Hold or Fold: $239K All Cash

[Caleb McLean]

XPost from r/realestateinvesting:
 

"Hey all,

I've found a deal in FL I'm considering. The seller wants $239k for six duplexes. I've run the numbers and everything meets my parameters. And then the agent lets me know it's a cash only deal... Le grrr.

He says he can get private lending for 10% and 30% down, interest only payments. I've said I can do $220k at 25% down. This will leave me with decent reserves.

Has anyone done a deal like this? What are the pitfalls. Near as I can tell , not being able to refi in a year is all. Not going through a bank is terrifying but my gut says go for it.

Thanks in advance!"

What do you think, given only this information? Would you go for it?

[George Skidis]

$239,000 / 12 = $19,961.67 per unit. Not a bad price range depending on the location and condition of the properties. Unless the property is really nice, Varski Properties tries to pay about $15,000.00 per unit when purchasing a multifamily. We are in the Midwest and that would influence our price decision.

A decade or so ago Florida had built way to many condos. Check to see if that has resolved itself.

The answer below is based upon homes not located in a gated community or subject to condo fees that would be an immediate no.
 
Cash only is a unique requirement by the Seller. The big question is the Seller’s motive for this requirement. What is it? Is it possible the property has already been appraised for less than the asking price? Has it been turned down for financing? Is the Seller trying to prevent the buyer from obtaining a fair market appraisal? Maybe it is just that the last four deals fell apart because the potential buyers did not qualify for loans. You need to know why the Seller is insisting on a cash deal. What is the hidden motive?
 
The downside is that you use up all of your cash and have nothing in reserve. What happens if an even better deal surfaces? What about unforeseen emergencies?
 
The other red flag, based upon how the question was written,  is it sounds like the real estate agent is the person pushing the cash deal and also the one offering terms. Does the real estate agent have access to that kind of money? It looks like a conflict of interest for the real estate agent to offer the cash for the deal.
 
You stated, “He says he can get private lending for 10% and 30% down, interest only payments. I've said I can do $220k at 25% down. This will leave me with decent reserves.” 10% interest sounds more like a hard money lender. Go to http://www.bankrate.com/partners/sem/mortgage-groupb.aspx?type=refinance&market=253&propertyvalue=212500&loan=170000&perc=20&prods=215,393,216,392,219,221,220&fico=740&points=Zero&cs=0&s_kwcid=AL!1325!3!105250827608!b!!g!!compare%20mortgage%20refinance%20rates&gclid=CITn7dXsmtICFR62wAodbWwH_Q&ef_id=WKjfZQAAAKgB3rfD:20170218235725:s to check out current rates and try to negotiate it down to current commercial rates. 30 Year fixed home mortgage rates are under 5% right now.
 
Does the Seller at least agree to closing at a title company? We never close a deal without title insurance. Without a bank there may be a push to close quickly for cash and no title search. We sold a home back in 1998 and offered a 10% seller carry back. Less than a month later the buyer had a job offer in Mississippi and collected down payments from two cash buyers which he used as getaway money.  Our paper work which included a recorder mortgage allowed us to take over the property and manage it to recover our seller financing. There could be a flaw in the title.
 
Things you need to do before going any further.
 
1.Determine why the Seller has a cash only condition.
2.Get a Real Estate Appraisal from someone you trust.
3.Contact a loan officer you trust and ask them to evaluate the deal.
4.Get a home inspection by the best company you can find.
5.Conduct extra due diligence to make sure there are no surprises.
6.Check with the listing agent’s broker to confirm that the Seller is actually requiring an all cash deal.
7.Get an independent broker price opinion BPO.
8.Include all of the regular buyer clauses if a contract is signed and add the ones above as well.
 
Without a mortgage and lender involved you are on the hook if the deal goes south or they take your money and hand you worthless paper. If you choose to do this deal protect yourself against any contingency.
 
Without more details Varski Properties would not proceed. If more favorable information was developed we might reconsider.

[Caleb McLean]

Thanks George Skidis‍ ! Even from a standpoint of someone who has never personally invested before (myself) that situation seemed to have a couple of red flags and too little information to solve the equation, so to speak. Here's what other's have replied to the post on reddit (and you can see, the original poster, u/tastes_like_chicken has included some more information at the bottom):