A lot of investors buy foreclosures with cash -- and for good reason. Paying in cash means a faster, easier sale, and it usually means a better deal, too. Sometimes, it might even open the door to more property options, as many banks avoid mortgage-backed buyers altogether. Are you considering buying a foreclosure with cash? Not sure how to go about it? This guide can walk you through it.
Pros of buying a foreclosure in cash
There are tons of benefits to buying a foreclosure with all cash -- for both you, the buyer, and the bank holding the property.
For one, it means there's no financing involved. Mortgage financing is a lengthy and tedious process, and it requires tons of documentation, lots of time, and endless hassle. While that's no fun for you or other investors, it's a downright turnoff for the banks holding these properties.
You have to remember: Banks are losing money every day these homes sit vacant. They want a fast, easy, pain-free sale. And financing -- particularly government-backed options like a VA or FHA loan? Those won't achieve that at all. As a result, an all-cash offer could give you more negotiating power, especially if you're up against only financed buyers.
There are other benefits, too, of course. Buying in all cash means no mortgage payments -- and that's a big win if you're just looking to flip the property or rent it out. Additionally, there's no interest involved, so even if you pay listing price, you're technically paying less for the home over time.
Cons of buying a foreclosure in cash
On the downside, paying all cash could mean a serious ding to your bank account. As a real estate investor, having a solid financial cushion is critical -- for maintaining both your properties and your business -- so if an all-cash bid requires too much of those reserves, it could be a risky move.
On top of this, there's also less due diligence involved. With a mortgage loan, your lender would probably require an appraisal and maybe even an inspection -- moves that protect your interests and ensure you're making a smart investment of your dollars. Buying in all cash doesn't offer these kinds of perks, and it may mean getting stuck with a dud of a property. If you do go this route, research the property thoroughly and see if an inspection can be permitted. (You typically can't inspect a home if it's still occupied.)
Another drawback is the lack of tax benefits. With a mortgage loan, there are a number of tax deductions you might qualify for on the purchase. Cash offers don't allow for these sorts of perks, though this might not be a major deal if you're not planning to hold the property long.
The pros and cons of buying a foreclosure in cash