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The Power of Financing: Outperforming Cash in Investment Strategies

Updated: Jul 5

The common belief is that purchasing with cash secures better deals, more opportunities, and favorable terms. However, after 20 years in residential real estate investment, I’ve learned that this isn’t necessarily true.


Don’t misunderstand me: cash has its advantages. It provides flexibility, peace of mind, and improves cash flow through return on equity. But it’s not the ultimate solution in investing. In many instances, you can outperform cash offers with financed ones if you understand your leverage and how to structure offers that simulate cash terms.


What Does Cash Mean in Real Estate?

This might seem obvious, but in real estate transactions, cash implies more than just physical money. To me, cash signifies an offer that doesn’t rely on third-party approval for any terms.


Interestingly, many believe hard money qualifies as cash and make offers accordingly. However, hard money lenders often require appraisals or due diligence, especially for new clients. If you submit cash offers with a hard money lender without an appraisal contingency, you might face difficulties. Always know your lender’s requirements.


HELOCs (Home Equity Lines of Credit) are truly cash. Once your HELOC is funded, the bank has no control over how you use the money. It’s amusing—clients often worry about using HELOCs to buy real estate but not for vacations. If you lend someone money, wouldn’t you prefer they invest in an asset with built-in equity rather than spend it on temporary pleasures? If you don’t have a HELOC, get one. It’s the best way to leverage your equity.


Making Financed Offers Competitive with Cash

Cash buyers typically expect discounts due to the speed and lack of appraisal requirements. As a conventional, VA, or FHA buyer, you can offer similar advantages to compete with cash offers.


Why not mention inspections or due diligence? Banks focus on appraisals, not inspections. You can secure almost any Fannie or Freddie loan without an inspection. The appraisal is the bank’s due diligence. You can waive inspections with a conventional loan when appropriate.


Let’s explore two cash offer advantages and how financed offers can match them.


Speed of Closing

How quickly can you close? This requires a reliable lender, not just the cheapest online option. The appraisal process is the biggest delay. By ordering an appraisal immediately upon offer acceptance and potentially paying a rush fee, you can close faster. I’ve closed conventional deals in two weeks; it’s possible.


Appraisal Contingency

Waiving or modifying the appraisal contingency can be challenging, especially without cash or a HELOC. If a property appraises below the contract price, you increase your down payment to cover the difference. For instance, if your contract is $200,000 and the appraisal is $190,000, you pay an extra $10,000.


You might think, “Who pays above appraised value?” Many do, depending on their investment strategy or personal circumstances. An appraisal is an opinion, not the definitive market value. When you buy at the contract price, it sets a new comparable sale, potentially increasing the property’s value.


Modifying appraisal contingencies is complex. Consult a knowledgeable agent and fully understand the process. It can be a powerful tool.


Final Thoughts

Using these strategies may mean paying more than a cash offer, but the benefits of lower holding and closing costs with conventional, VA, or FHA loans outweigh the initial cost.


Try these methods in competitive markets. You might find your financed offers become surprisingly competitive, even without a large cash reserve.


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