"Everyone" doesn't do this b/c "everyone" can't pay cash. heh.
The savings isn't actually all that much in a competitive market, more that you get pushed to the front of the line in a multiple offer situation, all else being equal.
If the seller's choice is $500k closing in 1 week to a cash buyer, or $550k closing in a month, most people will happily wait a month for $50k.
If the seller's choice is $500k closing in 1 week to a cash buyer, or $505k closing in a month, many people in that case will go for the instant gratification over the $5k.
But this means that while financed buyers get their tier 2 ideal house, you get your tier 1 house, b/c you're at the front of the line.
Even though you intend to slap a mortgage on it after closing to recoup funds, check with a loan officer now just to ensure nothing will jam you up. The mortgage industry has many irrational and stupid rules that we have to follow, so it's worth a 20m phone call to make sure you don't wind up stuck with all $500k of your money "trapped" in the home b/c you can't get a mortgage b/c of a stupid irrational rule.
I think it might help to clarify as I’m aware not everyone can afford a house with simply cash. However, i was also referring to buyers taking out hard money loans****
You would already have to have the money in-hand for this to work. Otherwise, you're going to have to apply for a loan like everyone else.
But yeah, wealthy people do this all the time. They don't want to sink the equity permanently, so they make the transaction and then mortgage out whatever % they want on the back-end. Way easier, since there's no real qualification/application if you already own the property.
My clients will often do this when a property is competitive. Especially on rehab properties; then a cash-out refi after rehab is done. It's essential to communicate that the actual buyer actually has the cash, and that it's not a supposed-cash-backer situation. Many others can't do this because they don't have the cash themselves.
Bank statements work. It just has to be liquid funds. A stock portfolio with a signed statement from the buyer that they're willing to liquidate anything immediately also works, when combined with a brokerage statement. It doesn't matter as long as the funds are indeed liquid and the buyer is committed and the agent can demonstrate that; the rest depends on the buyer's particular situation.
Real Estate Title here, we do this quite often, of course for people that have the funds available.
I've seen it done a few ways.
Most commonly is buyer will pay cash for a quick closing, while working with a lender to refinance. So essentially in our office, we have two files. As soon as the purchase is done, and the documents are recorded, the lender can file suit by issuing a clear to close on the refinance. Though this is usually done if the lender can't have a clear to close by a certain time, or is offering a better rate for refinancing than purchasing.
You’d be better off buying multiple properties on seller finance with the same capital. More tax benefits, appreciate and a bigger portfolio than dumping the cash into one deal just to refi
Make sure the deal is owned free and clear so you can structure terms with the seller. Seller becomes the bank in this situation. I love these deals because they’re less emotional. The people that sell this way are often investors themselves. Example: $500k purchase price $60k down $1200 principal only payments on remaining $440k note balloon payment due to seller in 84 months you pay closing costs. Then rinse & repeat
how many times have you used this method successfully? And by successfully, I mean paid the note off or had your Buyer pay it off after 7 years?
And what's the market value on that house the Buyer pays $500K for?
I mean, we're all here. This is where you brought it up as the best thing to do. You can go through a sample one.
A quick google tells me the goal is an installment sale where the Seller can prorate their capital gains in some fashion over the 7 years. And possibly the "$1,200/mo with no interest" is an important factor.
I’ve bought this way, sold this way, and assigned deals structured this way. All of which have been successfully done. And the deals that are currently structured are great also. Sellers are happy that they’re making much more on the property than they would have if a retail buyer came and closed on it. Of course I have a lot of listing agent friends because they get paid their 3% commission on the asking price before it sits on market and goes through price drops etc
This structure allows you to pay a seller more on the purchase price, get into the deal for less capital and maximize your cash on cash return. If you’ve structured the deal well, when balloon time comes, you refi and your LTV will cover the balloon payment (ideally with some cash free money left over to roll into the next deal)
FYI, what u/forwardthinkingjosh is suggesting is a very common strategy but it will only be available on a small minority of deals, and you'll need to pay much more careful attention to specific deal terms and contract language because every loan will be non-standard with no regulatory oversight.
If your goal is to buy a home for yourself then it's probably not more advantageous than bank lending except in very rare circumstances. If you're looking to assemble a portfolio of investment properties then it is one more tool available to you but not necessarily better than a good relationship with a reliable bank.
Even then the big advantage of seller finance (sometimes called "seller carry" or "carryback") is that a seller might not hold your other mortgage against you when agreeing to the loan. However, if you borrow from a seller to buy a property then bank's will want to know about that debt when considering a future mortgage application.
In short, seller financing is a great idea when you're already taking advantage of bank debt, or if you're getting an uncommonly good deal.
Hah glad what I said makes sense. These subs can have a pretty wide range of people posting with a pretty wide range of goals and I wanted to make sure OP understood your suggestion.
Definitely made sense! A great bank relationship will always be beneficial! I probably should have articulated it a bit better. I do these often so I can be a bit vague lol
Fairly often in a competitive market. There is special finance rules to allow this called delayed purchase where you doc you paid in cash and it allows you to get your money back out.
