Competing with Cash Buyers When You Have No Cash
#MoneyMondays #Cashisking #faithfulfinance
The Federal Reserve raised interest rates resulting in a reduction of individuals who are now eligible to qualify for purchasing either their first or another home. But such developments and consequences are just a distraction, a red herring. According to the the National Association of Realtors, approximately one quarter of the homes for sale in December 2021 constituted cash sales. In states such as Florida, almost half of the homes sold were cash transactions according to Realtor.Com. Make no mistake about it, cash is still king!
Cash buyers are still in the driver’s seat when it comes to purchasing house. How can you compete if you don’t have cash to purchase property outright? Should you still purchase or rent given the constantly changing economic times?
Cash Short Buyer Options
As a cash short purchaser you can partner with any of the companies who provide cash purchasing options. What these companies offer is the opportunity for you to become competitive in the cash space. Essentially, they purchase the house of your dreams or desires for you, and subsequently when your mortgage loan comes through, you can then repurchase the property from them for an additional 1% to 3%.
These additional fees and cost can be reduced if you employ one of their agents or partners to assist in executing the transactions. They may also be reduced if you use their in-house lender, or close within 30 days of them purchasing the house on your behalf. But as always their are consequences! For example if your repurchase does not closed within 30 days of their purchase date, you may lose your deposit.
Companies such as Ribbon and Knock Go provide these cash options to their clients. Ribbon is a real estate firm operating in 11 states in the country. They provide clients with up to 180 days in which to secure financing for the repurchase. However, Ribbon requires you to rent the house from them after they have executed the purchase during your 180 days of securing your own mortgage. Knock, on the other hand is a digital platform more tailored to first time home purchasers and those without a house to sell who want to obtain a property through an all-cash transaction.
Now this does raise the question what if I choose not to exercise these or other cash purchase options? Should you still focus on purchasing a home or continue to rent?
Perhaps in your quest to purchase the house cash, critical analytical steps were overlooked. For example, as a cash purchaser all your money will be invested into one as-set property. Is that the wisest investment use of your resources? Over the past decade on an annualized basis, the Standard & Poors Index has increased 11.7% compared to the annual increase in home values of 7.9%. If that trend were to continue, paying cash may not provide a better return on your investment.
Let’s talk about your investment time horizon and risk tolerance. Given your investment strategy and the market this year, think about these ideas and options in view of your financial goals and disposition.
If you are:
- CONSERVATIVE- 45% stock and 55% bonds
- GROWTH -80% stock and 20% bonds.
- BALANCED- 60% stock and 40% bonds.
- SIMPLE – 75% stock and 25% bonds.
How does your investment portfolio compare to these suggested options? And that’s what’s up!