Why are there so many "CASH ONLY" deals? Who has $160,000 in cash?

Asked by A.., Miami, FL Tue Feb 9, 2010

Even townhouses listed in Excellent conditions are advertised as Cash Only...
The way the economy is now who has that kind of money in cash?

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13
Mark LeMenag…, Agent, Lake Nona Orlando, FL
Tue Feb 9, 2010
Based on sales, there are clearly thousands of people looking to convert some of their holdings from other investments into real estate right now, but I will agree that $160,000 is a bit on the high end.
1 vote
Scg, , Miami, FL
Mon Feb 28, 2011
I'm not an agent but I do work with a real estate company that works exclusively with REOs. This can be due to a lot of issues including properties failing to have an AC which disqualifies it from most financing, to issues with the HOA or community. The bank usually sells these homes as is which makes it usually a cash only deal. It might seem unlikely that anyone would have hundreds of thousands in cash but we have quite a few properties that are cash only and we get many investors who purchase them out right. I cannot say whether say sell below or above asking but they do sell at cash for these amounts.
0 votes
John Stacy, Agent, Chula Vista, CA
Sun Feb 28, 2010
Hi A..

Some of the reasons you are seeing so many "CASH ONLY" deals:
1. The complex owner occupancy rate is below 51%. It will be difficult to obtain financing to purchase a property there.
2. The HOA is bankrupt or has a financial difficiency.
3. The HOA or complex has some "Pending" litigation.
4. Due to the condition of the property.
5. Seller wants or needs to close escrow ASAP (14 days or less).
6. Properties being purchased in bulk or package deals.
7. No loan or appraisal contingencies... no drama.

You would be surprised how many buyers/investors that are cleaning up right now (especially here in San Diego) picking up properties. This month alone, I have seen the bank accounts of two investors under 40 who had over 1 million in cash/liquid who are buying properties under $120k. Miami's market was hit hard like San Diego regarding the number of bank owned properties or unfinished projects, they over built the condo/townhome inventory... many of them in the high rises. The "Real Money" is coming in and cleaning up.

With Kind Regards,
John Stacy

Realtor, CDPE
Bank Owned and Short Sale Specialist
Weichert Realtors Elite
619.892.2985 cell
john@johnstacysellshomes.com
0 votes
Giovanni Fre…, Agent, Doral, FL
Sun Feb 28, 2010
I believe the best answer for that is due to the fact that there are several properties like this in condominiums that are not fannie mae approved and also not FHA approved in many instances, for that reason almost no bank will give any loans in townhouses that are governed by condominiums and do not have lot and block like single family homes. Most banks want to stay away from condos and because of many shortsales and foreclosures happening it makes really difficult to obtain loans for condos or towhouse/condos. Many of these communities residents are selling their properties cash only because they know its almost impossible to get financing for them. Most Buyers in my experience who are buying those properties in cash and they do have those $ 160,000 and more are Foreigners from Brasil, Venezuela, England, Argentina etc....
The buyers now with cash are the ones abroad and hopefully one day we locals would be in that position as well. good luck to your home buying search.
0 votes
Dp2, , Virginia
Fri Feb 12, 2010
Actually, Don is correct: traditional hard money lenders (aka "true" hard money lenders [who lend solely based upon the value of the underlying hard asset]) lend almost exclusively on non-owner occupied properties, and most of them insist on lending to entities. Plus, a traditional HML would rarely lend more than 65% to 70% LTV in this market, and I know of plenty who'd only lend at 50% to 60% LTV.

However, I also know of a few--mostly non-traditional hard money lenders (typically mortgage companies and traditional lenders) who offer products, that they call "hard money", but their loan underwriting guidelines typically resemble conventional loan underwriting guidelines (asking for various docs, credit, etc) than they do traditional hard money underwriting guidelines.

