In Real Estate, Is Cash Still King?

Question

Or is so much cash readily available that having cash to make real property purchases no longer hold the cache it used to?

I’m not talking about ability to get financing, or offers for all cash where you need 45 days to close. I’m talking about close in 48 hours cash.

In my long career as a real estate and note investor (40 + years), I’ve made many good deals, some bad deals, and a few “great” deals.  In my case I was able to purchase the “great “ deals because for whatever reason the seller needed cash today; not next month, not next week, but ASAP.  And was willing to provide almost unbelievable discounts to get the cash NOW.

Here are three representative cases from 3 different types of real estate investments I was able to purchase through the years.

.......   Automotive repair facility in bankruptcy for $115,000......I sold it 5 months later for$300,000.

........  Note secured by commercial retail center with principal balance of $478,000 for $250,000.  I’ve been collecting payments on it for the last 6 1/2 years.

........  Limited Partnership Units value at $105,000 for $5,000.......Received over $75,000 in payouts so far.

I’m working on one right now where a huge discount is involved IF we close this week, I’ll report back

Timothy Hero · Answer

In my opinion, leverage is king, not cash. If you're an all cash buyer with $200k, you can only buy $200k worth of real estate. The leveraged investor can buy $1 million worth of property with $200k down.

The leveraged investor will make a better cash on cash return and enjoy much more appreciation.

In terms of getting a property at a great price, eh... If I'm a seller and someone offers me all cash for $325k and another is $350k but I'll have to wait an extra 2 weeks for closing, I'm going to wait the extra 2 weeks and get the higher amount.

Ronan Donnelly · Answer

Cash, is, and always will be, king.

Mike Cumbie · Answer

I feel so. We can't close in 48 hours around us (Attorney state and title work etc). But a 2 week cash close is a winning hand here. When you have cash to close you are the one who makes the decision and sellers know that. When it is a financed deal it's really "Well I'll pay you this much as long as Daddy bank says it's ok". You can always buy cash and leverage out after. Getting that deal with cash is the way to go IMO.

Jim K. · Answer

Using cash to buy is a major part of our low C-class SFR business model. Without it, our model would be unworkable. WHERE that cash comes from, from either savings or leverage, doesn't matter. The expression "cash is king" doesn't describe its importancd to us. Cash is useful as our servant because it is our sellers' lord and master, and they most certainly cannot worship both God and Mammon. Not that they try very hard.

I think the fact that we've seen sellers do unbelievably stupid things for cash deals again and again has really helped along our ongoing distaste for what's called  lifestyle creep or lifestyle inflation.  They need that money. And they need it, most of the time, because it controls every aspect of their lives. Every single last thin dime they make is spent, and they can't imagine living their lives any other way. So when a buyer with cash comes along, that sure offer of sale for their house that they can count on, they'll stand on their head for him.

Dennis M. · Answer

In lower income areas the ability to move fast and buy with cash is crucial and in my area it’s about the only way it can work . Banks won’t lend in these areas or on such a low price point .

Ronan Donnelly · Answer

Cameron, totally agree, Cash is king but it doesn't have to be your cash.

Tom Shallcross · Answer

In certain scenarios, cash is king to make the purchase happen. However, long-term leverage allows you to scale.  These do tools not have to be mutually exclusive (everyone is right!).

Also, what I've found funny is the times where I've had to use cash to close quick, like half the time something happens -  title delay, seller now needs a few more days to move out, or some other thing pops up and we still don't close for 2-3 weeks.  It's more the certainty that they knew I would close that was the biggest driver.  That tight timeline they were worried about, really wasn't as tight as they made it out to be as they end up being fine with the updated close date.

Elbert D. · Answer

No, Cash flow is king! In business and in buy and holds as a landlord. Its one of the main 3 Cs of obtaining business credit and its what everyone pays attention to. Cashflow, cashflow, cashflow. I also agree with what some of the others have said about leverage as it is used as rocket fuel to project someone to wealthy. Equity and debt are very important to understand.

Cameron Tope · Answer

@Ronan Donnelly I'm not entirely sure about that. @Timothy Hero makes a great point. I've BRRRR'd many properties without much cash in the bank - the power came from leverage.

Cash might be king but the cash doesn't necessarily need to be in your pocket. You just have to have a solid relationship with the person who has the pockets.

Syed H. · Answer

Cash is always best, but it depends on the buyer and location. For example, in NY, you won't be able to close in 2 days. Doesn't matter who you are and how much cash you have. But since my hard money can close in the same 2 weeks that I can with cash, cash really is nothing special if you have a good HML.

In other states, sure cash can/will get you a better deal with some sellers. But not all. Many people can wait the 30-60 days needed for a higher price.

In Real Estate, Is Cash Still King?

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