I've done this. Its hard to say what additional discount, if any, this strategy obtains. It is benefitial in multiple offer situations. A cash offer is very likely to win out in an otherwise close competition between offers. As far as a discount, it really depends on the situation. If a seller is real motivated it might help, with other sellers it won't make any difference at all. The truth is they are all cash at closing. It just depends on how much less money the seller is willing to take in exchange for the extra level of certainty a cash offer brings to the table.
As a seller, I never want cash so when people ask me for a discount for cash I just laugh. You need to know what your seller really wants and give it to them. Maybe they need to close at a certain date, maybe they want to carry a note. Maybe they want to stay in the house a month after closing, maybe they want you to honor the rest of their lease. Everyone has their own agenda, once you find out what it is you make the deal.
Before you make an offer like this, make sure you get the financing you think you can. The mortgage market has really tightened up and it could be that the particular type of cash-out refi loan you would have gotten in the past is no longer available.
We have a mortgage banker that we work very closely with and if we were to do a deal like this, we'd make sure he was in the loop every step of the way.
That said - the only time my husband and I have ever done an all cash deal and then refi'd out was when we bought a foreclosure. Otherwise, we're always looking for ways to have the seller actually kick back cash or carry part of the deal.
Great points-- esp Janets: An all cash offer is no incentive to someone who wants to seller finance!
We buy fixer uppers, and occasionally consider all cash deals when we're looking at a house that won't appraise/get funded with the problems it has (bad foundation, no running water, roof is caving in, etc.)
The idea here is that no one can buy the house except the folks with all cash-- sometimes you can get a seller carry for part of the cost, but sometimes the seller just wants out.
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Here's an example of a deal we passed up a week ago:
The raw land alone is worth about $200K. And it's in a neighborhood of $450K homes (Zillow estimates its worth at over $400K).
But it's for sale for $50,000 because the out of state seller is walking away from it, and knows that 1) No bank will loan on it, and 2) The city/county is fighting to have the house bulldozed and the property ruled unbuildable.
Lots of problems here-- but also a great opportunity for someone with resources and connections (we didn't have the connections in Sonoma, so we passed).
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The great thing about these major fixers is that after a few escrows fall through, you can often pick up the house for MUCH LESS, since the seller is realizing that no bank is going to loan on it.
When you come in w/a low offer, all cash, explaining to them that you're experienced REIs and don't see how any bank woud loan on this (which is why you're offering all cash), a seller who has already seen a few deals fall through will often see the logic in your arguement.
We just did this, and we're now in the process of refinancing because it tied up all of our cash. I think we missed out on at least two opportunities because of this. The other problem is that the bank wants an appraisal. They asked for this two weeks ago. If we had financed when we bought, the realtors would have been pushing the appraisers. No one is pushing them, so we're at the bottom of the list. Hell I don't even know if appraisers have been contacted! I've got a call out to my bank, and will probably have an answer in a couple of days. In the meantime....
Not sure how it works where you are, but here in Phoenix, the lender has an "approved list" of appraisers. We typically check to see if we know any of them (and we usually do) and then contact the appraiser directly to find out how quickly they could get an appraisal done. Once we find someone who can do it fast, we then call the lender and ask if we can use XXX to do the appraisal because they can do it fast. 100% of the time, they agree. They fax out the "order" for the appraisal. We call the appraiser to make sure he/she has it and verify when the appraisal will happen.
We wait a day or two after the date of the appraisal and then call the appraiser again if we haven't gotten a copy of the appraisal yet.
Basically, we stay very involved in the process because, Poudda, as you're discovering, if you don't you're at the bottom of the list.
My question though still remains that I had earlier in the thread. Are they going to let you do a cash-out refi right after purchase? I'm not sure I could find that loan today in Phoenix and we have great connections and credit scores. Maybe it's better in Alberta then it is here.
My Bank doesn't seem to be having a problem with doing the refi right after purchase - not that I'm aware of anyway. The loan is hinging on the appraisal, and if they don't finance, they are well aware that someone else will. The market is so competitive here it's just silly.
