Author Topic: Creative financing? Cash advance to make an all cash offer?  (Read 3364 times)

Kevin

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My wife and I are looking to purchase a starter home in a very specific downtown neighborhood that see's high competition for anything under $250k.

Through a neighbor, we heard of a house that will be coming on the market in the next ~3 months. The current owner was recently placed into a retirement center and the son is going through the process of clearing out the house.

We managed to get a hold of the son and he agreed to show us the house last week. He was stern that he was not ready to accept any offers UNLESS we could make an all cash offer.

A little background on our financial health:
  • both have excellent credit (767 TransUnion/Equifax)
  • $110k cash
  • ZERO debt except for cost of living CC bills (paid in full each month)
  • ~$200K in 401k/IRA/retirement accounts
  • $140k/year salary (combined)
  • both very late 20's
  • no children

We feel that an offer of around $180k cash would be enough to purchase the house, which is about $70k short of what we have. Does anyone know of any creative ways to get a short term cash loan of around $70k? After closing, we would immediately refinance the house and take out a mortgage, repaying the debt as well as pulling out some of the cash for our safety net.

We plan on talking with local banks this week but wanted to see if anyone had other ideas.

Thanks for reading!

Kevin

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #1 on: July 05, 2015, 06:36:36 PM »
I should also mention, if we made an all cash offer this house wouldn't go to market (MLS), which means we wouldn't have to compete against other buyers.

To give you a taste of the market we're in, earlier this year we put in an offer and got outbid by $25k. There were 8 total offers, 7 over asking!

Telecaster

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #2 on: July 05, 2015, 07:16:50 PM »
Perhaps a bit of renegotiation is appropriate?

The advantage (to the seller) of an all cash offer is that there is no chance the deal falls through due to lender contingencies.   In this case, I'm assuming the guy just doesn't want to deal with the hassle. 

So it seems there might be a  solution.  Eliminate his hassle.   Namely your offer says that you will pay to repair/fix any lender contingencies that arise.  Obviously you want your own inspection, and that could affect the price.   But that's true regardless if you pay cash or not.   Agree that the lender contingencies are your problem, not his, and he might go for it.  After all, he's still three months out.  A good offer now is better than a great offer a year from now. 


forummm

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #3 on: July 05, 2015, 07:33:48 PM »
I see a lot of warning lights going off here. You are both approaching this emotionally and out of a sense of urgency. Those factors make it easy to ignore negative signs. First, why are you so set on a particular neighborhood? There may be lots of other places that are much more affordable and would be a better overall decision. I could have bought a $250k house. But I found one that was less than 1/3 that cost. It has made me much richer due to having such a small mortgage payment, lower taxes, lower insurance premium, etc.

You need to have the house inspected. Your contract needs to say you can back out if there are problems found.

If you do decide to buy the house, can you take 401k loans for the $70k? How much can you save in the next few months? You can also get personal loans or cash advances. But your credit is already pretty close to the 740 level, which is what you need to be over to get the best mortgage rates.

milesdividendmd

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #4 on: July 05, 2015, 08:12:09 PM »
Here's an angle. Not recommending it if you are not 100% sure you can repay the 70K in 15 months...

http://www.milesdividendmd.com/manufactured-crisis/

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Aloysius_Poutine

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #5 on: July 05, 2015, 09:07:07 PM »
Never stretch yourself to get a 'good deal'.

It's not actually a 'good deal' for you if you have to push yourself to the limit to make it happen.

Be realistic. Let cooler heads prevail. That's my advice.

I just went through a very similar 'nearly bought a private sale house' ordeal myself.

Best of luck.

jnc

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #6 on: July 06, 2015, 07:27:25 AM »
How is putting all your cash in and borrowing 70k on top of that sound like a good idea, even if you plan to refinance? What if you can't or there are some delays in doing so? That does not sound like a wise idea to me.

If you are set on this house, get an inspection now before entering into contract. If it uncovers some major issue, yeah you will be out of the cost of the inspection, but that would be the case anyway. If the inspection proves reassuring, you could waive you finance contingency which should address whatever concern this seller has... I've seen it done in hot markets such as as SF.

Unless the seller is planning to get the house sold and deliver in the next couple of weeks, I don't see why a financed contract (with contingencies waived) wouldn't work for him.

Kevin

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #7 on: July 06, 2015, 10:30:40 AM »
Thanks for all the advice.

