealth manager, it's simply not a good play for you for many of the reasons stated above and more.

My recommendation: Punt. Use financing but streamline contingencies and shorten contingency periods. Also find a lender who can move fast - we have several that can close in 15 days and less.

Hope this helps. Value your money more.

My recommendation:  Punt.  Use financing but streamline contingencies and shorten contingency periods. Also find a lender who can move fast - we have several that can close in 15 days and less.

Hope this helps.  Value your money more.

Patrick Roberts · Answer

I guess Im not really understanding what youre looking for. If you want to close with cash, it sounds like youre going to have to liquidate your collateral or borrow against it, which will likely be more expensive that a mortgage. If youre wanting to make a cash offer, all I can say is that Ive never seen a competent seller/listing agent accept a cash offer without proof of funds, meaning a bank statement or similar document(s) showing liquid cash for closing. I cant speak for what this seller will or wont do, but my suspicion is that an offer accompanied by a balance sheet or list of collateral and not liquid funds wont fly - it wouldnt with me. The whole point of a cash offer is speed and certainty - if you can bring a pile of money to the closing table today, I dont have to worry about you not getting the money to close. If you cant close the deal without borrowing money or selling stuff (which both frequently take time), then its not a cash offer until those funds have settled in your account.

If you are going to borrow money, a 15yr or 30yr mortgage is probably going to bring the lowest interest rate available. Most margin loans and SBLOC are Prime + or FFR +, and the ones Im familiar with are 8-13% right now.

The only other thing I can think of is that if you're a HNW with a good relationship with your private banking team, maybe theyll give your a personal line based on your net worth and assets with them.

Patrick Roberts · Answer

Am I understanding this correctly that youre expecting to get a $700k property for $500k because youre paying cash? Or are you using an SBLOC to bring $500k and then bringing another $200k in cash out of pocket? I also doubt very seriously that any brokerage/custodian is going to allow this kind of loan with 401k assets; it's likely going to need to be a 401k general purpose loan, which is highly regulated (as someone else mentioned).

Every market is different, but paying cash doesnt necessitate a huge reduction in price - it might, or it might just make the offer more competitive than other bids that require financing.

I recommend you speak with a lender about reviewing whether you could qualify for a loan prior to making an offer, as I've seen these kinds of things blow up. I've received apps in the past where this was the exact situation only for the borrower to not qualify and be stuck.

What I've had clients do in the past is make an offer without a financing contingency where they tell the seller that they are getting a mortgage to close the deal, but also provide proof of assets to show that they can/will close by liquidating the assets if the loan gets declined. A smart seller/listing agent will likely require a large EMD to tie you to performing on your offer, so be prepared for that.

Bruce Woodruff · Answer

Like @Patricia Steiner said, you;re expecting a lot. Sellers are not idiots. I've (almost) always been a cash buyer, and you might get a 2-5% discount. Sometimes you will pay full price but just get moved to the front of the line because you can waive contingencies, there's no appraisal and you can close more quickly. And there are a lot of cash buyers out there with way more cash and way more experience than you....

Anil Shah · Answer

It doesn't seem worth it. First, are you taking withdrawal from 401K or loan? 401K loan is capped at 50K and with withdrawal, you have 10% penalty and tax implications. Selling your stocks also has tax implications and margin is only 50% as you mentioned, that too depending on your stock profile. The tax rate difference from from long term to short term alone won't make it worthwhile in my opinion- add the 401K withdrawal penalty on top. YMMV

Patrick Roberts · Answer

I dont know of anywhere that you can cashout $270k against equity in an RE portfolio without closing/origination costs other than through a private banking relationship as a HNW individual. I also dont know of anyone who will lend against an IRA since that's basically untouchable as collateral.

Sarp Ka · Answer

So what would you recommend me to do? Hit bunch of lenders and ask them if they are willing to close in 15 days?

Sarp Ka · Answer

I'm finding it a little hard to understand why it's more expensive to do this way?

Assume that i got margin with IBKR their calculation shows 5.4% and costs 21.8k per year for 400k.

So assuming property is 700k with conventional loan and 670k with cash offer.

I manage to find another 270k (this is what I'm asking) without paying any origination fees. Let's say at 13% interest. That's 35k per year.

35+22k is 57k per year.

Assume that i can refinance in 45 days. That's 7k loan.

So this is overall costing me 577k to purchase instead of 600k.

My question is where do I get a loan like the one I mentioned above. The one that's short term and don't cost me a lot to initiate/originate. Just like my margin accounts.

Patricia Steiner · Answer

@Sarp Ka

This isn't new.  My firm has several lenders who can seamlessly close in 15 days on 'traditional' mortgages at/below market rates and we've been doing so for a couple of years now.  It requires a solid FICO, that you get pre-approved with all current financials held in file beforehand, with the complete contract package submitted upon execution which starts the clock; insurance must be arranged within three days for lender underwriting.

Since my firm is an investor private client boutique, I do not share resources outside of my client base. Lenders desperately need/want business especially in this interest rate environment (right now, the main source of mortgage loan business in Florida is rehab financing as a result of the hurricane damages) and one way the big players differentiate themselves is by streamlining the process. Those who have figured this out have earned my firm's business; I'm not willing to be held hostage by 'process.'

Best.

Cheapest way to make a cash offer???

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