I have heard many say that if you have the cash for a deal, use it. Then others argue that why use your cash if you can spread them out through other investments and get a loan for the remaining costs of the homes.

 

I am here to explain why cash is better and if you stick around from my ranting, I will tell you a method that combines the two, takes all the pros, and leaves all the cons out. I will make it as  brief as possible yet provide as much information to make it worth while so I wont be wasting your time and you can continue to do what you do best which is MAKE MONEY!

 

Ok let’s get started.   I want to start off telling you the cons if you don’t use cash offers.

1^st : You can loose a deal if you can’t come up with a full cash offer.

 

2^nd : You end up paying more for the deal.

 

3^rd: Your profit margin is cut limited from the interest and/or points from a loan or credit used.

 

Let me break these down for you.

 

Con number 1: You have found an owner who is in the 1^st stages of a foreclosure and needs a solution within 1 week. Yes 1 WEEK. 

 

For those of you who are not familiar with Foreclosures then learn about it… it is a big money earner, but you have to act fast and dot every I and cross every t. There is absolutely no room for procrastinating either. Sorry about the side note there, lets get back on subject.

 

Ok, so they need 1 week to get a solution. It will take at least 3 days minimum to do a proper and throe due diligence on the house, maybe less if you already got your information down before visiting them and everything falls into place.   If you can do it quicker, then let me know, I will be listening.  Then you need to make sure the bank does its own due diligence and be able to create a proposal for the amount of loan needed to cover the house.

 

So you arrive and explain to the owner that you can offer amount A and get them out of their situation, but it may take up to 2 weeks. Bam the deal is off! Ok, so you had everything ready and everything fell into place correctly and you were able to get it within the 1 week, you explained it to them, and then you left.

 

Someone else arrives and explains to the owner that they can offer amount B, which is $10,000 less than what you offered, but they say they have the cash now, can move them out now and get rid of the problem NOW!

 

I can almost guarantee 100% that the owner is going to go with the cash offer rather than wait 1 week through the stress and worry that offer A may fall through. No one that I know of or came across in this type of situation wants to pass up an offer that can end their problems NOW.

 

So there you have it, a way to loose a deal because you didn’t have cash up front.

 

Moving along…

Con number 2: We can use the same example above.   Let’s say that you were able to get the deal and they accepted your offer. You would have paid $10,000 more because they had to wait for you to get the loan. Since the time value of money is not the same today as it will be tomorrow you have to pay more so you can compensate for the time of paying today.

 

In other words a $1 today is worth more than a $1 the next day or the next. You will never know when inflation will cause that $1 to be worth $0.98 or less. This of course is true with anything and everything else you buy… even it if doesn’t seem like it. If you pay cash at a retail store you get it at the asking price. If you pay with a credit card, then you pay the asking price plus interest.

 

Well that was simple enough to explain and I don’t know any other simpler way to explain it.

 

Ok Con number 3: Let’s say that you have $100,000 in the bank and you want to invest it in real estate. You can either invest the full $100,000 in one deal or spread it out. (I will tell you how you can keep the money in the bank and still have $100,000 to invest later on so stick with me a little longer).

 

So you were told by many to use the $100K wisely and spread it out to 5 deals. You have $20K as a down payment on each house that is $100K each and rent it out for $1500. Your loan is 6%. Each home (because of the interest rate) brings about $200 a month.  So you have a total of $1000 a month coming in. Not bad. Now let’s say you just bought a $100K house with cash. You would be able to get that home maybe for $90,000 with a cash offer leaving you with $10K to do as you want with it.

You would also rent it out for the same amount of $1500 and without any interest to worry about you end up earning $500 more than what you had on the non cash offer plus $10K extra.

 

Now some may say that this is not wise since you only have 1 property and if you can’t find a renter then you are left with taxes to pay. However I would say if you can’t find a renter using the other method on just one house then you are left with a payment of $1300 plus taxes on that one house. Think about if you couldn’t find a renter on 2 or 3 houses that you have to pay a bill on. I still think a cash offer is better. 

 

For those who don’t agree I would like to know why so please send a comment.

 

Well now you know that interest kills your profit. In fact if you haven’t figured it out already, you pay more than 80% of interest in the first several years of a loan until it matures and the interest gets depleted.

 

So now you have just 3 ways of why paying cash is king when it comes to Real Estate investing.

 

Now let me tell you the method I use that will allow me to make cash deals WITHOUT using my own money.

 

Here it is: You use other people’s money and give them an incentive as to why they SHOULD hand over their checkbook!

 

We do this all the time within my group and give out 15%, sometimes more,  as an incentive to use their money. When this group of people compares 15% to other tools, like a bank savings account 2 – 4%, a bank CD 3 – 7% or other common investment tools, it looks great to them especially if you can back them up with collateral that is worth more than they lent you!

 

Now, now, I know what you are saying; I was just talking about how the interest kills the profit. Well it does if it is your money. If it is someone else’s then you have an unlimited return. Go ahead do the math. Compute how much profit you can get on a $0 investment even if you earned 1 cent! One word will always come out: Unlimited!

 

So remember Cash is King, use it every time but when you are getting it from someone else. If you have $30k or know of someone who does and they are earning less than 15%, let me know and I will give you the specifics on how you can earn either a 15% return or get real estate that is worth far more than what you will be lending us. Post a comment if interested or email me directly.