Why CASH Isn't Always King...

Great post. Education is key. Sounds like an investor mentality. This buyer will more than likely keep the attitude that his cash will get him a good deal.

Rob,

Thank you for initiating this enlightening blog. I cautiously present my perspective as an investor joining this blog as the minority amongst a throng of realtors. My husband and I are new investors who entered the real estate culture through a pricey seminar my husband bought into believing it would make us rich LOL! We had no idea what "due diligence" or "hard money" was.  We believed if we did what our instructors said, we would succeed in real estate investing. We believed we would be accepted and respected by the agents as business associates working together to move properties requiring significant renovation. We believed our "low ball" offers would be embraced and understood.

We found quickly that seminars are expensive and don't provide the "hands on" education required to fully understand the real estate culture. We found it was expensive to acquire hard money to complete real estate transactions. We found the formula to calculate purchase price needed to succeed in real estate investing was an offer that many sellers, realtors and REO agents found insulting. We found dishonesty and fierce competition with agents and investors. We found agents who only wanted to work with us if we could prove we had cash even though our credit scores exceeded 750 and were over 800 prior to entering into this whole new world. We found agents, new to real estate were frustrated with offers we made according to the formulas taught. We found agents and other investors who felt if we had cash we could afford to lose 20K! We found agents insisting we sign exclusive agreements-which we were taught not to do as these deals are not easy to locate and exclusive agreements frustrate both agent and investor. We found agents who would not return calls. Relatives who were agents told us we are the real estate agents worst nightmare! I understand more fully that investors are often considered time-killing, energy-sapping, slimy bottom feeders.

I believe that real estate may be a good investment providing there is sufficient profit to justify a return on investment. We are not wealthy with money to throw into a bad deal. We work full time in the health care and service industries, we have six children and still have bills to pay. We found the only way possible to make some of these deals work is to avoid the expensive cost of obtaining financing. We are using our retirement savings to invest cash in real estate so we can retire and be self reliant. Cash is king not only to the deal- which I see it is not really that important- but it is important to the investor who needs cash to leverage a loan or cannot afford to add financing cost to a slim profit margin.

The right deal is not easy to find. We feel bad when we have explained our purchase intentions and parameters to an agent and they expect us to be excited over a property that doesn't work for us. They find a property in a great location, when in the right condition would sell for $200K. We have a killer deal at $150K. After obtaining bids from reputable contractors we find property needs $30K in renovation $20K in closing costs, holding costs and commissions. We find the seller won't go lower and we would be in a position to make zero profit for a whole lot of work. Many hours were spent by the seller showing the house, the seller's agent, the buyer's agent, the contractors and the investor. Our formula would require a maximum purchase price of $ 135-138K on this property making $12K profit and not accounting for any unexpected renovation expense or the property not selling as expected.  This is the maximum offer and is often seen as insulting, ridiculous and ludicrous.

I don't know all the agent rules and regulations because I am not an agent. I depend on the agent's specialized knowledge to guide us to appropriate properties. It is important to communicate expectations up front with the investor, the real estate agent, and the contractors submitting bids. When the numbers work they create an environment that we can all thrive in. Understanding the level of knowledge and experience of both investor and agent is critical to creating a business relationship that will not result in frustration and unprofitable time, and an emotional roller coaster.

I will use this blog to educate myself to communicate more fully with the real estate agent so I can measure their temperament and understanding working with us as investors and emphasize the importance of an open communication, expectations on purchase parameters and the risk they take working with us as an investor is linked to the risk associated with the property.  We all have choices,  and if we find agents who don't want to work with us and deals that don't turn a profit, we will seek other agents who do, and investment options that will. We also truly appreciate the agent who does understand us and is willing to work with us and teach us the culture, customs and language of real estate.

Vinnie

As an ex commercial agent who is an investor I can see both sides of the coin. Aaaron makes many great points that many agents don't think about. I also remember getting jack ass buyers who thought they were Donald Trump but without the money.

As an investor I can't tell you how many agents I talk to and tell them what my buying criteria is and they say "that's impossible these deals aren't out there" yet I bought 4 properties this month from agents who know they do exist.

I rarely waste my time making low ball offers and consider the agent a team member and discuss my reasoning for my offer and together come up with a strategy to buy the property at a price that will allow me to make a profit and them to make a commision on the re sale (as a business policy I ALWAYS re list with whomever brings me the opportunity).

From the investors point of view though most of you agents have no idea what it takes to be an investor. Agents always thinks the fix up is going to be $15,000 (rather than $50,000) and can't understand why we have to buy at 70% of market minus our fix up costs. Yet almost none will keep there fees in the deals (which I don't ask them to do).

I had to have a 30 minute conversation with a realtor today who was callng me on a shortsale that they felt was worth $250,000 as/is and couldn't understand why I would only pay $170,000 (by the way I didn't ask them to make an offer at 170k I just told them that was what it was worth to me and gave them  the numbers of other investors who I thought may possibly pay more).

I educated him that when I sell (through them) I have 8-10% in selling costs and concessions. I have 6-12 months in holding costs and market exposure of about another 10% of purchase price which leaves me about 10% profit (less than the agent makes when they double end the deal twice).

For a 10% profit I might as well break out my real estate license again and just broker the deal and have no real skin in the game. FYI as an investor I probably spend 20x as many hours on the deal a realtor does and at best make double what the commisions are on the buy and sell (I need to make a 20% net profit on the purchase price).

So next time you instantly write an investor off consider that it's not abot the cash is king mentallit but are they legit? Have they been succesful in the past, do THEY have a good reputation. Can they make quick decisions and are they going to close if you do work your ass off and get the deal under contract (I have closed the last 9 of 10 deals I put under contract and the 1 I didn't close I let the agent know up front that there were issues with the city that may and did prevent me from buying it).

BTW if any investor friendly realtors works the San Diego area (or wants to learn how to find deals for investors at 30-40% discount) get a hold of me. I do make quick decisions, I WONT WASTE YOUR TIME because I know how valuable it is, and I close. Get  a hold of me.

Curtis Gabhart

www.gabhartinvestments.com

Yes, while you are a realtor and your time is money, might I remind you THAT'S YOUR JOB!

Investors also have money involved. Possibly if you would have had a better attitude in this entire house bubble we wouldn't be in this position. Thank you for the heads up on all your attitudes though.

Also, remember while your trying to sell a house, your trying to sell it by getting our money. Money "we" worked for. Try it sometime it amazing how protective you can be about your money when you actually work for it which sounds to me like NONE of you want to do in the blog. Submit the offer, do "your" job!