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I've finally stocked away enough cash to potentially attempt a cash only purchase for my next investment property. I'm uncertain on what type of "buying power" a cash offer will bring compared to a conventional offer and was contemplating submitting two offers on the same property. I'm curious if anyone else has tried this, or if I'm opening up a major can of worms with this approach. Below is the thought process.

Property Listed: 100K

Offer 1: CASH - 95K

Offer 2: Conventional - 105K

With rates being so low right now, I really don't want to tie up a large chunk of capital unless I'm realizing some kind of tangible upfront cash savings. Any insights from the Pro's?

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Ha. Have any anecdotes on this tactic?

debtblag (Apr. 20, 2013 @ 1:23p) |

Not a typo. The RE agent said I could immediately flip it since there are substantially higher offers by two different ... (more)

hfzeus (Apr. 26, 2013 @ 9:16a) |

This was an industrial building in immaculate condition. The owner was a German company. The RE agent said that my off... (more)

hfzeus (Apr. 26, 2013 @ 9:22a) |

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Huh? Is this a multiple offer situation or something? Why would you offer more than asking with a conventional?

I don't understand your logic. I as a seller would assume if you can offer only 5k less than asking via cash then I know you can get a conventional mortgage without a problem. Unless this property is in poor shape and would not pass inspection.

Whether you pay cash or get a mortgage makes no difference to the seller at closing, they get a check either way. The practical difference is in the time it takes for the lender to approve the mortgage. If the seller is desperate for cash now, rather than 30-60 days, then they will like a cash offer better.

Another reason they might like cash is if the market is hot and people are offering over asking with mortgage (this is happening in a lot of areas right now). The seller risks the appraisal might come in low and dragging out the process. So in that case, the seller would prefer cash buyer, or someone who waives mortgage contingency.

Another thought: are you planning on waiving inspection contingency?

Should have done a better job clarifying. The properties in consideration are REO's. In this situation I'm looking to present a strong conventional offer (ie. a little above asking price), but hedge my strong conventional offer with a lower cash offer.

My concern is if I lead with a lower cash offer only, I may loose out to an above asking price conventional offer.

If I lead with only a slightly above asking price conventional offer only, I have no idea if I could have haggled a better deal w/ straight cash.

My thought was maybe I just do both, hedge my bets, and let the bank decide which deal it finds more appealing? In some cases in my area banks find cash easier to move quickly and award at a discount, other times they're already under water and show preference to the higher conventional offer.

Is there any value to this approach, or is this just plain foolish?

**yes, in this case I'd be waiving inspection contingency.

As a seller I would take the extra $10k any day. on a $100k property that is a big difference.

As a seller I would do offer 2 and if it doesn't appraise I would make you pay the difference or no deal. You obviously already told me you have the cash since you sent two offers.

There is no harm in doing it that way, as long as you are 100% happy paying $105k. Assume you will pay $105k and be happy if they take the $95k.

or just ask confidentially (or have agent ask) if they would be open to a lower offer than asking if it was a cash offer for a quick close.

Have your agent feel it out with their agent to see which they would be more receptive to. Banks have different tolerance levels for the all cash discount.

i think either offer would be strong enough for the seller to give you a second chance if someone comes in with a better offer.

Thanks everyone for the great feedback. The numbers I listed are just swag examples and could vary, just trying to work through the logic/concept and wanted to bounce the idea off some others.

The thought is I'd establish my strongest conventional offer I'm willing to extend to win the deal, then work backwards and decide how much discount I'd require off my conventional bid to give up the remaining delta in cash.

How would you guys/gals calculate that discount? Would you use some kind of PV calculation? (Engineer here- accounting skills greatly lacking)

In this hypothetical example w/ $105K purchase, I'd need probably around 26K down. A 100% cash offer at this valuation would require the remaining $79K cash.

Since I'm fairly confident in my ability to make more on my cash than current lending rates, paying $105K in cash if I can get the deal with $105K conventional is a losing proposition for me. My struggle is creating a discount formula.

I roughed out that for every $10K of mortgage I reduce off offering price, I'm savings roughly, $8K in interest over 30 years at current rates. $8K of money in 30 years, less inflation, is worth around $3,200 today. If I'm doing my math right (big if), and the bank accepted my $95K cash offering, I'm giving up $69K of more cash (95K-26K), for a $3,200 savings. Can anybody gut check me on this? Essentially my $69K additional cash investment earned me ~5% for the year IF I'm able to refi my cash out.

Is there a better way (more correct?) to approach this analysis?

FYI- I think the advice to work the agent for insight is excellent. I'm also trying to think one step ahead of if they say sure CASH would entice... the next question is how much discount would I require for my cash...

Only you can say how much discount you'd require... double what you expect S&P to make? I dunno

How long will it take for you to 'replace' that amount of cash?

I recently bought a property for cash. There were two bids higher than mine (20 and 22.5%), but the seller took my offer.