True hard money lenders also operate outside of the traditional lending guidelines, because they're technically not banks. This is just as true in CA (I know because I also invest in OC) as it is in VA (another place where I invest), or anywhere else where I invest. A key reason why a traditional hard money lender typically won't lend on an owner occupied property and usually insists upon lending to entities is to avoid various usury laws that would cap the amount that they could charge for interest/points. Another key reason they typically won't lend on an owner occupied property is to avoid the complications of foreclosing on a defaulted borrower's residence. A third reason why they typically won't lend on an owner occupied property is that their focus is more B2B.

Yet, I've seen some traditional HMLs lend on luxury homes in certain areas of CA even for owner-occupied properties. So exceptions do happen from time to time.

I keep hearing about HMLs lending at 10% rates, and I keep seeing deals close minimally with at least 12% rates--both on residential and commercial deals. Nevertheless, I'm still shopping for them, and I'd love to get a some referrals for HMLs who lend at 10% on various deals. If they're CA-only lenders, then I'll only use them on CA deals.

Also, most investors I know won't compete against other buyers, because most of them are too busy buying pocket listings before they even hit the MLS, or they're buying junkers/unwanted-listings.

A.., I've found that most sellers with "CASH ONLY" requirements are selling properties that wouldn't qualify for conventional financing (just as Bill wrote and Don confirmed), or those sellers haven't sat with their properties on the market long enough to "tenderize" their line of thinking. If you're concerned about competing against "cash buyers" (typically investors), then why not learn to work with them instead?
0 votes
Fernando, Both Buyer And Seller, 33156
Fri Feb 12, 2010
Hi, yes hard money lending is probably the best way to go. the theory says that hard money lenders will usually lend up to 65% ARV...the reality (what I've found in South Miami) is that they are now lending up to 60% of the Purchase Price, not ARV. I have been trying to make some deals and have cash and don't have problem with Hard Money terms (points, high interests, etc.) the problem is that the rules are changing for these loans: % of the purchase price (not ARV), longer periods for loans (used to be easy 6 months, now they are asking almost 12) and their minimum to lend has increased...
0 votes
Jane Grant, Agent, Aguanga, CA
Tue Feb 9, 2010
A hard money lender WILL absolutely loan on a primary residence that is unencumbered because they are lender taking first position. My husband has done this many times in many different ways. Also, many hard money lenders will loan for 10%. Hard money lenders can make their own rules and the formula listed below is just an example.

Creative financing by hard money lenders has been around for a long time and as long as the parties agree the term can be as long as a year and then re-financed again.

Here in California it is being done all of the time especially in the Commercial arena where lending requirements are so strict right now.

Also, here in California there are investors who are buying with cash and then using the home to get a hard money loan to purchase another one. Again, if the home is completely unencumbered a hard money lender will jump at the chance to loan money on the home, what have they got to loose? They will get to keep the house if the borrower defaults!!! The Investor/owner has some time to finance it or sell it and pay off the hard money lender.

As far as the advice below, if the property you are trying to buy is going to have multiple offers and you are a financed buyer then going over asking IS what buyers are having to do.

If no one ever went over asking price then prices would never change. In a competative market buyers must write competative offers. and sometimes that means going over asking price.....especially for financed buyers trying to be as competative as possible if there are cash buyers in the mix.

I have been a Real Estate Agent and Investor for 20 years and I Have had to go over asking price to get the home I wanted sometimes competing with 10 other buyers
Web Reference:  http://www.soreal.biz
0 votes
Alma Kee, Agent, Tampa, FL
Tue Feb 9, 2010
If you're looking at short sales and it says "cash only" and is a townhouse then there is probably a flip that will occur with the short sale. What happens is an investor convinces the underlying lender to accept a significantly lower than market price on a short sale and then the investor (who has no money in the deal by the way) will "flip" the property on the same day he "buys it on the short sale. Most financed deals will not allow these type of transactions and Title insurance is also not easily gotten so these properties look only for cash buyers. Starting the first week of april these deals will be less frequent because part of the terms of the short sale will put a restriction on the deed that will not allow it to be "flipped" any sooner than 90 days. Can't wait! Of course this will only apply to certain types of loans but there will be financial incentives to other investors to require the same terms on short sales.
0 votes
Don Tepper, Agent, Burke, VA
Tue Feb 9, 2010
A hard money lender can enter the equation, but not in the way suggested below. A hard money lender lends for a short period of time, such as 6 months. A hard money lender typically charges 4-6 points up front, and around 15% interest. A hard money lender won't lend on a primary residence. And a hard money lender will lend only up to about 65% of the ARV (after repair value) of a property.

