You hear it all the time on BiggerPockets Forums, podcasts, local meetups, from gurus, etc. It must be true if everyone says it is: “Cash is king.” The idea is if you buy with cash, you can get better deals, more deals, better terms, etc. But in 20 years of doing residential real estate investments, I’ve found that this is actually not true.
Don’t get me wrong: Cash is good. It gives you flexibility and peace of mind and creates better cash flow on your investments through return on equity. However, it is not the end-all, be-all when it comes to investing, and in many situations, you can beat cash offers with financed offers if you understand where you have leverage and how to construct an offer that mimics cash terms.
But What Is Cash?
Seems like a dumb question, right? When it comes to real estate transactions, cash means different things than just a pile of bills stuffed under your mattress. In my opinion, cash means you are making an offer that you do not need any third-party approval for any terms in your offer.
Ironically, many people think that hard money is cash, and they write offers as such. Many hard money lenders require some sort of appraisal or due diligence, especially for investors that they don’t have a relationship with. If you are writing cash offers with a hard money lender and no appraisal contingency, you might find yourself in a tough situation somewhere along the way, so be sure you know what the lender requires of you and your deal.
HELOCs are absolutely cash. Once your HELOC is funded, the bank no longer has any say in what you do with that money. I find it funny—I have clients ask me all the time if they will get in trouble with their bank for buying real estate with their HELOC, but they don’t think twice about taking their family to Disneyland for a week with that same line of credit.
If you were to lend someone money, would you rather they blow it on a car or an experience or buy a…