30% of home sales are cash! How?
The number of cash home sales is up to an unbelievable 30%. This is just another reason it is tough to compete as a buyer in this housing market. This leaves many buyers wondering, I saved 10%-20% down I thought I was doing great, how are so many people have that much cash? The truth is some of these people have cash, but others are finding alternate ways to finance the property. Here are several forms of cash offers we have seen:
HELOC (Home Equity Line of Credit) money – Many buyers are moving from another home and sitting on a big pile of equity. So, they will pull equity out of their current home to use as cash (or an extremely large down payment) on their new home. We have used this strategy several times to pay cash for investment flip properties.
Buy with Cash and then refinance – Often a parent (or other family member) will have the cash available to purchase a home for one of their kids. The kid (buyer) can use this cash to close on a home, and then go get a mortgage as a refinance, after they close on the home, to pay back their parents.
Cash offer but financed – We have seen someone with significant investments (or even a retirement fund), use this money as proof of funds for a cash offer, but then they go obtain a mortgage and leave their money invested. We’ve also seen parents back a deal for a child using proof of funds from their accounts, but then the buyer obtains a mortgage anyway. You do have to be a little careful with this, if you do not get the mortgage, you are still obligated to buy the property. This could force you to pull out an investment you were not ready to take out, which may have some tax implications.
Private Lenders – In the real estate investment world private lending is quite common. A buyer will use a private lender to obtain a deal that may be hard to finance with traditional financing. Basically, the private lender is giving the buyer a mortgage without going through a bank. We have started to see some of this happening in the consumer market now.
The truth is there is quite a bit of money floating around out there. Many cash sales may look like cash but are really just some alternative forms of financing. If you have some way of putting yourself in the position of a cash buyer, you will be much better off in a competitive situation. Sellers love to see cash offers because there is very little chance the deal will fall through.