Maximizing Short Sale Profit With Cash Buyers Only!

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  • March 25, 2010

Cash BuyersPsst…hey you…yeah you! I have a secret to tell you. Listen up… cash buyers are king! So I bet you’re going to tell me you already knew that. Well if you already knew it, tell me why your chasing down retail buyers.

Don’t fall for the malaise that affects too many Realtors. Here’s your takeaway. If you are working short sales, then you need to be developing a list of cash buyers. I can hear the clamor already. A lot of Realtors don’t want to work with ANY buyers, much less a real estate investor.

However, maybe the times they are a changing and more and more agents are realizing just how much they need us. When deal after deal falls through. When retail buyer after retail buyer gets tired of waiting…who is still going to be there waiting to close? Yep…the cash buyer.

It’s a funny thing, anyone that can fog a mirror can sign a contract to buy a short sale. But not anybody can close. What happens when the refrigerator and stove are gone or if the disgruntled homeowner pours concrete down the toilet? Who is going to be able to close on the home?

Not your retail buyer who needs a mortgage. Nope, you’re going to need a cash buyer to walk in and take this property down. However, it’s like we’re vinegar and oil. Most agents hate working with investors. They think we’re schemers and low ball offer submitters.

While there may indeed be some of that ilk out there, you’ll be able to spot the difference…if you try. You see what you are getting as an offer, that you are referring to as a “low-ball offer” is an offer on a commodity that someone is looking to profit upon.

I have wrote too many articles about the dreamland of pricing that many are dazing in. This article isn’t about that.

No, I’m just trying to let you know that if you are not courting cash buyers, you are destined to losing more than you win in short sales. You’re also leaving a TON of money on the table but that’s for an upcoming article as well.

USA Today recently ran with an article talking about the boom of cash buyers and what they mean to the market. The article spoke of the volume of transactions that cash buyers are closing and stated that the NAR did a survey of its members to obtain the data on the prevalence of cash buyers.

The share of home sales involving all-cash transactions was 26% in January, up from 18% a year earlier, according to the National Association of Realtors. All-cash purchases also reflect a growing number of investors buying higher-end properties without credit, says NAR spokesman Walter Molony.

Sorry to tell you but that number is really wrong. It’s a LOT higher than 26%. Let me tell you why. If the numbers were derived from a survey of NAR members, then they are only accounting for those transactions involving Realtors.

When you take into account the number of transactions that do NOT involve a Realtor then you can easily see how this number needs to be adjusted much higher.

Many of the homes that we buy and sell don’t involve a Realtor. We were recently involved in a transaction wherein a property was bought and sold 3 times in 60 days without a Realtor being involved in any of the transactions.

Down here in Florida, there are properties being bought and sold 3 times per week by the dozen at Courthouse auctions. I personally have bought and sold numerous properties that I purchased at auction. Many never have involved a Realtor.

And each of the above referenced purchases and sales were closed as a cash only transaction. I personally know a whale of a buyer here in Fort Lauderdale and he himself has bought over 150 homes in the last 6 months…all cash!

So although the USA Today article was right about cash buyers surging into the market, the number of transactions that we are involve din is a lot higher than 26%.

But you want to know something funny. Even though Realtors know we are cash buyers. Even though they know my buddy who bought all those homes is a cash buyer, seldom do Realtors run deals by us.

It’s not like we don’t try. We call and make offers on 100 properties per week and hear back from maybe 5 agents. The rest never even return emails or phone calls. In fact one offer we got accepted this week, was faxed to us on an offer we made 3 weeks ago and the offer was signed by the Seller on March 1 and the agent just got around to letting us know it was accepted.

Cash buyers are flooding to the market but most agents are chasing ghosts hoping to please the elusive retail buyer not realizing the wealth of opportunity that they are missing.

“Flippers, rehabbers, investors … are, in fact, buying,” says Lisa Johnson, with Coldwell Banker Residential Brokerage in Haverhill, Mass. “I’m getting builders who have stopped building and are instead buying up condos and single-family homes to fix them up and sell them. It’s a neat change I haven’t seen in four years.”

The reason we are all buying is very simple. We can measure the ROI. It’s really that simple. It always cracks me up when I do get Realtors on the phone and they start telling me about the pretty bay windows and the lovely countertops. We don’t care!

Do you know how much more money you could make if you cam armed with real financial data?

Evan Spinrod of San Francisco bought three rental properties in November and February and now owns 21 in four states. The rent he collects gives him an 8.5% annual return on his investment. Some of his homes are worth about $165,000. “I’m still looking,” Spinrod says. “You can’t build these houses for the prices they’re selling them. I’ve always seen that the real wealth was in real estate. People have been sitting on cash, and there’s no interest from the bank (to pay).”

Leonard Baron, a real estate professor at San Diego State University, has bought three homes with cash in the San Diego area in the past eight months, ranging in price from $100,000 to $130,000. He rents the properties.

Baron says now is an ideal time to make such purchases. “It’s because prices have dropped so much and rents really haven’t,” he says. “The deals were unbelievable.”

Do you think these guys care about the lovely doorknobs or the berber carpeting? No…tell me how much money I’m going to make. That’s what I want to know and that’s what cash buyers want to know.

Know your financial data and whatever you do..don’t even try to pull the wool over our eyes. This is our business. this is how we make money. We know the numbers inside and out. Do you?

Do you know what the Section 8 rental amount is on the subject property? Do you know what repairs the home needs and what it is going to cost? Have other repairs been permitted? Does the HOA preclude immediate renting of the property? What will the taxes be adjusted to when I buy the property? Can I get another bedroom or bath into the home?

Can you answer these questions if I asked? This is what a cash buyer wants to know. If you can work with a buyer who looks at the property solely for the commodity that it is, then you are a candidate to work with a cash buyer.

Here’s one last hint. You can pretty much know what kind of an offer a cash buyer will be submitting. Let’s say I want to earn a 12% return on a property that I want to hold as a rental and it is going to take $15,000.00 of repairs to get it into suitable condition to rent, what is likely to be my target range for purchase?

As an agent, you could present me with a proposal that I could look at very quickly as you should have the information to fill in the blanks in the equation based upon the information I have provided above.

So when dealing with a cash buyer, you now are armed with a great deal of information to BEGIN negotiations on a subject property. So are you going to start looking at dealing with more cash buyers?

p.s. if you would like to know what variables you need to fill in to complete the pricing on the scenario shown…then leave a comment below.

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About Barry Cunningham

Remember us? was one of the co-hosts of the long-running, truly goundbreaking, and arguably the #1 online radio show about real estate investing. Real Estate Radio USA was on the air 5 times per week before podcasting became cool. But now, we're back as a full multi-media operation and we're aggressively buying houses again! We're back baby!

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