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If There's A Recession On---Why Are There So Many Cash Buyers Right Now?

Driving to the office the other day, bored with the usual morning chatterboxes, I was surfing the old radio dial when I ran across a local guy talking with great vehemence about the "economic idiots" spewing doom & gloom at every opportunity.

He went on to castigate expert after expert, refuting their findings without a whole lot of supporting evidence to back up his alternate opinion...until the callers started chiming in.

Call after call was a business owner or manager talking about how business wasn't booming, but was steady and strong. I was beginning to think that he had stacked the phone lines with buddies when I heard something startling come over the airwaves! There was a real estate agent talking about the shocking amount of cash buyers who were coming out of the woodwork and snapping up property. I listened even closer, and I realized that it was one of the agents in my brokerage that had started the "Foreclosure Bus" with some other agents in the office. In the process of pre-qualifying people wanting a seat on the bus, nearly 40% of those wanting in on the tour were bringing certification of funds letters to pay cash for properties. Given that Tucson averages 16% cash transactions on a regular basis, this is incredible!

I had no idea! Then I looked at my own business in the new year--I'm running at 75% cash buyers--it just had never dawned on me.

Hmm...how can we be in a recession when people are willing to part with their cash so readily?

By the way, the "Foreclosure Bus Tour" is so popular with investors, we are getting calls from all over the country and may consider adding another 30-passenger bus if need be: Call me if you want a seat on The Pepper Group's Bus...cash or not!

Kent Simpson

Specializing in Buyer Representation in the Tucson, Arizona real estate market.

"Never forget - Real Estate Is About People"

Posted by Kent Simpson REALTOR® and some other alphabet soup on 02/23/2008 10:06 AM

Comments (50)

recession, talk radio, cash buyers, investors, tucson market, foreclosures, foreclosure bus tour, the pepper group

Originally posted at: Tucson Real Estate News: If There's A Recession On---Why Are There So Many Cash Buyers Right Now?

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50 Comments on If There's A Recession On---Why Are There So Many Cash Buyers Right Now?

FEB

2008

It's investors that have "laid low". They have cash and feel the market will increase.

We've noticed the same thing in our brokerage. We also have several investors who are buying multiple properties. It's as if there is a sense that the window of opportunity is closing.

Wow! What an outstanding Idea. Thank you.

I refuse to take part in this recession! Good work!

Vicky - you may have something there!

Chuck - get 'em while they're cheap

Noob - can't take credit for it...three guys in my office put the whole thing together...on their behalf, You're welcome!

Larry - Amen, brother!

Kent,

If home sales are down 20%, just for a figure, that means 80% as many homes are being conveyed.

Too many people lose sight of the fact that billions of dollars of real estate is changing hands.

Your cash buyers are keeping their eyes open. That tendency might be how they got to the status of "cash buyers."

It is what it is. With all the changes coming with PMI and Freddie good thing that you have cash buyers. Mortgages are getting harder and harder to get.

Happy Selling!
Tony Grego - Indiana Mortgage Broker

Interesting post. The $$$ folks know we are at the bottom. They are coming in. I keep drumming this into the fence sitters. when they whine it willnot be at me

Investors are buying in parts of the market here. If they can make the cashflow work now they aren't waiting to see if NOW is the bottom of the market.

Amen, Hallelujah and PTL! The "recession" is a media ploy for election year fodder! In a couple of weeks, if trend keeps up, we will double our pendings in two months. This past week, I double ended a $600K home and the guy has enough down that we don't have to worry about an appraisal. I have another 50% down deal going on right now ready to close when the builder is. Did another all cash deal in October. What's up?

Kent:

I am interested in knowing your stat's when you say 75% of your transactions are cash. How many deals does that encompass. Here in California cash buyers are not as plentiful as AZ. So, I suspect it has to do with location. I do like the idea of the foreclosure bus.

50% of all transactions in my market are ALL CASH. Recession or no recession there will always be people with cash.

We've had a pretty steady market but for the most part our properties are through loans due to the fact that the investors can better leverage their funds.

I agree with Mitchell. The recession usually does impact people in the higher income brackets nearly as much. These are the people with the cash and very little of what is going in the econmy hurts them as much as it does the average middle class person.

Mike - there are always real estate transactions, no matter what the economy does.

Tony - Hmmm...those with good credit and supporting income will still be able to get financing, won't they?

Charlie - funny thing, we're starting to see a few properties priced at bargain prices actually sell higher than asking price again. Bargains are bargains and those who manage their money well know when to act.

Carolyn - same here. We've seen our bottom, pretty much, except for particular neighborhoods.

Renee - glad to see Vegas waking up, at least for you!

Lorraine & Loretta - since the beginning of the year, 3 cash closings, 1 in escrow with a loan. Glad you like our bus! My broker is ecstatic!

Mitchell - You're right: people with cash know when to save and when to spend.

Joe - I always advise my clients to speak with a mortgage professional and their financial advisor before buying with cash.

Sandra - you make a good point.

