Post # 1
Those of us who have bought/are buying houses have long had trouble competing with cash buyers who show up on bank owned/short sale properties and make a cash offer that blows ours away.
I’ve noticed some threads by members here who think their best plan will be to buy with cash many years from now to avoid the ‘debt trap.’
One of my associates, an engineer in California, runs a side business. He buys ultra-cheap foreclosures with all-cash, fixes them up, and rents them out.
What you DON’T know is that after buying in all-cash, he refinances at a fixed 30-year rate and takes 80% of his money out of the houses (often becomes more than he paid for it due to the improved condition), in order to buy other homes. He does this for all his rental properties, then rents at a rate higher than PITI by a fair margin. As a result he has a positive cash flow with little to no risk. He owns more than 30 properties. We joke that he’s a bit of a slumlord.
That’s what these ‘cash buyers’ are doing right now–buying all cash ONLY to ensure the deal, not to avoid the debt trap. THEN they get the loan–AFTER completing the sale. This is why refinances are at an all-time high despite so many people having negative equity. The price of loans right now is stupid cheap and investors all over are borrowing. The key to the ‘debt trap’ is to only finance purchases that grow in value over time with debt, rather than to finance your luxury purchases which lose most of their value quickly.
Post # 3
It is very competitive out there in my area. Aside from Weddingbee, I also follow Redfin forum and one of the poster mentioned the technique your associate is using. From what I’ve read, there are a lot of all cash buyers out there out bidding people. I’ve following several properties (regular sale) I was interested in but did not made an offer, many of them closed above listed price; one of them closed for $50k over (don’t know if those were all cash offer or not).
Post # 4
Interesting. I knew there was something wierd going on with some of the sales I have been seeing. Thanks for sharing.
Post # 5
@cutexkitty: My associate specifically is working over the Bay area. He lives in Sacramento. Needless to say, he too has a mortgage despite making cash offers on numerous other homes.
It’s like this in DC where I live too. I lost out to cash offers over and over again, some of which were for LESS than what I was offering.
Post # 6
@MrBroccoli: I’ve read many stories that are similar to your scenario where cash buyers won the bid, even if you bid higher. Some people brought up the “shady” dealing behind the scene regarding dual agents as well. It was discouraging to hear stories like that while house hunting knowing I couldn’t compete.
Post # 7
I know that you’re talking about paying for the house in full without financing but in real estate we also refer to offers without conditions as cash offers. Meaning there is no financing, inspection or other condition on the property.
To me, as the agent, until the deal is closed, I don’t care whatsoever how you’re financing the home. I mean yes, it’s great to have cash, or to have buyers who are solid financially but in the end, between signing the agreement and the closing a lot can happen that can destroy a deal.
Post # 8
@Ms. Martian: What kind of buyer who needs financing makes an offer without a financing contingency? Not asking rhetorically or insultingly, really curious.
My first home deal fell through because it didn’t appraise and the bank refused to fund more than 80% of the appraised value. Seller wouldn’t drop the price and the official reason the sale failed was listed by the seller’s agent as ‘financing’. I expect I’d have had a lengthy legal battle for my deposit had there not been a financing contingency. Low appraisals have been a problem all over the place, with some banks even including short sales and foreclosures, which seems utterly nuts.
Or do you write a separate appraisal contingency for the offer anyway even without a financing contingency?
Post # 9
Some of us do buy cash to avoid the debt trap (or rather, the interest) and aren’t looking to one-up others. I get what you’re saying, but I just wanted to point out that there are still non-jerky cash buyers out there just trying to buy a personal home. Not every single cash buyer that may have beaten another buyer out is looking to “turn a profit.”
Post # 10
I dont see how he would be able to keep refy-ing with no hard equity. I doubt he’s grabbing up all the million dollar fab forty homes. Or even the 250kers. Thats not realistic.
He probably is a slum lord.. so what? I doubt you would buy a 15,000 house in the ghetto.
You can buy a house on martin luther king blvd in Sacramento (or many other places in south sacramento) for <20,000 dollars, so sure you can buy a house with all cash.. and it be totally legit. Seeing as hes an electrical engineer working in the bay area he’s likely bringing in a 100K+ salary to boot.
Short sales don’t care where the money comes from they just care about the bottom line.
Post # 11
When I was looking for a home, I didn’t run into all cash buyers ( I could be wrong) but I’ve encoutered people with extra cash to spare which made it hard to compete.
On one of the properties we looked at listed for $620k. The house is 60 yrs old with no upgrade and at least $5k in termite damage. The only thing it has is good neighborhood. Our agent said this one would go up to at least $670k, he was right. It went up to $675k.
Another property we lost the battle because we wouldn’t waive appraisal contingency. Someone else did and got the place.
Another place we like a lot but didn’t make an offer due to pet policy, it closed for $30k over asking price.
It seems to me the people that waived appraisal contigency have enough money to feel confident enough that they can cover the difference between the appraisal and the offfer price if needed.
As for the people that bid up the price, I guess they really like the property and have the extra cash as well.
Post # 13
This may be true but I have family members who do new builds and they pay cash for the land and to build or reno the house and do not do this, so I don’t think it’s happening all the time.