If you want to free up cash after buying the property, you can always get a loan then.

In addition to getting a discount, the closing took about 5 minutes.

hfzeus said:   I recently bought a property for cash. There were two bids higher than mine (20 and 22.5%), but the seller took my offer.

If you want to free up cash after buying the property, you can always get a loan then.

In addition to getting a discount, the closing took about 5 minutes.


and heloc rates are lower...

pillsdoughboy1 said:   hfzeus said:   I recently bought a property for cash. There were two bids higher than mine (20 and 22.5%), but the seller took my offer.

If you want to free up cash after buying the property, you can always get a loan then.

In addition to getting a discount, the closing took about 5 minutes.


and heloc rates are lower...
I thought it's not possible to get a HELOC on an investment property?

llcwannabe said:   Thanks everyone for the great feedback. The numbers I listed are just swag examples and could vary, just trying to work through the logic/concept and wanted to bounce the idea off some others.

The thought is I'd establish my strongest conventional offer I'm willing to extend to win the deal, then work backwards and decide how much discount I'd require off my conventional bid to give up the remaining delta in cash.

How would you guys/gals calculate that discount? Would you use some kind of PV calculation? (Engineer here- accounting skills greatly lacking)

In this hypothetical example w/ $105K purchase, I'd need probably around 26K down. A 100% cash offer at this valuation would require the remaining $79K cash.

Since I'm fairly confident in my ability to make more on my cash than current lending rates, paying $105K in cash if I can get the deal with $105K conventional is a losing proposition for me. My struggle is creating a discount formula.

I roughed out that for every $10K of mortgage I reduce off offering price, I'm savings roughly, $8K in interest over 30 years at current rates. $8K of money in 30 years, less inflation, is worth around $3,200 today. If I'm doing my math right (big if), and the bank accepted my $95K cash offering, I'm giving up $69K of more cash (95K-26K), for a $3,200 savings. Can anybody gut check me on this? Essentially my $69K additional cash investment earned me ~5% for the year IF I'm able to refi my cash out.

Is there a better way (more correct?) to approach this analysis?


Why do I get the feeling that you are unrepresented here? You can bet your ass with an REO that the commission is prenegotiated with the listing agent, so you might as well let them pay someone to help you answer these questions.

I would think cash offers get a relatively small consideration from REO seller. They're the slowest part of every transaction. Anyway, I think the real value with a cash offer is eliminating the risk of financing problems. It's not unusual for an entire transaction to be spoiled, either from appraisal or approval of the borrower. That can be devastating to a conventional seller. For a bank with a portfolio of dozens or hundreds of properties to sell, probably not quite as big a deal.

I also think most conventional sellers will undervalue a cash offer, at least until their first experience with an accepted offer falling through due to buyer financing issues.

I would think that if the first offer in on a REO was for full list, it would be accepted and the property would be off the market.
If it's not the first, or if other offers come in before they accept, then it would go to Best and Highest (everybody with an offer on the table gets invited to make their final offer for top dollar).

The most important thing is to either
1. Give them what they want and get the property off the market before anybody else puts in an offer.
or
2. Be ready to beat everybody else in a bidding war.
In situation 2, I'd bet a cash offer would beat an equal financed offer. I'm not confident it would beat a financed offer for 1% more.

Make a offer of $95k with a contingency statement that in the event you cannot obtain a mortgage for XXX, you plan to purchase the home outright with cash. Attach a bank statement showing the cash amount (and no more so they don't try and get you to cough up more cash) in your offer. That's all you need to do. You're over thinking it. You simply want to demonstrate to the seller you have solid financials. Why would you want to pay more? If anything, getting that mortgage is going to cost you money for such a low amount but I understand if you don't want to tie up $100k in a house.

Just had a situation where I bid on a property not with cash but with an acquisition loan (as is) and another buyer bid with cash. I bid more but the seller took cash.

ninetwosix said:   Just had a situation where I bid on a property not with cash but with an acquisition loan (as is) and another buyer bid with cash. I bid more but the seller took cash.

Any insight on how much lower the cash offer was they accepted?

llcwannabe said:   
Property Listed: 100K

Offer 1: CASH - 95K

Offer 2: Conventional - 105K

Don't submit two offers. Submit one for $95k, and have a couple buddies each submit offers for ~$85k...

All answers you get will be anecdotal.

Here's mine: We wish we had submit a cash and conventional offer. Our cash offer on a foreclosure was >$20,000 above the ask, waiving all contingencies, closing in 2 weeks. Bank accepted a conventional offer that was $4,000 higher than ours, with contingencies, that eventually closed with headaches more than 8 weeks later.

Our buyer's agent advised us against submitting a conventional offer alongside our cash offer, since we would be "bidding against ourselves". We thought the bank would value cash. The selling agent thought our offer would be the winning bid. Sucks to be wrong. The only opinion that mattered was the bank's, and the bank wasn't countering --- just picking a bidder to accept.


