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Cash Buyers: The Beginner's Guide | Real Estate Skills

cash buyers Jan 07, 2020

Cash buyers are essential players in the national real estate market. If you’ve been in the real estate business for any amount of time, you've certainly heard about cash buyers. The old saying “cash is king,” especially applies to the property market.

According to the National Association of Realtors, cash buyers made up 27.8% of all single-family and condo sales in 2018. In some real estate markets, cash buyers represented nearly 90% of transactions! That said, you may be wondering:

  • What is a cash buyer? What are the benefits of real estate cash buyers?
  • How can I work with cash buyers? Why would a cash buyer work with me?
  • How are cash home buyers different from other buyers?
  • Where can I find cash buyers for real estate? How do I build a cash buyers list?

Whether you’re a brand new investor, experienced house flipper, home buyer, condo seller, real estate agent, or property wholesaler, understanding all about cash buyers can open doors and accelerate your real estate business to reach new heights. 

Having personally worked with many cash buyers, and eventually becoming one myself, I've transmuted the knowledge I've gained over the years into this guide and our educational courses

Read on, as this guide covers these frequently asked questions and so much more.

Use this menu to jump to your section of choice: 

 

What Does It Mean To Be A Cash Buyer?

In real estate, a cash buyer is a person or entity that has funds available to purchase a property outright, without the need to obtain a loan to complete the transaction.

A potential purchaser of real estate who has money available or “liquid” (meaning they don’t need to sell other assets, such as a property or company stock, in order to purchase an investment property) is considered a cash buyer.

What's so great about purchasing a property all cash? When comparing apples to apples, cash offers are stronger offers

Traditional real estate sales are usually contingent on the buyer obtaining a mortgage or selling another property to fund the deal. This contingency allows the buyer to back out of the deal if they cannot obtain a loan.

Thus, in the eyes of a seller, a cash offer is a more attractive offer when it omits these escape clauses.

Cash buyers often receive their closing funds through a private money lender or hard money lender. Even though these investors are taking out a loan or borrowing money, many of them still proclaim to be "cash buyers," due to their ability to close much faster than a mortgaged buyer is able to.  Private money lenders don’t have stringent requirements as conventional mortgage lenders do, allowing them to fund deals quickly.

 

Who Are Cash Buyers For Real Estate?

Cash buyers range from the ultra-wealthy to mom-and-pop investors. Here are various types of buyers who purchase real estate with all cash:

  1. Fix and Flip Investors & Companies
  2. Wholesalers
  3. Real Estate Developers
  4. Landlords & Buy and Hold Investors
  5. Real Estate Investment Trusts (REITs)
  6. Hedge Funds
  7. Foreign Investors
  8. High Net Worth Individuals
  9. Private Equity Firms
  10. Downsizing Home Owners With High Equity
  11. Heirs of Estates
  12. Family Offices

 cash home buyers

“Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy." --Marshall Field, American Entrepreneur

 

Why Are Real Estate Cash Buyers Important?

Real estate cash buyers are important because they provide liquidity for the real estate market. There are many inevitable situations where property owners need to sell a house quickly. For instance, in situations of job relocation, inheritance, divorce, or death. However, the real estate industry is an extremely inefficient marketplace. It runs at a slow pace compared to other markets, such as stocks, bonds, and paper assets.

Cash buyers provide motivated sellers a quick and easy way to liquidate their properties. Traditional mortgaged buyers cannot move as quickly or offer as flexible of terms to sellers.

Additionally, having a list of cash buyers can be a valuable asset for real estate agents, real estate investors, and wholesalers. When you're looking to help a seller unload a property, referring to your cash buyers list to solicit an offer can expedite the process. 

 cash buyers

 

What Is A Cash Buyers List?

A cash buyers list is a database of active real estate investors looking to purchase investment property with cash. Updated contact information is an essential component to a solid cash buyers list, along with pertinent details about each buyer. This information may include the investor's active real estate market, types of investment property sought out, and amount of capital available to invest.

At a minimum, you’ll want each contact entry in your active cash buyer’s list to include:

  1. Full Name
  2. Phone Number
  3. Email Address
  4. Location
  5. Buying Criteria
    • Price points (purchase price and maximum total investment size)
    • Type of investment property (single family, apartments, commercial, etc)
    • Locations investing in (states, cities, zip codes, neighborhoods)
    • Minimum desired profit per deal (total profit dollars, ROI)

Cash buyers lists are cultivated and used by real estate brokers, real estate wholesalers, and investors when helping sellers quickly offload properties. 

