Myth and Truth about Cash offers

I have worked with many investors and first time buyers through the years that make their home purchases with cash. Cash transactions can be easier but is it the best way to purchase real estate?

Benefits of a cash transaction.

1.  You can buy anything no matter how bad the condition is. Many lenders will not lend on a home with foundation problems, roof issues or missing appliances and carpet. With cash the homes that are severely discounted because of condition are open to you. Some sellers will not entertain anything but cash offers. Financing with homes in this condition fails too often to even try.

2.  You can buy homes that don’t appraise for the contract price. Often land or potential commercial property will not appraise for the perceived worth. Maybe you are buying a home on a busy street that can be converted to a commercial property. The value as a home might be minimal but change the zoning and you have something worth much more.

3.  You can close quickly! For many sellers how fast you can close is important. Cash transactions can close in a few days.

4.  No Lender Fees! You can save quite a bit of money by not getting a loan. Typically financing costs around 3% of the amount financed.

Ok so let’s get real… how many of you have cash to pay for a home? For those of you who do let’s talk about the negatives and myths about using cash.

1.  I can offer less and the seller will accept because its cash. I get offers all the time that make this assumption. Truth is that many sellers will accept $1.00 more for a qualified financed buyer. This is especially true when there are no issues in the home that would prevent financing to happen. What is true is that if the offers are the same cash would probably win. But the advantage is NOT as big as some cash buyers think.

2.  Using cash might not make smart financial sense. Money is cheap! The last time I checked rates they were close to 3.8%! It just doesn’t make sense not to borrow at these incredibly low rates on mortgages. Many lender fees are deductable on your taxes and using other people’s money just makes sense.

There is no better time to be buying real estate whether its cash or financed. Use the advantages of cash to find a great home at a great price. Keep in mind that a loan is Cash for the seller at closing and many sellers just want to sell for the most money.