Excellent point on being on top of things for the appraiser. It didn't even occur to me that I might have some control over the speed. Duh for me! This is all a bit new so we're learning as we go.
I'll go bug my bank some more, and I'll get the info on whom they are using and take more control over this aspect of the business.
My norm is similar to Dianne's (all part of knowing and manipulating the system.....related to the thread about spec building). I used to have appraisers that were on the list and that I could "work" with to get what I needed from them. Gets harder as regulations tighten.....they get worried about audits of their work, but I digress.
I would pay cash for something if it was a property to "jump" on. But getting the money back out was never a problem, in fact my construction lender liked me so much, I'd get 100% lot advance at the construction loan closing (got all my money back +).
In answer to the initial question, I think it depends on you sphere of influence. If you have the people to work with you, then cash shouldn't be an issue, do what you have to, to make a deal and get it back later. If you're new, I would come up with better "terms" in your offer to purchase
I would think that things would be looking up for people that can pay cash. I know of a few people that got burnt because the person who was suppose to buy the home couldnt get financing.
Of course its a buyers market here so I am not sure how much of an advantage it would be. My neighbor who;s house has been vacant for 6 months just put in new floors and a granite kitchen.
Lenders have seasoning issues right now. They will only want you to refinance a percentage of the purchase price (not the appraised value); unless you wait 90 days (FHA) or in some cases 6-12 months depending on the lender.
It is much easier, and cost effective to just do a good size down payment, and get purchase mortgage money at a great rate. You only pay closing costs one time, and you dont have the big question mark over your head on who is going to be willing to refinance for what you want.
....at current stage of the market, your loan will need to be seasoned so many months before you can cash out. So guidelines have got tighten up a bit. Anything is possible if you focus on it and do it right.
I am in the process of picking up a collection of duplex's and fully expected to put money down. Very traditional. The mortgage broker I am working with in the local market (seller recommended, by the way) is suggesting to the seller essentially sign the properties over to me on "Monday" and we close a cash-out refi on "Tuesday". Then I just pay her from those proceeds. Essentially, no money down.
It sounds odd to me, but was assured it does/can be done this way.
After some thought, I'm thinking,"Why not?" In terms of money flow, it is the same as if I paid cash today and refied tomorrow OR if I asked the seller to carry the note today and I paid the note in full tomorrow.
We buy 90% of our properties with cash. This is due to the fact that we are typically puchasing from a seller/bank who wants/needs to move quickly.
The cash out refi, with no seasoning requirements & based on appraised value (not purchase price) has become more difficult to find; however, many programs are still available (we closed several just late last week). I can only speak to FL - but these were some larger banks, so I think you just have to be persistant and keep shopping different banks.
Diane had a very good point about the appraiser. It is a great advantage if you can get know some people on the bank's approved list and call them, in advance, to ask what might be reasonably expected. Also, very important to stay involved - I communicate with my loan officers/title co.'s constantly, throughout the entire loan process. This keeps my file on the top of the stack and, as a result, we close out most refis in 30 days or less. This way, our money is tied up for a total of 60 days or less and we are able to recycle the funds for the next purchase.
I've been wondering about this topic as well. Let me pose some questions in the form of a stream of consciousness:
I keep getting told that in Texas at least, you can't get a new standard mortgage if you own your house outright, you can only do a home equity loan or line of credit (limits of 80 & 50 LTV respectively). But, I do believe the closing costs are much lower for those (hundreds rather than thousands), but the interest rates are worse. Anyone know whether these assertions are valid?
I did also wonder if paying cash for a property then getting a mortgage, HELOC or HELOAN would be a tax liability. I seem to remember reading about the mortgage deduction only applying if the loan was taken out to actually purchase or improve the property... or maybe that was whether it impacts you for AMT or not, I don't really remember. I'm super paranoid about AMT even though I don't know much about it.
The main reason paying cash is appealing for me is I have been having mixed luck with our mobile home investment which after a few months of making money is now bleeding some money. The thought of having a rent property that is just flat out paid off is appealing because not having to fret about making the monthly mortgage payment would be a confidence builder.