I'll dissent here. This might mean some cash-rich investors are sensing the bottom - MIGHT! On the other hand, it just might be a reflection of the growing gap between the rich and poor. There is a class at the top that has more money than God. But they've amassed this wealth at the expense of the middle and working classes that are being crushed by stagnant wages and soaring FIXED expenses. The people who are buying don't have to worry about a recession - that's not true for those who were locked out of this last so-called "recovery." Note that we never got past the word "recovery" this time because the money never got to "trickle down" to the masses. By using the word "recovery" implies that the majority will get "theirs" eventually. I hope that we don't have a recession because so many of the middle class is hanging by a thread - if we do - many will fall into poverty.

Money speaks a language all it's own. It's call lets make a deal. cash will always be king.

Well, this is bad news for those of us in the mortgage business! But thank you for an enlightening post. Honestly, if you had cash, wouldn't YOU be scooping up property.

Show me the money!

So, it's a good market to buy!! ??

The savy investors have laid low and they know bargains when they see them and now they are in the market. One of my investors snapped up 3 properties in one month and is complaining that he cannot take on more. So much for the gloom and doom folks. Just a bunch of talking heads.

same in our area, many cash buyers from N.Y , they come look at the prop from outside and put a cash offer with 2-3 week close, is very common where we are...

Definition of Recession - Unemployment is up, Retail goods prices are up, Oil is up, Consumer spending is down, Income stagnant or decreasing, housing prices are down.

All of those apply today; however, like you I am seeing business increase rapidly due to the huge reduction in real estate professionals still in business!

I've noticed over the last year or so that investors were laying low. I've had three call me in the last week looking to get started up again. Go figure!

I would like to clarify a bit about the types of buyers that are calling to get on the tour bus. Most of the cash buyers we are getting are retired folks that moved to Tucson after selling their homes and retiring. They bought back in the 70's, 80'sand 90's and cashed out a couple of years ago. Now they are looking for a deal. They have $300 to $500K in cash to buy a house. These aren't the rich, they are your average middle class, (upper middle class) folks that know how to manage their money. They buy smart and sell smart. If the deal doesn't make sense, they don't do it. The investors we are seeing were smart with their money also. When the market was high, they saw an opportunity (sell,sell,sell) now that we are at or potentially near the bottom, they see another opportunity. (buy,buy,buy) It isn't rocket science. It just takes some common sense and due diligence. History has a tendency to repeat itself. If a deal doesn't make sense don't pull the trigger. Time heals all wounds, but if you bight off more than you can chew, expect to choke on it. Negative Am's, and pick-a-pay programs don't work even in the best of times. At least not for the long term. Make sure you have an exit strategy and know what that strategy is going to be before you get into it. Even the best priced home doesn't make sense if you can't afford it. I wish you all the best.

Go question...the reason is because the media has created much of our issues...it is not that people can not afford homes...they are holding off because idiots like Jim Cramer tell them not to dare buy a house!

That is awesome. I hope there are many more coming your way. It would nice to see the market start getting a little better in some places.

Jim Cramer is an Idiot????!!!! That's funny. The man is pure genius. If you ever watched his show you would know that less than 3 weeks ago he said now, in his opinion, IS the time to buy a house. I wish more realestate investors would watch Jim Cramer's MAD Money, at least then they would get an education as to how to build equity the smart way. Most so called "investors" are holding off because they are afraid of what the economy might be doing. They are afraid because they got burned trying to be a "Pig". Holding off for the big payoff and not selling when the sell signals were all over the place. I'm not talking about the stock market, i'm talking about "investors" that used sub prime, and Alt A products to "creatively" finance their real estate deals without looking to the future and without having a smart exit strategy in place. Now they are left with an asset that depreciated 10-20- and in some instances 30% in the last 3 years and can't refinance because their investment is worth less than what they owe on it. Shame on them for getting themselves into this predicament. Smart investors saw the signals and pulled the trigger on their deals at the right time. Now they see the signals again, and they are starting to pull the trigger again on the smart buys. Real estate is on sale folks! If you have money and decent credit, you can pick up some great deals. In some cases 20 to 30% off. Hell, I'll take 2 thank you very much.

I believe it is people who have been holding onto their money until the time was "Right" to buy investment properties.

Sean Allen

I agree with Rob. Not all cash buyers are rich investors. Many are empty nesters and new retirees down sizing from homes they bought 30 years ago into condos. They prefer to pay cash to keep monthly expenses down. They have been saving for years plus pensions IRA's and equity from their homes. They don't care if prices go down in the short term because they are planning on keeping it for the rest of their lives and leaving it for their kids.

They are all folks who cashed in in 2005 and have that money to put in a downsized home.

There are a lot of them here too, but not enough to keep us busy.

Everyone I know is out looking to buy and looking for deals. Not everyone was fool hardy to play in the last toppy market, and borrow to the hilt. It seems everyone new the bubble would pop, still some kept playing. Many folks who have been sitting around waiting and waiting and waiting are now out looking, looking and looking and man is there a lot to look at. Lance

Most of our investors also have cash or certification of funds to back up their purchase agreements -- most of them are old time clients that had sold their investment homes in '04 and '05 and are now back. Buy low, sell high as they say!

