How to beat all-cash homebuyers
High-end homebuyers face stiff competition where all-cash sales dominate.
The rise of all-cash deals in places like Miami has made it difficult for high-end home buyers planning to use a mortgage. In response, many of these borrowers are turning to lenders able to close loans quickly or offer a range of financing options.
In Miami-Dade County, for example, 62 percent of all closed residential real estate sales in 2013 had no mortgage, says the Miami Association of Realtors. For homes priced $800,000 and above in Miami-Dade, all-cash sales accounted for 58 percent of the total sales in that price range. The all-cash share in that range was 27 percent in 2008.
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Nationally, 31 percent of residential real estate sales were cash-only in 2013, according to the National Association of Realtors.
Ram Selvaraju had to compete against an all-cash buyer when he set his sights on a four-bedroom Spanish colonial-style home in Coral Gables, Fla. Selvaraju, 35 years old, is a biotech analyst at a New York investment firm; he owns other vacation and rental properties in South Florida and Europe. He planned to rent the home in Coral Gables after buying it.
Selvaraju decided to make an offer after two reductions left the price at $618,000, but an all-cash offer above that price was submitted before he secured financing for his bid.
Instead of applying for a jumbo loan, which he feared would take too long and have too high an interest rate, Selvaraju found a nonjumbo loan from a Florida lender for $417,000; a New York bank lent him an additional $130,000 on a home-equity line of credit from his primary home in New Jersey. After the competing all-cash offer fell through, he bought the home in April for $630,000, using his offer that combined a down payment and the two loans. "I wound up paying a lot lower interest rate on a shorter-term loan, than had I gone with a jumbo loan," he said.
Selvaraju's experience in the Miami market is typical for South Florida, says Dan Hechtkopf, a real estate agent in Miami Beach. Cash deals, especially for condos, are the norm, and it's harder and harder for even well-qualified jumbo borrowers, he says. "A lot of buyers play this old-school, low-bid game, but here it doesn't work," Hechtkopf said. "Somebody's just going to come in and pay cash."
David and Michelle Hendler, both lawyers in Miami, lost out on a townhome to an all-cash buyer in August. Hendler, 32, said he and his wife later secured a jumbo loan, but chose to put down 35 percent — the typical amount is 20 percent — to land another house in the same Miami Beach development. "It's a serious all-cash market and that makes it tough for a lot of people," he said.
Miami led U.S. markets in all-cash deals in 2013, followed by Las Vegas and New York, according to data compiled by RealtyTrac, an Irvine, Calif., real estate research firm.
Mike McPartland, North American managing director for investment finance at Citi Private Bank, says the move toward cash deals is a holdover from the 2008 real estate and stock-market bust. "There's still a lot of thinking out there that if all hell breaks loose, nothing can happen to my house and family because I paid cash," he said.
Moreover, McPartland said that many condos in vacation spots like Miami and Las Vegas are still in litigation or foreclosure, and big banks may not want the hassle of financing a condo.
Many of his clients, he says, are opting to liquidate assets and pay cash for properties, and then get a mortgage a few months later to recoup their assets by investing again. "Can you find an investment that will outperform a loan of 3.5 percent? The odds are pretty good."
And even buyers who need to finance a home purchase aren't out of luck, says Angela Hernandez, a mortgage officer with FirstBank Florida in Miami, which made $200 million in mortgage loans last year.
"I've closed jumbo loans in seven days," said Hernandez. Successful borrowers often employ strategies like Selvaraju's, using a combination of second mortgages, home-equity lines of credit, and quick closings to beat all-cash buyers. "There are always options, so long as you go to the right lender," she said.
Here are tips for borrowers in markets that reward cash.
- Be patient: Some all-cash buyers and their offers can appear and disappear, especially if the buyer is overseas. Your financing-contingent offer still might have a shot, especially if you're willing to put down a large down payment.
- Realize that flexibility is an advantage: Sometimes a line of credit on another investment property, or a home-equity line of credit, can help make your offer look even better. It may not be all-cash, but more-cash is better than less-cash.
- Know the market: Work with your real estate agent and loan officer to find sellers that are open to accepting bids with financing.
A previous version of this column gave the incorrect title for Michael McPartland. It has been corrected.
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Well, there are two sides to the story, one who can pay cash, and the other that is just happy to get cash for the home. Done deal.
If I am trying to get my papers together, raise up my score, find a convenient lender, complete the famous 20% down, and complete all that progression of events---I have to recognize that cash continues to be king. Here and in Miami
Then again, who wants to live in Miami..?
Who the bleeding f*** can afford to pay cash for these overpriced clunks? Let me guess; the rich TBTF bankers and other one per centers.
More crap from MSN. Cash rules, the only way to "beat" a cash buyer is to OVERPAY by about 10% more than the cash buyer. Otherwise dealing with FDA,FHA or USDA is NOT worth the hassle from a seasoned seller's point of view.
Good homes to buy are foreclosures that are due to someone dying--those homes are not trashed by the former owner who was ticked off at their own inability to make the payments and take it out on the house.
My house was a foreclosure due to death. My daughter's house was a foreclosure from what has the appearance of the husband dying and the wife not being able to hang onto the house--they were elderly, my records search showed he died at age 73--maybe she took a home equity loan to pay his medical bills or funeral expenses and couldn't keep up with the payments. She obviously loved the home--the house was very clean and she left helpful little notes all over the house telling what each lightswitch was for, how to start up the furnace, etc.
Aren't the bankers just loving these all cash deals LOL.
I've owned my homes since 1992 and its staying that way.