What happens when a lot of players have cash? What advantage can we maintain here? Answer: Sometimes there is no obvious advantage and it's just a matter of who came first; who has the best relationship with the "gatekeepers", or perhaps who has the best "proof of funds", and finally, who has the lowest barriers to a closing.
Well, that's all fine and dandy, but once we've got the property, paid all cash, and buried all our equity into one egg (or two), then we're done investing for a while. Unless we can pull our cash back out, we're stuck waiting...and watching those with remaining cash buy up more deals. What to do? This is exactly the question my friend "Joe" [name changed for privacy] asks in the following actual post made in a forum I participated in dated 8/13/2010...
Quote - "Bob" :
"...most of my purchases were all-cash, many which I refinanced later, in order to buy more properties. You might logically think that paying all cash was a big advantage, but it really wasn't at that time. There were so many multiple investors with all cash bidding on the same property (ie.30 offers and 15 being all cash), that "all-cash" just got you in the door but didn't guarantee anything. And in addition, in order to have your offer get serious consideration, you had to waive termite expenses, waive all repairs, buy AS-IS, waive appraisal, etc., etc.Now my friend Bob has to get creative, because all his cash is buried in a couple of deals. Just for giggles, let's imagine that Bob decided not to pay all cash, but do some creative financing at the get-go to make money.
Now I am maxed out and cash poor, looking for loans that are almost impossible to get (keep getting turned down). Before, I was a sheep in wolf's clothing but now I will be forced to get creative to get into any more deals.
Let's say that instead of paying cash, he found a seller who wanted out of his mortgage payment "yesterday" if you will, and Bob offered to take over his payment today, instead of waiting for a conventional buyer. Let's list some criteria for the creative deal...
- the house was in the upper/middle price bracket of $500,000 (not some dump).
- there is less than 10% equity remaining (>$50,000).
- the seller needs out today, not in 30, 60 or 90 days which a conventional sale/escrow would require.
- the payment was fixed for 30 years at 5% with no balloons due. ($2,415/mo)
- the seller gave Joe his title in order to seal the deal and get relief from the debt.
- Joe only gave the original seller $2,000 to move.
- It cost about $200 to close and record the deed and another $300 to clean the house, mow the loan, and treat the pool for a total of $2,500 in overhead costs.
- Joe advertises the house for sale with seller financing.
- He asks for $525,000 with no qualifying, and a small down.
- He finds a buyer with $25,000 for a down payment. This is less than 5% if the purchase price, but several times more than Joe gave to the seller.
- Joe nets $22,500 in cash from the sale today.
- Joe now waits for the buyer to refinance the loan and pay off his remaining equity $50,000.
And who is giving Joe permission to make all this money so easily? Nobody, except Joe.
No banks are telling him "no".
Not even his wife is saying "no" to this deal. Hmmm.
How many deals can Joe do before he runs out of money? If you have an answer, you're the profit prophet of the millennium, because there are not limits --- except Joe's time, energy and desire.
This was called a typical "subject to" transaction.
P.S. If you would like to know how Joe will do this without burying his money in deals, click the following link:
"Make Money With No Credit or Down Payments Today!"
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