What is a Cash Offer?
Why do investors buy houses? One of the most common reasons an investor would be interested in buying real estate is creating a portfolio. A portfolio is simply a bunch of properties that an investor owns all on the same timeline. The investor is then able to get the most returns from the real estate investments that they make. We Buy Houses to build up a portfolio of homes, increasing the amount of return that we can receive on real estate investments.
Some investors buy homes so that they can cash in on the market value quickly. For example, a person may initially purchase a two-bedroom, two-bathtub home for only $200,000 and resell it for nearly double the price six months down the road. However, the investor must first find the real estate that is currently valued at that price. This will take time since the market value of real estate across the country varies from one day to the next. Once the investor has found the property that is currently valued at that price, they need to determine whether or not they want to invest in this particular property.
Other investors look to buy houses so that they can resell them quickly for a profit. For example, some people may sell real estate that they bought for a bargain-basement price and then resold it for a much higher price so that they are able to generate some cash. For these people, the main advantage of buying houses and then selling them quickly is the ability to increase the amount of money that they make by selling real estate for less than the wholesale cost. If an investor can buy houses at wholesale prices and sell them quickly, they can significantly increase their profit margin.
In order to get rid of a house quickly, however, another method is required. This involves obtaining cash offers from prospective buyers and vendors. In some cases, the property owner will allow cash offers to be submitted; however, they rarely offer cash in all cases. Instead, they usually require the person or business involved in buying the house to close a cash option contract.
A cash option contract allows the seller to receive cash payments from a company instead of receiving cash from a cash buyer. For example, if a company owns a parcel of real estate and would like to sell it quickly in order to get rid of the property, they might enter into a cash buyer’s contract. The seller agrees that the company will pay them a sum of money on a monthly basis based upon the current market price for the property. In exchange, the company agrees not to engage in any activity that will cause undue damage to the property or that will result in increased rents or increased utility bills. The seller then holds the deed to the property in trust with the company.
Many investors rely on wholesalers to get their cash buys quickly. However, there are many reasons why the wholesaler would be reluctant to sell the property to an individual investor. First of all, a wholesaler has a limited profit. Instead of making a huge profit on each property, the wholesaler makes much less money from each property. As a result, it makes more sense financially for the wholesaler to hold onto a property for longer periods of time, rather than selling it quickly to an individual investor.
Another reason wholesalers are hesitant to sell real estate to investors is because of the lack of research they do on individual buyers. Investing in real estate requires doing a significant amount of research before the investment is made. Without this research, it is very difficult for an investor to know whether an individual buyer will purchase the property at a loss, what percentage of that loss the investor will cover, and whether or not the individual will be able to afford the property when the mortgage is due. Most wholesalers won’t engage in this research, leaving it up to the buyer to do it themselves. This can be a dangerous way of making a profit from real estate, as the buyer may not know what they are getting into.
A way wholesalers can make their cash offers easier for individual investors is to offer them a cash offer with terms that are much more attractive than those of the standard mortgage offer. For example, many wholesalers offer buyers a two-year term with no prepayment penalty, a 30-year term with a zero interest rate, or a one-year term with a low prepayment penalty and no interest rate. The buyer would make the decision to buy real estate, take out the mortgage, and then either refinance the loan with a brand new lender or lease the property out. By offering investors cash buy options with terms much more attractive than those offered by traditional mortgage lenders, wholesalers help them make more money on the transaction and help investors enjoy more reliable returns on their real estate investments.