The pros and cons of becoming a cash buyer
May 23, 2017
We are working towards being able to buy houses outright with cash either to do up and sell on, or to rent out and remortgage later.
Other than the obvious benefits of potentially getting better deals by being a safer bet for the buyer and not having to deal with things like bridging interest rates can you offer any guidance on the pros and cons of using this method?
I presume the conveyancing process is a little easier and conversely I guess you may miss other opportunities while your cash is tied up, but any other insights would be much appreciated.
This aligns closely to what I teach on my workshops. Cash buyer status is considered by many to be property investor nirvana and gives you multiple advantages.
- Speed: you can complete purchases in a matter of days. If that is important to a vendor, this will blow away competing mortgage-dependent buyers.
- Bigger Profits: being a cash buyer means you can leverage your status to buy cheaper. My Dad’s stock phrase for almost everything he was in the market to buy was "how much for cash?" Paying less when you can pay cash is a universal concept that transcends just buying property. You should fully leverage your status to drive down the price you buy at.
- Borrowing costs: zero obviously and that boosts bottom line profit.
- Agent credibility: agents love an investor who can 'walk the talk'. When agents see you are the real deal and you complete quickly, they will pass you more deals. You become more valuable as someone who can increase their turnover or ensure their completion targets are hit. They like you even more if you intend to sell on some properties and give them back to the agent you bought from to sell again.
- Unmortgageable properties: being a cash buyer opens up the ability to buy properties whose condition automatically rules out any mortgage-dependent competing buyer. On my workshop I identify 16 variables of unmortgageable property. These tend to make bigger profits for two reasons 1) reduced buyer competition 2) vendors will often be conditioned to accept below asking price offers as they are already resigned to cash buyers (the only people they can sell to) knocking them down on price.
Even the disadvantage of tying up your cash is not really a disadvantage. You can apply for the full range of BTL mortgages once you have owned the property for 6 months. Your cash is not really tied up for that long. If all of your cash is sitting in properties at any point and a real corker of a deal comes up that is too good to let slip by, you can still put any of your unencumbered properties up as security and buy that corker using bridging finance. You will incur some borrowing costs, but if the deal is good enough you would still make a good profit.
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