Buying an investment property is not always a walk in the park especially when there is a good chance you will be contending with all-cash offers. To most real estate investors, cash buyers for real estate are the menace of the superhot seller’s market. These are people who have accumulated savings or equity. They often end up with the most valuable and desired properties, edging out competitors.
Property buyers with all-cash offers are often the most desirable to property sellers. This is because with all cash, no mortgage loan is needed and, therefore, there is no need to depend on lenders. Much of the hassle that comes with dealing with the buyer’s investment property financing is eliminated.
However, you shouldn’t be discouraged even if you are relying on a mortgage to acquire an investment property. While all-cash offers are attractive to property sellers, it is not the only thing they consider when accepting an offer. So even though competing with all-cash buyers is difficult, it isn’t impossible. With good strategies, you can still win a bidding war against these property buyers in a competitive real estate market. Here are some strategies you can use to compete against cash buyers for real estate in a seller’s market and get your offer accepted.
1. Make your best offer up front
All-cash buyers are usually bargain hunters. This may be because they know that cash buyers for real estate are in a strong position to negotiate. However, you can beat them out by ensuring that your final offer is made up front.
In a competitive market where there are multiple offers on a house, you may not have the chance to negotiate on price. You don’t have time to try acquiring the best deal on an investment property you like when several cash buyers for real estate are lurking around. As soon as you come across a specific property you want, you need to immediately put your best foot forward. To beat cash buyers for real estate, your best offer needs to be made upfront.
However, to avoid overpaying for a property, be sure to check local real estate comps. While you may end up paying a lot with your best offer, you don’t want to pay so much that it hurts your ROI. Using a tool like Mashvisor’s rental property calculator can help you make sure that doesn’t happen. Find out exactly how here.
2. Remove or reduce contingencies
You can also compete with cash buyers for real estate by removing or reducing contingencies from your offer. These are conditions which allow you to withdraw your offer for various reasons. For example, this may happen if, after a home inspection, it is revealed that the investment property has problems. Such contingencies make a deal less attractive to the property seller.
Even though removing contingencies will make your offer more attractive, it adds some level of risk to the deal. If you forego a home inspection, for example, you may later come to discover that the property you bought has some issues. Such issues may be very expensive to repair. However, if you have analyzed the property and you are willing to take a chance for the good ROI it promises, just be sure to have room in your budget for unexpected costs. The fewer the contingencies, the more of a competitive edge you can have over cash buyers for real estate.
3. Acquire a lender’s preapproval letter
Sometimes, property offers fall through because the mortgage loan gets declined during escrow. Getting a mortgage pre-approval will make home sellers take you more seriously. Having your mortgage pre-approved will also give you the confidence and strength in the market since you can close quickly.
Instead of just getting a standard preapproval letter, you can prove to the sellers that you are secure by acquiring a pre-underwriting letter for a particular loan amount. If you have saved up a substantial down payment and have good credit, you could be as good as an all-cash buyer. To acquire one, you often need to pull your credit report, asset documentation, and verify your income. You shouldn’t commence your shopping for a property until your application is approved by the lender. The property address should be the only thing needed to finalize the loan.
4. Be flexible
Another way of competing against cash buyers for real estate is emphasizing your flexibility. After identifying the property sellers’ preferred terms, you can make the deal sweeter by allowing them to drive not only the timeline but also some of the specifics. Buyers who are accommodating and flexible are more likely to have their bid pique the interest of the property seller. For instance, you can offer to rent the property back to the sellers as they hunt for an alternative home. Let them know that you can operate on their schedule.
In the most competitive real estate markets, it is common for a property seller to prefer cash buyers for real estate over buyers whose deals are dependent on mortgage approval. However, applying the above strategies can greatly increase the odds of winning a bidding war.
What are some tricks you have for competing against cash buyers for real estate?