Why a "Cash Buyer" ??

Question

I'm a licensed agent and experienced rehabber and I'd like to get into the wholesale side of things.

My question is, why does everyone say find a "cash buyer" to flip to ?

The obvious reason would be because this cash buyer can close faster. Well in my town even when youre a cash buyer you still need to run a title search which sometimes takes 2 weeks.

If I have a good deal why couldn't I flip it to a couple (for example) that's looking for a home and can get this home for a discounted price compared to the rest of the neighborhood ?

Let's say I was given 30 days to close with my contract. If it takes me 2 weeks to find a buyer who needs to get a mortgage, in my experience the sellers would gladly give me a 2 week extension to close. Because if they don't give me an extension they will have to market the property all over again, and may not find a buyer for another couple weeks and then when they do they may encounter these same problems all over again. So most sellers in my experience will offer an extension instead of starting over.

So yes, cash buyers are better of course, but do they HAVE to be cash buyers ? Not really, right ?

Bill Gulley · Answer

Hi, what you might be missing is that cash buyers don't have the financing contingencies that mortgaged buyers will have. Most cash buyers don't make the contract subject to inspections, appraisal and repairs that a lender might require. There is less chance that a cash buyer will fail to close due to his wife signing to purchase a car las week and setting the D/I ratios out of wack, etc.

It's not so much the time frame as it is the chance of default of a cash buyer in doing the deal. Most contracts provide a ten per cent default penality, so if a cash buy backs out they may well owe ten per cent of the sale price. Buyers seeking loans can get out of a deal in a heart beat, just tell the lender they refuse to pay the loan that they don't want the house, believe me, the lender will find some way to turn the deal down and the buyer walks!
Nothing to do with the time to close. Bill

Ryan Webber · Answer

Wholesalers sell to cash buyers for several reasons.  The biggest being seasoning issues.

You can't double close to somebody using conventional financing, and assignments can not be financed into conventional financing.  So theoretically if someone had enough cash to pay your assignment fee outside of closing, pay their down payment, and still qualify with enough reserves THEN you could wholesale to someone using conventional financing.  With all that factored in the bottom line being, you need cash buyers.

Now there are some ways to do escrow demands on the seller's side of the HUD 1 that can circumvent this all, but that's a whole nother conversation.

Joseph Ziolkowski · Answer

Bill is totally right. If it takes 2 weeks to run a title search (maybe find a different title company/attorney?) then that isn't your fault. The seller will likely understand that. Though you should give yourself at least 30 days anyhow. But so many hiccups can occur with financing. And flipping to a retail buyer is all well and good if you can do it. You'll probably make more. Only thing is in wholesaling, to get the properties cheap enough to actually wholesale them and make any money, they will typically (though not always) need some work. Or a lot of work. That being said, a savvy investor understands this, and when they buy it as-is, which is how you should probably sell it, they will be completely happy to fix it, and in fact will even have the funds lined up. They won't come back and sue you because they didn't know the level of repairs and wah wah blah blah blah. Most wannabe home owners won't have the money, the savvy, or the desire to do the level of repairs the home is likely to need at that stage of the transaction.

Ryan Wilkinson · Answer

Cash is KING, now more than ever.  If you are wholesaling on any kind of scale you will quickly realize that increasing your volume is how you make your money.  The "velocity of money" is the focus, meaning the faster you are in and out of a deal and back into another one the more profit potential you have. 
Financing on any level requires third party approval, more opinions on whether the deal is "good", appraisal reviews etc...Time is money and you cannot effectively wholesale if you are dependent on banks or third parties because a lot of times they say no.  If a cash buyer says yes...get that emd and get it closed.  By the way where is anyone getting bank loans to buy investment properties? I haven't seen bank financing in Detroit since 2008. LOL

Ryan Webber · Answer

Not necessarily Delondon.  It depends on what type of banker they're going to talk to.
          
          There are two different departments in a bank.  The residential department is where you would go to get a loan for your homestead and where many people go to get a loan when they start investing.  When your buyer says they are going to talk to this type of banker then, yes, move on.
          
          Most investors don't know that the other department in a bank even exists.  Its the commercial loan department.  Now, yes, you are buying residential property, but you are buying it for commercial purposes, so the commercial loan department will make loans on investment real estate.
          
          A commercial loan officer doesn't work under the same standards that a residential loan officer does.  They don't necessarily care about the condition of the property and many of them can close in less than 2 weeks.
          
          Most experienced investors work with one or more commercial lenders.  So just because someone says they need to get a loan from the bank that doesn't necessarily mean you should move on.

I always communicate that your buyers need to be cash or cash equivalent buyers.  Cash equivalent being buyers using hard money or commercial financing.

Delondon Dear · Answer

Simply put, if you are a wholesaler, you want to close fast and cash buyers can do this.

Also, banks usually don't front the funds on the types of houses that we provide. So if a buyer tells you that they will have to go to the bank to get a loan, then you move on.

Manny G · Answer

Sweet, thanks for the replies.

Why a "Cash Buyer" ??

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