How to assess a good cash deal

Everyone expects to get a better deal if they’re a cash buyer and it’s certainly possible to get some great property deals if you can offer cash, but it is heavily dependent on two things -  

• Finding a motivated seller - in other words, someone who just wants to get the property off their hands
• Finding a property that isn’t easily mortgageable

The seller

The majority of people who put their property on the market naturally want to sell it, but don't need to sell it - and there is a big difference between these two.  

Unmotivated sellers are likely to reject offers that aren’t close to the asking price, because they have plenty of time to wait for the best offer to come along.  Offering cash, but a lower offer isn’t a great incentive for them.

A key factor when you’re researching potential properties is how long the property has been on the market.  Freshly marketed properties tend to be the most resistant to lower cash offers, but sellers typically get exponentially more motivated the longer their property fails to sell.  Check the original asking price and see how many reductions have been made, the quicker and bigger the reductions, the more motivated the seller is becoming.

When a seller’s need to sell their property is more urgent, the appeal of a quick cash sale is greater.  They don’t want to sell their property cheaper, but tend to be more pragmatic, deciding that selling the property quickly has a higher priority than the price they sell it for.  They are referred to as ‘motivated sellers’ and all savvy investors are on the lookout for them.

Sellers can be motivated to sell for a variety of reasons, such as:

• Work relocation
• A divorce
• Needing to be nearer extended family who need attention
• Financial difficulties
• Where an estate needs to complete probate, so the funds can be awarded to the beneficiaries.

The property

The more desirable the property, the more attractive it is to buyers, which means that there is no need to sell it cheaper.  Nice properties in good condition can rarely be bought cheaper with cash – unless the seller is highly motivated for one of the reasons above.

Properties in poor condition are far more likely to be able to be bought cheaper, primarily because of the need for money to be spent on fixing them up, but are you really getting the bargain you think you are?  Buying a property £20,000 under value that  needs £20,000 spending on it isn’t a bargain.  It only becomes a bargain when you can buy it for considerably less than the current value plus the cost of the works required.  And that means that the seller needs to be motivated to sell quickly.

The ease of refinancing far enough above the purchase paid to pull all of your deposit cash out is completely dependent on the amount of renovation work undertaken.

Mortgage lenders valuers do not, in isolation, recognise buying cheap as a valid reason to value above the purchase price paid.  Do nothing to a property and you will get it valued at the purchase price you paid and all your cash will be stuck in the property.

Waiting 6 months or more does nothing to alter that fact - waiting two years or more and you can begin to look at being able to get some of your deposit back out.

The only way to get your cash back out in a short period of time is to do something that significantly increases the value.  Most commonly this is a refurb, but obtaining planning permission and splitting titles could also achieve the same outcome.

In summary, it is possible to buy for cash and refinance to pull your deposit money back out, BUT only if the seller is motivated to sell quickly and only if the property has the potential to be improved.

What happens if you don’t have enough cash?

If you come across a motivated seller and a property that offers a good profit after refurb, but you haven’t got enough cash available, even if you can negotiate a below market value price, you can still be involved in the deal.

Your secret weapon is bridging finance - as long as you know how to use it intelligently.  It can be the route to significant profits if you use the right lenders on the right deals - but that’s another story for another blog!

You can learn more here:

• Contact Kevin Wright over on his Facebook page.
• Browse the Recycle Your Cash online training library by clicking here.
• Attend an upcoming 1-Day Property Finance Masterclass event - Book in here.