The seller is not motivated to sell and does not want to feel rushed unless there is a cash offer. It sounds like the best course of acton would be just to wait until he is ready to sell the house and then go through the traditional channels.

There is a sense of urgency on our part as we will have to move into temporary housing as our lease is up at the end of the month.

Kevin

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #8 on: July 06, 2015, 10:32:57 AM »
I see a lot of warning lights going off here. You are both approaching this emotionally and out of a sense of urgency. Those factors make it easy to ignore negative signs. First, why are you so set on a particular neighborhood? There may be lots of other places that are much more affordable and would be a better overall decision. I could have bought a $250k house. But I found one that was less than 1/3 that cost. It has made me much richer due to having such a small mortgage payment, lower taxes, lower insurance premium, etc.

You need to have the house inspected. Your contract needs to say you can back out if there are problems found.

If you do decide to buy the house, can you take 401k loans for the $70k? How much can you save in the next few months? You can also get personal loans or cash advances. But your credit is already pretty close to the 740 level, which is what you need to be over to get the best mortgage rates.

I would not want to pay the 10% penalty on the 401k loan. Regarding why this particular neighborhood, I bike to work and my wife works from home, essentially guaranteeing that we can remain a one car family for the foreseeable future. For the area, it is also a safe pocket crime wise and the resale potential is very high. It is also a very desirable area for renters as well, leaving that option open to us later down the line.

iamlindoro

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #9 on: July 06, 2015, 10:35:28 AM »
I would not want to pay the 10% penalty on the 401k loan.

You don't pay a 10% penalty on 401k loans.
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milesdividendmd

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #10 on: July 06, 2015, 03:25:27 PM »

Thanks for all the advice.

The seller is not motivated to sell and does not want to feel rushed unless there is a cash offer. It sounds like the best course of acton would be just to wait until he is ready to sell the house and then go through the traditional channels.

There is a sense of urgency on our part as we will have to move into temporary housing as our lease is up at the end of the month.

That's not a good reason and I'm all for taking smart risks.

Find a cheap rental and save your sheckles!
I can teach you to play the miles game in 30 days.  http://www.travelmiles101.com/travel-rewards-course-registration.  (A free course by mustachians for mustachians)

Kevin

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #11 on: July 07, 2015, 10:10:33 AM »

Thanks for all the advice.

The seller is not motivated to sell and does not want to feel rushed unless there is a cash offer. It sounds like the best course of acton would be just to wait until he is ready to sell the house and then go through the traditional channels.

There is a sense of urgency on our part as we will have to move into temporary housing as our lease is up at the end of the month.

That's not a good reason and I'm all for taking smart risks.

Find a cheap rental and save your sheckles!

We're already north of 55% savings rate and rents in the neighborhood start at around $1400/month and we are currently paying $1,600/month. We don't want to move to a less desirable area so lets leave that off the table. We already moved from a high cost of living city to a small city with a low/medium cost of living to pursue FI. We aren't interested in shaving 6-12 months off our projected FI date (~2020) by moving into a cheaper, less desirable neighborhood.

A mortgage (with PITI) would come out to ~$900/month. All the rent vs buy calculators say to buy, even if we sold within 3 years we would come out ahead.

I don't see how this is a bad move :shrug:

forummm

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #12 on: July 07, 2015, 10:33:47 AM »
The rent/buy sounds good. And it's good that you're aware you're trading a year of working to be in a certain neighborhood. Just don't get attached to this specific house out of false urgency or whatever. Get a good inspection done and keep a cool head about it. There are other houses out there.

milesdividendmd

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #13 on: July 07, 2015, 11:02:20 AM »

Thanks for all the advice.

The seller is not motivated to sell and does not want to feel rushed unless there is a cash offer. It sounds like the best course of acton would be just to wait until he is ready to sell the house and then go through the traditional channels.

There is a sense of urgency on our part as we will have to move into temporary housing as our lease is up at the end of the month.

That's not a good reason and I'm all for taking smart risks.

Find a cheap rental and save your sheckles!

We're already north of 55% savings rate and rents in the neighborhood start at around $1400/month and we are currently paying $1,600/month. We don't want to move to a less desirable area so lets leave that off the table. We already moved from a high cost of living city to a small city with a low/medium cost of living to pursue FI. We aren't interested in shaving 6-12 months off our projected FI date (~2020) by moving into a cheaper, less desirable neighborhood.