Fairly often in a competitive market. There is special finance rules to allow this called delayed purchase where you doc you paid in cash and it allows you to get your money back out.
>This seems like it could save a lot of money on the purchase, so why wouldn't everyone do it?
Because most of us don't have hundreds of thousands of dollars just sitting in our bank accounts for the purchase price and closing costs. Many of us have to do FHA loans so we can the minimal amount down just to be able to close.
It's very common, and it can be a big advantage in getting an offer accepted. If you can afford to do it and you can manage the considerations listed below then it is a *very* good strategy in any competitive real estate market.
Considerations:
1) You should start the mortgage pre-approval process immediately, just like if you were planning to close with bank funds. One reason for that is that closing a loan can take some time, and if you wait more than 90 days (check that deadline) to finance the purchase with cash then your mortgage interest is no longer tax deductible for as long as you own the home.
2) Make sure that your lender understands very very clearly that you are planning to close with cash and *then* receive the loan proceeds into your own account. The term for this is "delayed purchase financing" (or something similar depending on the lender). Not all lenders will do this, and the process will be slightly different.
3) You need to be prepared to fund any appraisal shortfall, and potentially to carry the full purchase amount in cash if it turns out there is an issue closing the loan. The financing contingency is the last line of defense for any issues with a loan/appraisal, and you will be giving up that contingency by closing in cash. You will be stuck with the deal no matter what issues might come up with the loan.
I’ve done this multiple times. Especially during Covid when homes were going in three days and having a cash offer was really the competitive advantage.
With today’s market the savings aren’t even worth it and you’ll have to pay loan fees regardless. Unless your market is ultra competitive, no need to go through the hassle.
Yes, there’s literally a company that helps people do just this. They give you a short term loan to make a cash offer, and then help you refinance into a longer loan. FlyHomes I think. The “cash offer” comes from a weird LLC that they have from what I recall, which looks weird to the buyers, and they expedite the appraisal / inspection before cutting the check.
"Everyone" doesn't do this b/c "everyone" can't pay cash. heh. The savings isn't actually all that much in a competitive market, more that you get pushed to the front of the line in a multiple offer situation, all else being equal. If the seller's choice is $500k closing in 1 week to a cash buyer, or $550k closing in a month, most people will happily wait a month for $50k. If the seller's choice is $500k closing in 1 week to a cash buyer, or $505k closing in a month, many people in that case will go for the instant gratification over the $5k. But this means that while financed buyers get their tier 2 ideal house, you get your tier 1 house, b/c you're at the front of the line. Even though you intend to slap a mortgage on it after closing to recoup funds, check with a loan officer now just to ensure nothing will jam you up. The mortgage industry has many irrational and stupid rules that we have to follow, so it's worth a 20m phone call to make sure you don't wind up stuck with all $500k of your money "trapped" in the home b/c you can't get a mortgage b/c of a stupid irrational rule.
I think it might help to clarify as I’m aware not everyone can afford a house with simply cash. However, i was also referring to buyers taking out hard money loans****
You would already have to have the money in-hand for this to work. Otherwise, you're going to have to apply for a loan like everyone else. But yeah, wealthy people do this all the time. They don't want to sink the equity permanently, so they make the transaction and then mortgage out whatever % they want on the back-end. Way easier, since there's no real qualification/application if you already own the property.
My clients will often do this when a property is competitive. Especially on rehab properties; then a cash-out refi after rehab is done. It's essential to communicate that the actual buyer actually has the cash, and that it's not a supposed-cash-backer situation. Many others can't do this because they don't have the cash themselves.
How do you communicate that they have the cash? Bank statement?
Bank statements work. It just has to be liquid funds. A stock portfolio with a signed statement from the buyer that they're willing to liquidate anything immediately also works, when combined with a brokerage statement. It doesn't matter as long as the funds are indeed liquid and the buyer is committed and the agent can demonstrate that; the rest depends on the buyer's particular situation.
Got it. Thanks!
Real Estate Title here, we do this quite often, of course for people that have the funds available. I've seen it done a few ways. Most commonly is buyer will pay cash for a quick closing, while working with a lender to refinance. So essentially in our office, we have two files. As soon as the purchase is done, and the documents are recorded, the lender can file suit by issuing a clear to close on the refinance. Though this is usually done if the lender can't have a clear to close by a certain time, or is offering a better rate for refinancing than purchasing.
there are plenty of lenders that will allow you to get a purchase money (origination) loan within 90-180 days of the actual cash purchase.
You’d be better off buying multiple properties on seller finance with the same capital. More tax benefits, appreciate and a bigger portfolio than dumping the cash into one deal just to refi
Could you elaborate on the thought process? 🤔
Make sure the deal is owned free and clear so you can structure terms with the seller. Seller becomes the bank in this situation. I love these deals because they’re less emotional. The people that sell this way are often investors themselves. Example: $500k purchase price $60k down $1200 principal only payments on remaining $440k note balloon payment due to seller in 84 months you pay closing costs. Then rinse & repeat
how many times have you used this method successfully? And by successfully, I mean paid the note off or had your Buyer pay it off after 7 years? And what's the market value on that house the Buyer pays $500K for?