While many successful investors and real estate wholesalers build large, profitable businesses with small cash buyers lists of only 1-3 buyers, it's generally a good idea to build your list as big as possible. With a larger cash buyers list, you'll have more opportunities to put deals together. 

 

What Does It Mean To Buy A Home In ‘All Cash’?

Buying a home in all cash means that the buyer will be funding the real estate transaction using only liquid, unencumbered funds.

You might be thinking, “Don’t all real estate deals close in cash anyways?” It’s important to understand the difference between “all cash” and other types of funding.

All cash implies that the buyer will not be obtaining a mortgage from a lender or receiving financing from the seller to purchase the property.

Buying a home in all cash generally means the purchase offer will exclude common contingencies, such as those for financing and appraisal.  These contingencies lengthen the escrow process and create ways for buyers to back out of a deal.

Financing a home requires borrowers to put 3% to 25% of the purchase price down in cash, while the difference is funded by a mortgage lender. In doing so, there are a number of obstacles a mortgaged buyer must overcome to get the loan approved.

First off, there's a chance that a mortgage lender would be unable to fund the deal altogether. Conventional lenders backed by government-sponsored enterprises (GSE), such as Fannie Mae and Freddie Mac, have strict regulations and guidelines.

Additionally, obtaining a mortgage costs money, time, and creates uncertainty in the transaction. It’s much more simple and expedient when a cash buyer funds the deal.

 

Are Cash Buyers Better Than Traditional Home Buyers?

Yes, cash buyers are usually better than traditional buyers for the following reasons.

  1. First, a cash buyer is in complete control of the funds required to purchase the property. This means they can close quickly because there's no lender involved to complicate and slow down the real estate transaction.
  2. Second, a cash buyer doesn't need appraisals or financing contingencies as part of their offer to purchase real estate. This means a cash buyer is less likely to back out of the deal.
  3. Finally, cash investors are able to purchase difficult properties, such as those in uninhabitable condition. Homes without heat, roofing, windows, or with other hazardous living conditions are unable to qualify for conventional financing. 

Cash buyers are generally "fix and flip" or "buy and hold" investors acquiring real estate with a profit motive. They are usually able to cater to a seller’s situation more so than a traditional buyer is willing to. For instance, a retail home buyer may need to close a transaction around the sale of another property or around school schedules. Cash buyers are typically flexible and can work with the seller's timeline.  

On the flip side, cash investors will typically offer to pay less for a property than traditional home buyers. This can be a fair exchange for the speed and ease of doing business with them. 

 

Why Do Sellers Prefer Cash Buyers?

Sellers prefer cash buyers because of two main reasons – speed and certainty. In an industry full of uncertainty, cash buyers are a breath of fresh air to motivated sellers.

Cash home buyers can provide sellers with confidence that they can sell their property within the timeframe that they need to. Yes, there are still ways cash buyers can back out of a purchase contract. However, sellers prefer cash buyers because their offers usually have:

  1. Short escrow periods
  2. No appraisal contingency
  3. No financing contingency
  4. No or minimal inspection period
  5. Purchase in “As-is” condition

Additionally, sellers prefer direct cash transactions because they don’t need to put their home on the market. Listing your home on a Multiple Listing Service (MLS) requires a seller to hire a listing agent, prepare the house for photos and showings, make necessary repairs, pay for staging, and have their home posted all over the internet and in newspaper ads. This requires significant time, energy, and investment from property owners. In addition to these inconveniences, hiring real estate listing brokers typically costs a seller about 6% of the total sales price!

Cash buyers are preferred by sellers if they don’t want to pay commissions, prep their house for marketing, and deal with showing their property to interested parties. Sellers can enjoy the certainty and convenience associated with a cash deal.

The tradeoff is that a cash buyer will certainly pay less than a conventional buyer. However, when considering the costs of holding a property, the benefits of cash buyers often outweigh the drawbacks for motivated sellers.

For a broker's take on the question, "Is a cash offer better than an offer with financing?", watch this short clip from Active Adults Realty:

 

Why Are Some Properties Cash Buyers Only?

You’ll notice that some property listings will only accept offers from cash buyers. There are generally a few reasons why some properties are sold to cash buyers only.

These reasons include:

  1. Bank Owned or REO Properties
  2. Condition of the Property
  3. Title Issues

Bank Owned aka REO Properties

REO properties are generally always cash deals. Banks set their own terms for these sales, and they understand the benefits of cash buyers over mortgaged buyers. Since they don’t want to waste time with appraisals and loan contingencies, banks always prefer a cash buyer.   