A mortgage (with PITI) would come out to ~$900/month. All the rent vs buy calculators say to buy, even if we sold within 3 years we would come out ahead.

I don't see how this is a bad move :shrug:

Buying the house is not a bad move, per se. 

Extending yourself or taking risks unnecessarily to come up with a 100% cash offer in order to rush into a purchase prior to finding a new rental is not ideal.   Needing to find a new apartment to rent in a month should never even enter into consideration when making such a decision.  That's all.

That being said, if you are comfortable that this is the best financial move you can make (not factoring the inconvenience of moving), and you are building in worst case scenarios to your risk analysis, then by all means have the courage of your convictions...
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Kevin

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #14 on: July 07, 2015, 11:50:24 AM »
Thanks for the clarification and extra info. I am trying to remove emotions from real estate. I am usually good about it but for some reason real estate is a whole other realm.

rightdecisions

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #15 on: July 07, 2015, 10:20:56 PM »
Long story short, I bought a rent house in two days.  I needed $150k cash.  I could never finance and close that fast.  Did not have that much cash on hand.

So,  I withdrew $150k out of my IRA with the idea of putting it back as soon as I could get financing.  I had 60 days to avoid taxes and penalties.

Wire transfer came in two days.  Bought the house.  And refinanced in 30 days or so.

I would do this again in a heart beat.  I am ready for the next one.



cbr shadow

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #16 on: July 12, 2015, 12:51:31 AM »
I'd do a lot of research in the area and see what actual comps have sold for.  If this is way under what you'd get it for I would definitely go for it.  It sounds like there's not a huge amount of risk but potential for a big reward. 
Also work on negotiations with the seller.

One thing to note is that you asked this on MMM forums, where people are VERY debt averse.  I'm not saying that's always a bad thing (I have very little debt) but if you were to ask the same question on a forum like BiggerPockets you would almost certainly get a very different answer.  Both forums have plenty of very intelligent people posting, but have a different tolerance to risk.


money_bunny

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #17 on: July 12, 2015, 04:57:57 AM »
Couple things:

1. How many posts do some of the people giving feedback have? When you read their comments on other posts do they sound consistent and that they know what they are talking about? I got some horrible advice on some other sites around 10-13 years ago by not vetting my sources.

2. Real Estate has been programmed into your brain since you were a small child. American Dream and all that. So it's hitting deep responses on security and success.

3. The seller has you wrapped around his finger right now. You have to be willing to walk away.

4. You are going "All in" those numbers better be spectacular.

MidWestLove

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #18 on: July 12, 2015, 09:10:03 AM »
"3. The seller has you wrapped around his finger right now. You have to be willing to walk away. "

exactly. unless you just MUST HAVE new house thingy RIGHT NOW (or the world would crash) , there is way too much emotion in this and way too much (manufactured) urgency. if/when seller wants to sell, ok - you _may_ look at it. get yourself good rental now, keep your options open and not rush. the dumbest thing to do is react with emotion, rush, and overcommunicate (to real estate agent especially)


Kevin

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #19 on: July 13, 2015, 01:43:54 PM »
"3. The seller has you wrapped around his finger right now. You have to be willing to walk away. "

exactly. unless you just MUST HAVE new house thingy RIGHT NOW (or the world would crash) , there is way too much emotion in this and way too much (manufactured) urgency. if/when seller wants to sell, ok - you _may_ look at it. get yourself good rental now, keep your options open and not rush. the dumbest thing to do is react with emotion, rush, and overcommunicate (to real estate agent especially)

UPDATE: We were able to secure a personal loan (verbally) to bridge the difference and we approached the seller. To our amazement, even though he said we would entertain a cash offer last time we spoke, he said he wasn't ready to sell and that it will be on his time schedule, not ours.

My biggest fear now is that we've shown all our cards and the seller is in total control. We are looking for a cheap 3 month rental to alleviate any sense of urgency on our part but it's starting to feel awkward all around now. He mentioned he will most likely be working with a realtor, which is not good.

Regarding comps, we have put together a very extensive analysis, taking into account condition, date, street, location, size, lot. We have prices tiered to know what is a steal vs a dud. We've also lived 1 block away from 14 months and have been actively looking for a house for 7 months (seen 25+). We have a very good sense of the market.