So one wouldn't buy with cash, then refinance with hard money. One would buy with cash (or with hard money) then refinance with a conventional loan.

As for the advice below: "Make sure your offer price is in line with recent sold comparables and then go over the price slightly." Absolutely not. No way. Never, ever, ever, ever pay more than the property is worth. That means paying no more than the comps. And usually that means offering less.

Bill's correct that sometimes all cash is required because conventional financing isn't available.

To address your question about who has $160,000 in cash: Lots of people. Especially if you're talking about investment property. You can purchase investment properties (but not a primary residence) using a self-directed IRA. Even with the stock market's gyrations, many people have that amount of money in an IRA. So long as it's in a self-directed IRA, or they transfer it to one, they're set to go. And there are ways to combine investments from several different people's self-directed IRAs--typically under the umbrella of an LLC. See for example: http://www.securitytrustcompany.com/io_realestate.html

Or someone doing a 1031 Starker exchange might choose to use all cash.

Those are only a few of the circumstances in which one might choose to pay all cash--and examples of people who'd be able to do so.

Hope that helps.
0 votes
Jane Grant, Agent, Aguanga, CA
Tue Feb 9, 2010
A...Cash buyers in this market are abundant. Many are purchasing a home with cash and then obtaining a hard money loan against the equity so that they can turn around and purchase another home with cash and then repeating the process.

The Homeowners Associations don't have all of their budgeted money due to former owners not being able to pay, therefore, lending institutions won't loan money to a new buyer due to the fact that if the HOA does not have funds to let's say repair a roof then the unit could suffer damages.

So, in other words many Town Home and Condo developments are not fanciable and can only accept cash offers. So find out the HOA situation first and then stay away from complexes who have HOA's that are under funded.

You need an experienced agent in your area who can help you write a strong offer due to all of the competing cash buyers.

Make sure your offer price is in line with recent sold comparables and then go over the price slightly.

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Web Reference:  http://www.soreal.biz
0 votes
Dianne Hicks, Agent, Rancho Bernardo, CA
Tue Feb 9, 2010
A
First... yes there are alot of cash buyers but I do not think that is why you see "chase only:. In this economy the condos have been heavy hit and many can no longer get financing. FHA has guideines as well as other lending instiutes. The HOA reserves can be at a very low point and owner occupancy rates also under 51%. Therefore that are extremely difficult and sometimes impossible to get financed, therefore they can only accept cash offers.

Most people that pay cash are going to rent it out anyway so perhaps you should give some thought to avoiding it due to pride of ownership and avoid the conditions that many apartments encounter.

Good Luck!!!
0 votes
Bill Eckler, Agent, Venice, FL
Tue Feb 9, 2010
A,

Many "cash only" deals are associated with distressed sales.....foreclosures, unfinished or damaged property, etc. and represent transactions in which the buyers, under normal circumstances, would not be able to obtain financing.
0 votes
Murray Balkc…, Agent, Santa Rosa Beach, FL
Tue Feb 9, 2010
I haven't seen a single listing stating that the seller will accept cash only. That would be rather silly, since all the seller cares about is getting paid. They shouldn't care if it is financed or cash, as long as money is exchanged for the property at the closing table.

There are plenty of people with that kind of cash. In my area, January sales showed:
58% condos -- cash sales
41% detached homes -- cash sales
65% residential lots -- cash sales
0 votes
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