As a reminder, you can sometimes finance the house after buying, to free up some of the cash you tied up.

Make an offer that does not have a financing contingency, and then get financing.

giftgiver said:   All answers you get will be anecdotal.

Here's mine: We wish we had submit a cash and conventional offer. Our cash offer on a foreclosure was >$20,000 above the ask, waiving all contingencies, closing in 2 weeks. Bank accepted a conventional offer that was $4,000 higher than ours, with contingencies, that eventually closed with headaches more than 8 weeks later.

Our buyer's agent advised us against submitting a conventional offer alongside our cash offer, since we would be "bidding against ourselves". We thought the bank would value cash. The selling agent thought our offer would be the winning bid. Sucks to be wrong. The only opinion that mattered was the bank's, and the bank wasn't countering --- just picking a bidder to accept.


As a reminder, you can sometimes finance the house after buying, to free up some of the cash you tied up.


Maybe the bank was the one doing the financing? That's a win-win for them. They get rid of a house they don't want and they have a loan that will bring them more than the loan amount back.

giftgiver said:   All answers you get will be anecdotal.

Here's mine: We wish we had submit a cash and conventional offer. Our cash offer on a foreclosure was >$20,000 above the ask, waiving all contingencies, closing in 2 weeks. Bank accepted a conventional offer that was $4,000 higher than ours, with contingencies, that eventually closed with headaches more than 8 weeks later.

Our buyer's agent advised us against submitting a conventional offer alongside our cash offer, since we would be "bidding against ourselves". We thought the bank would value cash. The selling agent thought our offer would be the winning bid. Sucks to be wrong. The only opinion that mattered was the bank's, and the bank wasn't countering --- just picking a bidder to accept.


As a reminder, you can sometimes finance the house after buying, to free up some of the cash you tied up.


This is EXACTLY the reason I've been thinking about the two offer scenario. I had a buddy here in Chicago that had something similar happen to him. My current agents aren't big fans either of the multiple offer idea, but they also lack creativity or strategic approach in bidding (hence looking for a new one).

Hindsight question for you... if you were to do it over, and offer both CASH and conventional. Would you have put your conventional offer in at a higher price (not knowing the eventual winner would be 4K higher than your cash offer)? If so, how would you have comeup with the delta between offers?

Bottom line is bank is only interested in bottom line. The money in the end is all that matters, not how it got there. I've witnessed an accepted offer from a higher priced contingent offer ,with financing... Only for them to except even less on second round, from same low bidder, once that accepted offer didn't materialize.

hfzeus said:   I recently bought a property for cash. There were two bids higher than mine (20 and 22.5%), but the seller took my offer.

If you want to free up cash after buying the property, you can always get a loan then.

In addition to getting a discount, the closing took about 5 minutes.


Wow, 22.5% discount for all cash offer? That's not a typo, is it?

This is just my opinion, but you are thinking about this the wrong way.

You need to calculate what the property is worth to you, and just offer that.

As an additional calculation, you can take into account how many interested parties there might be.

hfzeus said:   I recently bought a property for cash. There were two bids higher than mine (20 and 22.5%), but the seller took my offer.

If you want to free up cash after buying the property, you can always get a loan then.

In addition to getting a discount, the closing took about 5 minutes.


What can you tell us about the seller's situation?
Bank-owned, investor owned, resident owned?
Any particular reason they needed a swift and dependable closing?

Does spelling CASH in all capitals makes it somewhere more important?

tolamapS said:   Does spelling CASH in all capitals makes it somewhere more important?

OP is paying in large bills!

tolamapS said:   Does spelling CASH in all capitals makes it somewhere more important?

That is what everyone means when they talk about leveraging capitals, isn't it?

Ha. Have any anecdotes on this tactic?

tolamapS said:   hfzeus said:   I recently bought a property for cash. There were two bids higher than mine (20 and 22.5%), but the seller took my offer.

If you want to free up cash after buying the property, you can always get a loan then.

In addition to getting a discount, the closing took about 5 minutes.


Wow, 22.5% discount for all cash offer? That's not a typo, is it?


Not a typo. The RE agent said I could immediately flip it since there are substantially higher offers by two different buyers.

taxmantoo said:   hfzeus said:   I recently bought a property for cash. There were two bids higher than mine (20 and 22.5%), but the seller took my offer.

If you want to free up cash after buying the property, you can always get a loan then.

In addition to getting a discount, the closing took about 5 minutes.


What can you tell us about the seller's situation?
Bank-owned, investor owned, resident owned?
Any particular reason they needed a swift and dependable closing?


This was an industrial building in immaculate condition. The owner was a German company. The RE agent said that my offer was well under others, but the seller may go for it since it is cash. Sure enough...

When an offer is contingent on financing, it may never happen. Mine was a sure deal and I told them I could do it any time with one week's notice to transfer the money.



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