Condition of the Property

real estate cash buyers

(Here's one of my fix and flip projects fully exposed to the studs. Properties in this condition are sold to cash buyers only.)

Most “cash buyers only” properties need significant repairs, rendering the homes uninhabitable. One or more components of the structure are missing, damaged, and/or need repairs.

These conditions inhibit a property from being lent upon by a mortgage lender and may not appraise for the desired value. For example, a leaking roof, missing plumbing, drywall, incomplete flooring, exposed electrical wires, termite damage, or excessive mold would each prevent a conventional lender from funding the deal.

Title Issues

Cash investors are able to deal with title issues that may come up during a title search, when a traditional buyer cannot. For example, if a mechanics lien or property taxes in arrears encumber the title of a property, then the owner might not be able to obtain title insurance upon closing. Lender’s title insurance is a requirement of conventional lenders, so they wouldn’t be able to close unless those issues are cleared up.

 

Can You Get A House Cheaper If You Pay Cash?

Yes, generally you can get a house cheaper if you pay cash.

A cash buyer can get a cheaper offer accepted over a mortgaged buyer due to all of the benefits of cash offers. Most notably, the ability to close quickly and purchase the property in its “as-is” condition. 

Additionally, in the case of an off-market transaction, the seller can avoid paying costly real estate agent commissions, which alone can save the property owner 6% of the gross sales price on average. 

That said, it largely depends on the seller’s motivation. In many cases when the seller is not motivated to sell quickly, they have the luxury of time to wait for a higher offer. Property owners might be willing to accept a higher offer from a mortgaged buyer, even while knowing that the buyer has multiple ways to back out of the contract.

Most motivated sellers see the value in a quick close. For instance, when faced with foreclosure, sellers cannot afford to roll the dice on a time-consuming financed offer. In distressed situations, sellers will typically go with a lower cash offer when competing against a higher financed offer.

Time is money, and a quicker close can save the seller hundreds, if not thousands of dollars in property taxes, insurance, mortgage, and utility payments!

Generally, cash home buyers will pay anywhere from 50% - 85% of a property's after repair value (ARV). That is, the market value of the property once it's rehabbed to it's best physical condition. 

 

How Long Does It Take To Buy A House If Paying Cash? 

Cash buyers offer unbeatable flexibility when buying a house without financing. A cash deal can take as little as three days to close on a property!

The main bottleneck to closing is usually the title company in coordinating all the necessary paperwork needed to close the transaction, let alone issue a title insurance policy

Compare this to the 30-45 day closing timeframe required with a financed offer. The benefits of cash buyers should become very apparent with this one comparison alone!

That said, the time it takes a cash buyer to purchase a house entirely depends on the negotiated timeframe in the sales agreement. It’s completely negotiable on the front end of the deal, before the property goes under contract.

Although some sellers may opt in for a quick close, other sellers may need more time to move out of the property. What’s important to sellers in these cases is that the cash buyer has nonrefundable earnest money in the deal. 

Some sellers may prefer a long closing, or even allow an extended closing if the buyer removes all of the contingencies and has money on the line. This gives the seller confidence that the buyer is committed to closing the real estate transaction.

 

What Are The Benefits of Selling A House To A Cash Buyer?

The primary benefits of selling a house to a cash buyer are the following:

  1. Fast closings
  2. Non contingent offers
  3. Flexible terms
  4. No lender involvement
  5. No real estate commissions paid when sold off-market
  6. Selling the house without making any repairs
  7. Convenience
  8. Hassle-free transaction

 

Do Cash Buyers Pay Closing Costs?

Yes, cash buyers generally do pay closing costs. These may include title company fees, title insurance, government recording charges, transfer taxes, and notary fees.

Cash buyers investing in real estate can expect lower closing costs, since they are avoiding costs such as lender fees, appraisal fees, and lender’s title insurance.  However, the share of closing costs that cash buyers pay is entirely spelled out within the individual purchase agreements with sellers.

Many times, cash buyers will offer to pay a sellers closing costs in order to simplify the net amount the seller will receive at closing. Most often in real estate deals, buyers and sellers pay their own share of closing costs or agree to split them equally 50/50.  

For an overview of closing costs, watch this short animation from Federal Title:

 

 

How Do I Find Cash Buyers For Real Estate?

There are plenty of methods to find cash buyers for real estate. Here we'll condense them down to these three categories:

  1. Online
  2. In Person
  3. Direct Marketing

Online

The easiest and quickest way to find cash buyers for your real estate deals is on the internet. Simply Google search “cash buyers near me” or “cash buyers for real estate” and your location, and you’ll undoubtedly see a number of active cash buyers show up on the first few results pages.

