Sources of Cash

As an investor, you may be looking for quick sources of cash in order to purchase a property for future re-sale. Perhaps you are looking for cash to make the purchase, pay the down payment, or pay for fix-up costs. Whatever the issue, the speed with which an investor can come up with cash may spell the difference between getting the deal or not.

Conventional buyers rely on savings for a down payment, and then qualifying through a bank or lending institution for a conventional mortgage. But many lenders today will put a limit on the number of residential mortgages that may be held in your name. Or require a significant cash reserve, or lower debt to income ratios. This source of cash is not infinite to any investor, and the true investor will be looking for other sources of funding.

Here are just a few.

Seller financing is typically the least expensive form of financing for the purchase of real estate. The Seller may be willing to carry 80-100% of the financing, for as long a term as a conventional bank, depending on the issues surrounding the sale of their property. Typically, sellers will provide this kind of financing if it is impossible to get bank funding on a property, due to its condition or other factors; if the seller is trying to minimize their tax burden upon a sale; or simply to speed up the transaction or attract more buyers. The terms of this financing are negotiable to the buyer, and may be anywhere from 0% to whatever the market will bear.

Short-term financing will typically have the highest interest rate, as will a second- or third-lien position of the Seller behind another mortgage. Some sellers will help finance the down payment, when the Buyer can come up with a conventional loan, so this interest rate will tend to be shorter-term and for a higher rate.

Buyers may also take out a home equity loan or home equity line of credit on another property they own to come up with the cash they need for a new purchase.

Sometimes buyers will offer collateral to make up the difference needed for a down payment. This might be in the form of an automobile, boat, airplane or something else of value to the seller.

Buyers may work out installment plans, or offer to do a lease with the option to purchase later at a set price.

Many cash buyers will get hard money loans from non-bank lenders. Hard money loans are issued by professional money lenders, who usually offer terms with shorter-timeframes, higher interest rate, and lower loan-to-value ratios (requiring some skin-in-the-game by the borrower). This funding tends to be the most expensive.

Buyers may find private lenders, generally private individuals they know who are willing to lend money at a lower interest rate. Family and friends are a good source of this type of financing.

Buyers may come up with cash by doing a joint venture with the seller or another partner. Partnerships may be formal or informal, and take the form of true partnerships, limited liability companies, corporations or syndications.

Buyers who are at least 59 1/2 years of age may make withdrawals from their IRAs or life insurance policies without penalty. They do however have to pay taxes on any distributions.

Buyers may sell something else of value to come up with cash quickly, such as a car, gold or other collectibles.

There are many different ways for a Buyer to come up with cash, if they want something badly enough. Or they could broker the deal for another buyer by selling their interest for a wholesale price to another Buyer prior to closing.

Real estate investment can be enormously creative, and finding cash is not as difficult as some investors make it out to be. So get out there, and start finding property!

Happy Investing!

Wholesale to Cash Buyers

A “wholesaler” is someone who buys property at a low price and sells it at a low price. Both prices are below typical “retail” prices for a finished product. The wholesaler makes money by finding a property and negotiating a very good price for it. He/she gets paid for assigning the deal to a cash buyer who is able to make the improvements and market the property at a profit on the conventional real estate market.

Typically, a conventional mortgage lender will not finance a purchase transaction where the borrower’s name is not listed on the Purchase and Sale Agreement. Most lenders do not consider the Assignment Contract listing an end buyer as being sufficient to lend on the purchase.

That is why most wholesalers look for cash buyers. They also typically get their assignment fee paid in cash up front.

How does the new real estate investor go about building a cash buyers list?

One of the easiest ways is to network at your local real estate investor association to find out who is buying houses to fix and re-sell. Find out where they are looking to buy properties, and what are their criteria? What price range? What condition? What location? What features? How many bedrooms, baths, square footage? Do they want a garage? Any negatives, such as not being close to power lines or not being on an arterial?

Find out how quickly they could have cash available for purchase if you find what they are looking for. Then target your search for properties that meet your buyer’s criteria. In effect, your property will be sold, as soon as you find it.

Another tactic for the assertive wholesaler is to chat up folks at your local county foreclosure auction, as these buyers must have cash to purchase. Bring a list of whatever properties you may have gotten under contract at that point, or ask them the same questions (above) to find out what they buy. Collect business cards, or give them yours.

Happy Investing!

Cash is King in Today's Housing Market

It now costs more to rent than to own a home in 98 of the top 100 U.S. metropolitan areas, says real estate website Trulia, which tracks rents and home prices. In some of those markets, however, the inventory of homes for sale has shrunk.

Home inventories have shrunk because fewer foreclosures are coming to market. Many homeowners don't want to sell, because they don't have enough equity in their homes. Others are waiting for higher prices.

While the bottom tier nationwide experienced an average 12 percent decline in housing inventory overall, Las Vegas, Colorado Springs and San Francisco saw more than a 50 percent drop. Inventories also shrank faster than the national average in Minneapolis; Charleston, S.C.; Seattle; Washington, D.C.; Miami; and parts of Southern California, according to Zillow.

In May, for example, the Seattle area had a 1.7-month supply of homes for sale, according to the Northwest Multiple Listing Service. 

Cash buyers accounted for almost a third of existing home sales this year. Before the housing crash, cash buyers accounted for less than 10 percent of sales, the National Association of Realtors says.

FHA loans have a minimum down payment of 3.5 percent and take weeks to close. Conventional loans have bigger down payments and can close faster, but cash deals close fastest. And cash deals don't involve an appraisal, which lenders require before they make loans. Sellers like cash offers because there's less risk that they'll fall through

As part of Home Land Seattle's December specials, Seattle homesellers may list their house FOR FREE on the NWMLS  and Seattle home buyers (using cash or financing!) will receive a $1000 cash rebate when closing on any offer they made during this month.

Contact HomeLandInvestment@gmail.com for more details, and Happy Holidays!