Aloysius_Poutine

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #20 on: July 13, 2015, 10:07:16 PM »
dude, there is ALWAYS a perfect house out there when the timing is right for you.

cultivate an abundance mentality. Figure out a better idea than this one, and move forward on it. Good things come to those who have options. You are way too invested in this. You will not come out ahead if you bought it now.

clifp

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #21 on: July 13, 2015, 10:42:05 PM »
"3. The seller has you wrapped around his finger right now. You have to be willing to walk away. "

exactly. unless you just MUST HAVE new house thingy RIGHT NOW (or the world would crash) , there is way too much emotion in this and way too much (manufactured) urgency. if/when seller wants to sell, ok - you _may_ look at it. get yourself good rental now, keep your options open and not rush. the dumbest thing to do is react with emotion, rush, and overcommunicate (to real estate agent especially)

UPDATE: We were able to secure a personal loan (verbally) to bridge the difference and we approached the seller. To our amazement, even though he said we would entertain a cash offer last time we spoke, he said he wasn't ready to sell and that it will be on his time schedule, not ours.

My biggest fear now is that we've shown all our cards and the seller is in total control. We are looking for a cheap 3 month rental to alleviate any sense of urgency on our part but it's starting to feel awkward all around now. He mentioned he will most likely be working with a realtor, which is not good.

Regarding comps, we have put together a very extensive analysis, taking into account condition, date, street, location, size, lot. We have prices tiered to know what is a steal vs a dud. We've also lived 1 block away from 14 months and have been actively looking for a house for 7 months (seen 25+). We have a very good sense of the market.

If you really were getting a 250K house for 180K then yes, I'd jump through hoops (borrow from a 401K, take money out of an IRA etc. to make it happen.) That said he shows no signs of being motivated to sell. It is an estate sale, and doesn't sound like he desperate for money.  I am sure he will work with a realtor to get a good price, at this point the best you can hope for is you can save maybe 1/2 the realtor commission so 3%.

money_bunny

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Re: Creative financing? Cash advance to make an all cash offer?
« Reply #22 on: July 14, 2015, 05:09:04 AM »
"3. The seller has you wrapped around his finger right now. You have to be willing to walk away. "

exactly. unless you just MUST HAVE new house thingy RIGHT NOW (or the world would crash) , there is way too much emotion in this and way too much (manufactured) urgency. if/when seller wants to sell, ok - you _may_ look at it. get yourself good rental now, keep your options open and not rush. the dumbest thing to do is react with emotion, rush, and overcommunicate (to real estate agent especially)

UPDATE: We were able to secure a personal loan (verbally) to bridge the difference and we approached the seller. To our amazement, even though he said we would entertain a cash offer last time we spoke, he said he wasn't ready to sell and that it will be on his time schedule, not ours.

My biggest fear now is that we've shown all our cards and the seller is in total control. We are looking for a cheap 3 month rental to alleviate any sense of urgency on our part but it's starting to feel awkward all around now. He mentioned he will most likely be working with a realtor, which is not good.

Regarding comps, we have put together a very extensive analysis, taking into account condition, date, street, location, size, lot. We have prices tiered to know what is a steal vs a dud. We've also lived 1 block away from 14 months and have been actively looking for a house for 7 months (seen 25+). We have a very good sense of the market.

If you really were getting a 250K house for 180K then yes, I'd jump through hoops (borrow from a 401K, take money out of an IRA etc. to make it happen.) That said he shows no signs of being motivated to sell. It is an estate sale, and doesn't sound like he desperate for money.  I am sure he will work with a realtor to get a good price, at this point the best you can hope for is you can save maybe 1/2 the realtor commission so 3%.

So you showed your cards and he showed his also. Based on what you said he named a price and wanted a cash deal. You met his price and gave him a cash deal. If someone is negotiating honestly then they go "Great I got what I want." That is what happened with my apartment someone met the price which was set a little low and had cash.

My mindset was "Crap I could have gone higher, I left money on the table." Which was not that much in this case. I wondered should I have shopped the offer. However I had someone there with the money willing to buy for about my price. Same when I sold my motorcycle. I had someone there with their trailer and their cash and willing to buy for about my price. Yes two other people said they were willing to give what I asked for later in the day. For 100 less he was here, seen the bike running, and was willing and able to take it.

Possibly now that he knows he has someone willing to pay X for it, he can shop your offer around. You just set his floor price.

You have to be willing to walk away. You have the money, he has the illiquid expensive asset.