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When Is Cash Better Than Financing?

May 25, 2011 by Marco Santarelli

Using all cash to purchase investment property may be better than financing in two particular situations.

The first situation is a short-term deal, that is, you intend to sell the property shortly after you buy it (known as “flipping”). When you have the cash to close quickly, you can generally get a larger discount on the price of a property. In this case, financing could delay the transaction long enough to lose an opportunity.

You’ve heard the expression, “money talks, BS walks.” This is particularly true when making an offer to purchase a property through a real estate agent. The real estate agent is more likely to recommend to their client a purchase offer that is not contingent on the investor obtaining bank financing.

The second case is one where you use your retirement account. You can use the cash in your IRA or SEP to purchase real estate, and the income from the property is tax-deferred. In order to do this, you need an aggressive self-directed IRA custodian (oddly enough, most IRA custodians view real estate as “risky” and the stock market as “safe”). Two such custodians are Equity Trust and Entrust Administration.

Understanding a Cash Offer versus Paying All Cash

If you make a “cash offer” on a property, it does not necessarily mean you are using all of your own cash. It means the seller is receiving all cash, as opposed to the seller financing some part of the purchase price. Thus, you can borrow 100% of the purchase price from a lender and it will still be considered a “cash offer” if the seller gets all of his price at closing.

Filed Under: Financing, Real Estate Investing Tagged With: Financing, Real Estate Investing

About Marco Santarelli

Marco Santarelli is an investor, author, Inc. 5000 entrepreneur, and the founder of Norada Real Estate Investments – a nationwide provider of turnkey cash-flow investment property.  His mission is to help 1 million people create wealth and passive income and put them on the path to financial freedom with real estate.  He’s also the host of the top-rated podcast – Passive Real Estate Investing.

Comments

  1. Hasu Patel says

    May 26, 2011 at 11:20 am

    I have some cash to invest in a property.

  2. Marco Santarelli says

    May 26, 2011 at 11:25 am

    Hasu – feel free to email us directly, or call us toll free at (800) 611-3060.

  3. Ron Harris says

    May 26, 2011 at 2:44 pm

    Hasu, don’t forget about us, too! Are you using your cash to buy properties to flip/hold or are you lending it out to expireneced real estate investors?

  4. Ron Harris says

    May 26, 2011 at 2:47 pm

    I agree with Marco, having cash to buy properties is KING! Easier to get deals accepted. Waiting for a bank is not good, I tried this on a shortsale and they took too long and couldn’t fund fast enough. Almost lost that deal (and it was a profitable one). Using other peoples IRA’s and cash is a good way to get a good return that is secured by the real estate bought at good discounts.

  5. Ryan Walls says

    May 27, 2011 at 4:23 am

    We do the same thing. We use private money to fund the majority of our real estate deals.

  6. Michael Ian says

    May 30, 2011 at 12:04 pm

    I agree as well, in my business we actively market to cash buyers. We view them as the highest form of a real estate buyer. If you understand that you will be investing you cash, rather it be in real estate or in the market, it depends on the tax implications and your roi. I personally always like to use other peoples money, I only use my own cash when is absolutely necessary…

  7. Margot Olcay says

    May 31, 2011 at 12:08 pm

    Great post Marco, cash investments are always a wise choice.

  8. Thomas says

    July 17, 2014 at 3:17 pm

    My name is Thomas and if I could, all my real estate investments would be cash, but I’m rebuilding my credit and the way I’m doing it will boost my rating to the top.

  9. Marco Santarelli says

    July 17, 2014 at 3:24 pm

    Thomas – what are you doing to “boost” your credit rating?

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