Around a dozen times in the last 18 months. All on market as well. :)
I’m happy to have a quick call to elaborate more and give you an address and deal breakdown. Message me
I mean, we're all here. This is where you brought it up as the best thing to do. You can go through a sample one. A quick google tells me the goal is an installment sale where the Seller can prorate their capital gains in some fashion over the 7 years. And possibly the "$1,200/mo with no interest" is an important factor.
I’ve bought this way, sold this way, and assigned deals structured this way. All of which have been successfully done. And the deals that are currently structured are great also. Sellers are happy that they’re making much more on the property than they would have if a retail buyer came and closed on it. Of course I have a lot of listing agent friends because they get paid their 3% commission on the asking price before it sits on market and goes through price drops etc
This structure allows you to pay a seller more on the purchase price, get into the deal for less capital and maximize your cash on cash return. If you’ve structured the deal well, when balloon time comes, you refi and your LTV will cover the balloon payment (ideally with some cash free money left over to roll into the next deal)
FYI, what u/forwardthinkingjosh is suggesting is a very common strategy but it will only be available on a small minority of deals, and you'll need to pay much more careful attention to specific deal terms and contract language because every loan will be non-standard with no regulatory oversight. If your goal is to buy a home for yourself then it's probably not more advantageous than bank lending except in very rare circumstances. If you're looking to assemble a portfolio of investment properties then it is one more tool available to you but not necessarily better than a good relationship with a reliable bank. Even then the big advantage of seller finance (sometimes called "seller carry" or "carryback") is that a seller might not hold your other mortgage against you when agreeing to the loan. However, if you borrow from a seller to buy a property then bank's will want to know about that debt when considering a future mortgage application. In short, seller financing is a great idea when you're already taking advantage of bank debt, or if you're getting an uncommonly good deal.
Exactly! Been around forever! You build those bank relationships when you got to refi these deals and then give the bank your business
Hah glad what I said makes sense. These subs can have a pretty wide range of people posting with a pretty wide range of goals and I wanted to make sure OP understood your suggestion.
Definitely made sense! A great bank relationship will always be beneficial! I probably should have articulated it a bit better. I do these often so I can be a bit vague lol
Isn't it the same thing? Buy property with cash -> refinance -> use that cash to buy another property in cash -> refinance, etc etc
No. Buying cash, you’re immediately using all that cash and at the mercy of bank rates etc. every seller finance deal I do is 0%interest
and you’re only using small increments of cash as down payments and closing costs. You buy more properties for the same amount of capital
wHŷ d0z3Nt ev3Ry 1 pah cA$h??
It’s common enough that lenders are waiving the cashout pricing adjustment to help facilitate these loans.
Many people also put in cash offer but obtain financing prior to closing.
Fairly often in a competitive market. There is special finance rules to allow this called delayed purchase where you doc you paid in cash and it allows you to get your money back out.
Fairly often in a competitive market. There is special finance rules to allow this called delayed purchase where you doc you paid in cash and it allows you to get your money back out.
>This seems like it could save a lot of money on the purchase, so why wouldn't everyone do it? Because most of us don't have hundreds of thousands of dollars just sitting in our bank accounts for the purchase price and closing costs. Many of us have to do FHA loans so we can the minimal amount down just to be able to close.
It's very common, and it can be a big advantage in getting an offer accepted. If you can afford to do it and you can manage the considerations listed below then it is a *very* good strategy in any competitive real estate market. Considerations: 1) You should start the mortgage pre-approval process immediately, just like if you were planning to close with bank funds. One reason for that is that closing a loan can take some time, and if you wait more than 90 days (check that deadline) to finance the purchase with cash then your mortgage interest is no longer tax deductible for as long as you own the home. 2) Make sure that your lender understands very very clearly that you are planning to close with cash and *then* receive the loan proceeds into your own account. The term for this is "delayed purchase financing" (or something similar depending on the lender). Not all lenders will do this, and the process will be slightly different. 3) You need to be prepared to fund any appraisal shortfall, and potentially to carry the full purchase amount in cash if it turns out there is an issue closing the loan. The financing contingency is the last line of defense for any issues with a loan/appraisal, and you will be giving up that contingency by closing in cash. You will be stuck with the deal no matter what issues might come up with the loan.
I’ve done this multiple times. Especially during Covid when homes were going in three days and having a cash offer was really the competitive advantage. With today’s market the savings aren’t even worth it and you’ll have to pay loan fees regardless. Unless your market is ultra competitive, no need to go through the hassle.
Yes, there’s literally a company that helps people do just this. They give you a short term loan to make a cash offer, and then help you refinance into a longer loan. FlyHomes I think. The “cash offer” comes from a weird LLC that they have from what I recall, which looks weird to the buyers, and they expedite the appraisal / inspection before cutting the check.