Using all cash to purchase investment property may be better than financing in two particular situations.
The first situation is a short-term deal, that is, you intend to sell the property shortly after you buy it (known as “flipping”). When you have the cash to close quickly, you can generally get a larger discount on the price of a property. In this case, financing could delay the transaction long enough to lose an opportunity.
You’ve heard the expression, “money talks, BS walks.” This is particularly true when making an offer to purchase a property through a real estate agent. The real estate agent is more likely to recommend to their client a purchase offer that is not contingent on the investor obtaining bank financing.
The second case is one where you use your retirement account. You can use the cash in your IRA or SEP to purchase real estate, and the income from the property is tax-deferred. In order to do this, you need an aggressive self-directed IRA custodian (oddly enough, most IRA custodians view real estate as “risky” and the stock market as “safe”). Two such custodians are Equity Trust and Entrust Administration.
Understanding a Cash Offer versus Paying All Cash
If you make a “cash offer” on a property, it does not necessarily mean you are using all of your own cash. It means the seller is receiving all cash, as opposed to the seller financing some part of the purchase price. Thus, you can borrow 100% of the purchase price from a lender and it will still be considered a “cash offer” if the seller gets all of his price at closing.