Another powerful online strategy is to create a website to attract cash buyers. On your page, have an opt-in form where visitors can leave their contact information in order to be placed on your exclusive buyer’s list. Drive traffic to your website through search engine optimization (SEO) and/or pay per click (PPC) ads using Google AdWords.

Also, check out real estate focused Facebook groups and industry forums. You are sure to find cash buyers lurking around online social media groups for real estate.

Face to Face

Meeting face to face with active cash buyers is by far the most effective way to build rapport and cultivate relationships with these people.

Attend investor networking events and real estate business conferences. Real Estate Investor Associations (REIAs) are excellent places to start building your list of cash buyers. Before attending one, be sure to read REIA Meetings - The ULTIMATE Guide For Real Estate Investors Associations.

Live property auctions are another place where high quality real estate cash buyers congregate. On-site house auctions are hosted at the subject property, where active cash buyers meet on the auction day to bid on the deal. County auctions take place on the courthouse steps, where buyers literally line up with cashier’s checks in hand!

Direct Marketing

Direct marketing to build your cash buyers list is much easier than it may seem. Drive around town and you’ll likely see bandit signs with the words “We Buy Houses Cash” or “Investment Property For Sale.” Take down these numbers and add them to your cash buyers list. You can take it a step further by creating your own bandit signs and placing them around town.

For more on bandit signs, check out the Ultimate Guide to Bandit Signs for Real Estate Investors.

Direct mail is another excellent way to find cash buyers for your real estate deals. Consider mailing corporate owned properties, landlords, and recent cash transactions in the area you want to farm. To find the owners contact information, skip trace the property owner’s name or property address. Also, consider placing newspaper ads in the classified section and post on Craigslist.

Identify and cold call industry vendors such as real estate agents, as they tend to know one or more cash buyers.

 

3 Tips On Building The Ultimate Cash Buyers List

When building the ultimate cash buyers list, remember the old adage “quality over quantity.” Some of the most successful wholesalers that we’ve worked with and coached have a small number of cash buyers that they work with. The key is to build relationships and spend time understanding what exactly they are looking for in a real estate deal.

Here are three tips on how to build the ultimate cash buyers list: 

  1. What To Ask When Building A Cash Buyers List
  2. Use A Customer Relationship Manager (CRM)
  3. Nurture The Relationship

What To Ask When Building A Cash Buyers List

When building a cash buyers list, most novice real estate investors and wholesalers make this same mistake – they do not ask enough of the right questions.

Get to know your cash buyers by asking the following:

  • What type of property are you looking for? A rehab? How many beds/baths?
  • What price range are you buying?
  • What geographical areas are you buying in?
  • How heavy of a rehab are you willing to take on?
  • How many deals can you buy per month?
  • How quickly can you close?
  • Are there real estate deals that you will not buy?
  • What’s your investment strategy? Fix and flip? Buy and hold?
  • What’s your minimum return on investment? Minimum profit? 

Use A Customer Relationship Manager (CRM)

Let’s face it, as humans we tend to forget things and real estate business requires attention to detail. That’s why utilizing a Customer Relationship Manager (CRM) is essential to building the ultimate cash buyers list. Here you can store all of your cash buyer’s contact information, answers to the above questions, and other pertinent information about your interactions with each investor.

Check out paid software such as Zoho CRM and free products such as Google Streak.

Nurture The Relationship

After finding cash buyers, you’ll want to keep in touch and stay top of mind with your new relationships. Investing in real estate is all about relationships, so take this step seriously. Send emails with real estate market updates and highlight your latest deals.

Once you have your buyers list, it’s easy to set up automated email drip campaigns for any new and existing cash buyers in your database. Consider creating videos talking about your real estate business and sending them to your cash buyers list.

 

Final Thoughts on Cash Buyers

For so many reasons, cash buyers are important players in the real estate game. Building and maintaining a cash buyers list can take your real estate business to the next level. Whether you’re a real estate agent, flipping houses, or assigning contracts for profit, the benefits of cash buyers are evident as we have covered in this guide. 

From conducting quick closings, to purchasing distressed properties, cash buyers are the most agile and opportunistic buyers in the real estate market.

What are your thoughts on cash buyers? What’s your favorite way to find cash buyers? Let us know your thoughts in the comments below!

 

This article was written by Ryan Zomorodi, V.P. of Education at RealEstateSkills.com and President of RZ Holdings, Inc.  Ryan specializes in the acquisition of distressed single and multifamily residential properties nationwide for wholesale, flipping, and rental.  Connect with Ryan on LinkedIn and Instagram.

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