I’ve got sufficient cash available that I can make an all-cash offer on a 2-family rental unit. To negotiate the best deal, I want to hold out the quick close and all cash offer; however, once I own it for cash, I’ll want to go back to the bank and throw a mortgage loan on it so I can free up my cash for other deals, and get a better effective rate-of-return on the invested capital…
Another reasons why this would be a bad idea?
Any non-obvious things I should be doing on my own that a bank would normally do were I buying with a mortgage closing? (Other than inspection, appraisal and title insurance)
Posted by GL(ON) on February 22, 2002 at 10:05:56:
All cash doesn’t have to mean YOUR cash. While you are negotiating, find out how big a mortgage you can get. That fat bundle of cash will look real good on your financial statement by the way.
If you can get 80% mortgage then you only have to worry about 20% cash. Use that as a bargaining point. See if the seller will take back a second, if not, you will have to pay 20% of the cost out of your pocket, but if you do it’s an ALL CASH deal to the seller and you should get a discount, or some concessions.
Hoard your cash. It looks good on your financial statement for a reason, there are times when a few thousand dollars worth of cash are better than any amount of good credit and you will wish you had financed more and held onto the cash.
Re: Cash first, finance later - Posted by Utah Investor
Posted by Utah Investor on February 21, 2002 at 22:37:39:
May I offer some food for thought?
Why use all that cash to do the deal? How much of a discount are they willing to drop for this “all cash” deal?
Wouldn’t it be a better deal to find many properties using those funds, flipping them for higher profits, and then doing many deals or bigger deals with those profits?
What would be your take on hoarding some cash (sure it looks good on statements) versus taking that cash and paying it on your credit line (assuming an outstanding balance)? It’s still immediately available for use, and you aren’t paying interest in the meanwhile.
Do you think it would be better to hoard some, pay the credit line, or a combination of both?
Just curious as to your perspective/insight/opinion. I’ve been mulling this over of late.
How do the VTB’s work when applying for new financing? The way that my broker has explained it to me, she needs to see my 25% down in my financial statement to get a mortgage. If I show a VTB, it is seen as part of the financing & i still have to come up with 25%.
I’m still sorting through all this creative financing!
Posted by GL(ON) on February 26, 2002 at 07:35:46:
Pay off credit line (and credit cards) definitely. It looks good to the bankers if you clear them off once in a while. And it can save you a lot of interest charges because they charge interest based on the highest amount owed until you pay it off completely.