The only investors I am seeing out there are the bottom feeders. If the property can be bought for 60 cents on the dollar or less, they will buy with cash. If not, they steer clear. Nobody is paying cash at the retail prices around here.

I've seen quite a few cash deals lately. Of course, the Hilton Head Real Estate market usually does have cash buyers. Thanks goodness!

Great post and awesome comments. Cash is returning to the Space Coast in Florida also, especially on the beach. Thanks for sharing.

We are seeing a lot of cash buyers as well. They are out there waiting to find bargains.

FEB

2008

Kent... I didn't read any of the comments. Why would you want to think that there was a recession, when you have that many cash buyers... lol But there is a slight recession, no matter what anyone says. At least this is my opinion.

So... where are these people getting the cash? And why cash? For security? I personally think that they are hurting themselves by doing this. They aren't maximizing their full net worth then. Limiting their ability to build their net worth also. Again, just my opinion.

Kent,

Contgratulations on the Feature! You touched a nerve here!

Mike in Tucson

I am seeing cash buyers in Detroit also. The banks and lenders love those people. Good luck on the bus

Kent - It goes back to the adage that all Real Estate is local. The fact that there are quite a few investors who are paying cash is fantastic. We have not seen that up here in MA. I suspect our prices for homes are a lot higher. Love the bus idea!

Kent-Rock on! WOW..this is truly great to hear! Our offices are buzzing with calls and more contracts..heck we've had few recently with multiple offers go figure! Nothing is perfect and I am with you...I ignore the doom and gloom...I say make your own media and get out there and sell more real estate...no self pity...no this market stinks..there will always be buyers and sellers...

Kent - The message is starting to get out. in regards to Jeffs comment about leveraging by not buying all cash there are those like my hubby who have always preached there are 2 ways to buy property ALL CASH or NO CASH, as long as you can afford to hang in when the going gets tough, either way you can't loose over the long run.

I think is is a great sign for the market they need to see the value before the market changes. Thanks for the post.

FEB

2008

Ruthmarie - welcome to capitalism kid. It is nice to see a dissenting opinion though. Thank you.

Robert, Janet - you're feeling it.

Mike - in a word, yup!

Cameron, Leo, Jim - they're coming out of the woodwork, aren't they?

Josh - we've lost a few, but I wouldn't attribute the increase in business to the ebb and flow of professionals in the field.

Rob - thanks for coming on and commenting. Congrats on your CCIM!

Dimuria - watch out, you'll make Rob mad...whoops, too late!

Sean, Mitchell, Homefinders, Lance, Paul, Diane, Denise, Midori - Those that are savvy investors reap the benefits. The big resounding "thump" of the market is the siren song of those who buy at the best prices!

Rob Arnold - patience, my friend...patience.

Jeff - judging from the holes in backyards I'm seeing from satellite photos, the cash is coming from coffee cans. I hear what you're saying about maximizing their leverage, but some folks have different strategies and mindsets with their cash.

Mike - thank you!

Russ - thank you for commenting. Rob Curcio, Gary Andros and Todd Greene are the driving forces behind the bus tour...I'll pass along your good wishes!

Bill - that phrase, "All Real Estate Is Local" has never been more true--even to the point of neighborhood by neighborhood. Thanks for your comment.

Midori, Kathy, Terry - we can use more positive people like you in our office...want to move to Tucson?

FEB

2008

Thank you, Cheryl! I appreciate the kind words.

FEB

2008

Hi Kent, thanks for getting the word out. I appreciate the kudos on the CCIM, but I can't take credit for it yet. I have only just begone my journey. I still have a long haul ahead of me. The info in 101 class was well worth the price. The knowledge that comes with the CCIM designation, is by far in my opinion everything an investor should be looking for in a commercial real estate consultant. It is absolutely the best knowledge I have ever received as far as real estate is concerned. I highly recommend it to any realtor wanting to pursue a career in commercial real estate.

Peace.

APR

2008

I've experienced all of these scenerios. I've had bottomfeeders, I've had wealthy investors, I've had high fico score buyers, and I've shown property to people who I thought would never buy....and I think that it's all about the conversations you are having in your head... what you think about you bring about is awfully true. The agents that think that there are lots of cash buyers end up working with lots of cash buyers..the agents that think that buyers are liars end up working with buyers that don't perform, and the agents that think there are no buyers out there arent' working with any buyers. So I constantly remind myself to check my attitude.

As with anything- there is a bottom. Your bus indicates that cash buyers have finally concluded there are gains to be made despite what they hear- they are the ones getting back in on the ground floor. By the time the masses get the message-prices will have already been on the upswing for many months.

Good luck and sell well!

APR

2008

Mike - You've hit the attitude right on the keister! Great comment...thank you!

Allison - when the seasoned investors start buying, it is time to jump in--by the time the media gets the hype machine cranked in a different direction than they've been going, the bargains are all gone (kind of like running to the store on Christmas Eve when you hear that the latest toy craze is selling out fast)!

MAR

Um, yes, it is a recession. And Jim Cramer isn't a genius.

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