The average person makes an offer on a house and then takes out a 30-year mortgage to pay for it over time. However, real estate investors are not your average home buyer. Going all-cash has a lot of advantages for investors. Here's what you need to know about cash home buyers.
1. Save money on interest and fees
When you buy a home with cash, you don't have to worry about taking out a mortgage, which comes with a lot of fees. If you chose to get a mortgage, you would have to pay an application fee and loan origination fee. Plus, you would have to pay for the appraisal, credit report, and even for 'points' to reduce your interest rate on the loan.
Additionally, cash home buyers do not have to worry about the fluctuating interest rates offered by banks. They do not pay interest. They pay cash.
2. Negotiating power
Home buying is cyclical but has recently favored cash buyers more than ever. With fierce competition, sellers favor the highest offer and those offering to pay in cash. The current market has seen many multiple-offer situations, meaning the sellers get more than one offer to buy their home simultaneously. When this happens, they evaluate each offer with their real estate agent. Cash offers give sellers more peace of mind because they do not have to worry about the financing falling through at the last minute.
3. Close faster
They say, "Time is money," and cash buyers know how true that statement is. As an investor, the faster you can close on a house, the better. Mortgage underwriting takes time, but cash buyers are ready to go now. In fact, if the seller has pulled pre-title, meaning they prepped their title work ahead of time, a cash buyer can close within days, not weeks or months.
4. Cash flow
As a real estate investor, your end goal is either to 'fix and flip' (sell) or to 'buy and hold' (rent). If you intend to use the property as a long-term or short-term rental, cash flow is important to you. With a mortgage, you have to deduct 'holding costs' from your cash flow. In other words, you have to deduct your monthly mortgage payment from your profits. If you are a cash buyer, all that money is added to your monthly cash flow and can easily fund your next project.
Buying a home with cash can be a great way for real estate investors to save money and close faster. Cash buyers have an advantage when it comes to negotiating power since sellers are more likely to favor their offers over those who need financing. Ultimately, whether or not you choose to buy your next house with cash depends on your individual financial situation and goals. However, understanding the benefits of going all-cash may help you decide which option is best for you.
For more info about cash home buyers, contact a local professional.