If you guessed that making an "all cash" offer increases your likelihood of it getting accepted then you....are....correct. Don't get me wrong - if the asking price on a property is $1,500,000 and you offer $250,000 cash you're probably going to get slapped (but hey, at least you made an offer) unless the asking price is super-inflated. You can think whatever you want, but 9 times out of 10 if the numbers are in the ballpark, the cash offer is going to get accepted over any finance contingent offer. I've done hundreds of deals, from bank owned foreclosures, estate, short sale and others. The advantages of offering cash here’s the rub though: you have to really have the cash. If you need to check with your hard money lender before the deal can close, you're not really making a true cash offer. Sorry to burst anyone's bubble. True cash offer = seasoned funds at your immediate disposal. Meaning: if you had to close on the property within a week, maybe a few days you could. I think sometimes there's some confusion about what a cash offer is. "Cash to new mortgage" is not a "Cash" offer. Quite often my company will buy properties, clean them up, fix them and list for resale on the MLS. We often put this in the listing: "Cash Offers Only." This upsets many real estate agents. Enrages some of them. They want to know what difference it makes to the seller, whether the money is coming from a savings account or from a mortgage company. Here's what I want to fax back when I get those offers (especially since I put "cash offers only" on the listing): PUH-LEASE! The difference between a true cash offer (with accompanying proof of funds and EMD) and a mortgage contingent offer with a paltry EMD is like night and day. Mark Twain was once quoted as saying: "the difference between a word and the right word is like lightening bugs versus lightening." Ah, so true. Most of the mortgage contingent offers I get I want to put in the shredder. Here's why: Things are tough here in Michigan economically (didn't need a rocket scientist to figure that one out, eh?). There are far less qualified buyers and most of the time we're looking at FHA backed mortgages being the only game in town. For anybody that deals with this a lot, you know what I mean. It's a pain in the A**. Seasoning. Ridiculous Inspections. Appraisal Problems. You name it. However, this doesn't mean that I never sell properties to FHA mortgage buyers. Probably 1 out of 4 go this way. With some VA and other conventional mortgage financing bringing the total up to 2 out of 4. The other two out of every 4 houses that I sell go to cash buyers. And, yes, I'll admit, the profit margins are slightly less than holding out for top dollar mortgage offer. But these deals have a much higher closing percentage. They fall through less often. They aren't subject to the whims of an underwriter who hates their job or an appraiser who is hungry to kill deals for a bailed out bank in hopes of more $400 fees. Back up. I think I know what you might be thinking.... Maybe you live in an area where selling cash it out of the question. But is it out of the question? Not if you get the property for cheap enough and can list it for sale at a bargain enough price (while still keeping your margins intact). Many times there is a linear relationship as you scale with more affluent areas. There's always a buyer for a bargain. Much of this comes down to marketing the property the right way and positioning. Now, back to getting your offers accepted at much higher rates: cash rules the day. Here's a typical situation: Asking price: $200k Mortgage offer: $190k Cash offer: $180k There may be some banks or asset managers or loss mitigation officers or estate managers or sellers or whoever that will always take the higher price. You can't avoid this. But what is the number one rule in real estate investing? What is the thing that you most need to keep in mind to ensure profits? Buying BARGAINS. You don't make money paying marginal prices. Unless the property is already listed at a ridiculously low price (which doesn't usually happen), you want to make sure you are stealing properties, not just buying. If you try to steal properties with a financing-contingent offer, the likelihood of the offer getting accepted is reduced. Let's take another look: Asking price: $200k Mortgage offer1: $190k Mortgage offer2: $180k Assuming that both buyers are equally as likely to get the mortgage, which offer is going to get accepted? Right. You just can't hope to really steal properties with financing-contingent offers if there are other people in the game who want the deal as well. If you don't have your own funds, raising private money is the best way to position yourself to make all cash offers. Bar none. Ok, lesson over for the day. Go forth and profit.
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