In an up and down market there are those investors that will dig up opportunities regardless of the state of the economy. In the current climate banks are holding on to their cash with a wait and see attitude. Savvy investors are finding that buying with "All-cash" works as a viable strategy for acquiring residential and commercial bank owned properties. Investors with a wait and see attitude for institutional lending and financing are missing a great opportunity to buy while everything is on sale. Rock bottom prices in the residential and commercial markets in part have been driven down by the scarce availability of credit.

A Hostile Lending Environment

Currently, savings and loan banks, an alternative to commercial lending institutions and private lenders, will typically finance up to 65-70% percent of property values. Buyers in some cases are required to bring 30-35% to the closing table to even be considered. The Commercial Mortgage-Backed Securities (CMBS) market which has traditionally produced many lenders eager to compete for loans has been stalled since the 4'th quarter of 2007. For example: In the first 3 quarters of 2008 only $12 to $13 billion worth of commercial loans were securitized. Already, 2009 is on its way to having the lowest production of securitized commercial loans in 10 years as stated by Commercial Real Estate Direct. Some banks, in order to finace a new project, are requiring developers to pre-lease roughly 70 percent of office/retail units and housing. Shorter amortization periods and higher interest rates added to the mix creates the perfect storm for an even more hostile lending environment.

It is nearly impossible without pristine credit to secure any type of loan - even with perfect credit, one with favorable terms. This being the case for both residential and commercial with residential ranking the worst. Therein lies the problem... How to secure real estate in the first U.S. buyers market since 2003?

Succeeding with Cash

As most investors wait for the economy and lending environment to improve, buyers with cash in their pocket can leverage the first buyers market in America since 2003. All-cash buyers will most probably win bids on properties, from under-performing retail shopping strips, foreclosed single-family homes and anything in between with an owner desperate to sell.

When working with all-cash buyers, sellers can be confident that adequate funds will be available. This alternative proves much more desirable to sellers as they have no incentive to wait for a long and drawn out closing process with a buyer trying to secure financing from a lender. In this poor financing environment lenders do not trust buyers adequately enough to provide pre-approved loans.

A typical closing with traditional financing spans between 30 and 45 days for non-commercial properties. All-cash buyers can close quickly by writing a check for the entire amount. Many deals fall through during long closing periods creating a financial strain for sellers in many cases when dealing with traditionaly financed buyers. During the deal closing process a property is generally flagged as "pending" thus signaling to other buyers that the deal is taken thus creating a losing situation for the seller if the current deal falls through. Sellers don't have to worry about appraisals or loan origination complexities which quite often cause many deals to smoke out. Qualified buyers can still be denied their loans if their employment status changes or financial situation was not accurately recorded during loan pre-qualification. Appraisals are suspect in the current risky volatile market leading lenders to require a higher down payment from the buyer or a lower price from the seller. All cash buyers can circumvent this process and close within days.

"Cash buyers only" is often seen on many bank-owned listings due to the nature of the purchasing process. Banks can rest assured that all-cash buyers have the funds necessary to close. Buying with all-cash lets sellers know that buyers are serious. Auctions for example can create a hostile environment for banks since many buyers bid low not having any intention on actually buying multiple properties but only those which provide the best deal or the winning bidder does not have the funding to purchase all of the properties. Banks will reject these kinds of buyers opting instead to sell properties to All-cash buyers only.

Sellers most often find that selling in return for All-cash is easier but not necessarily desired. It must be remembered however, that just because a buyer has available cash that the transfer of cash still may not happen. Nothing is guaranteed. Sellers will often more readily accept All-cash offers even though these offers come in much lower than a buyer with financing. The ease and quickness to closing with All-cash and the elimination of the process of securing a mortgage provides a positive incentive to sellers. Sellers may also opt for All-cash to avoid property devaluation, miss market timing or they have a financial situation which necessitates selling fast.

Limits of Cash

Cash is said to be "King" during tight economic times and for the most part this is accurrate. Buyers using All-cash can still fall prey to scams and situations requiring heavy cash reserves when managing or rehabbing a recently purchased property. Due diligence must not be ignored especially when a deal seems too good to be true. An All-cash buyer must ask himself/herself "Why is this property being sold for such a low price? Is there an uderlying reason?"For example: Recently I had the oppurtunity to purchase a very nice 4 bedroom 2.5 bath 1500 sq. ft. home in a desirable neighborhood. The asking price was $40,000 and I knew I could get $1200/month rent based on rental comps in the area. I offered $20,000 to the dismay of the listing agent who reluctantly faxed the offer to the bank.

Due Diligence: I offered such a low price after performing a walk-thru on the property. During the walkthru I noticed tell-tale signs of mold and flood damage that was not easily detected, especially to the un-trained observer. I also noticed an addition to the property that had water and mold damage because the addition was not done to code and poorly constructed. I figured it would take roughly $20,000 to clean-up and rehab. Others were offering $40,000. I eventually lost the bid. The property sold for $40,500. I felt sorry for the buyer as I could see that they had not done their due-dilligence on the property. A $45,000 budget is reasonable or slightly high for such a property under normal circumstances.

"The buyer who paid $40,000 will find a nasty surprise awaiting them when they actually start rehabbing the property.", I thought. This is especially true if they bought without performing a pre-closing inspection which in this case is exactly what happened I found later. The buyer was from out-of-state and had an agent that did not hold their interests to heart. We can all see where this scenario is heading for this buyer. It happens all too often to many inexperienced buyers. Many properties bought without performing due diligence often end up back on the market in a more severe condition. Let's not make this mistake. Yes, there are GREAT deals out there but lets keep our heads and follow a solid model for success under all circumstances and conditions. There is money (cash-flow) to be made for those aggressive enough to buy with All-cash and who perform their due-diligence.

More Competition: All-cash buyers are finding new competitors in the foreclosure real estate market from investors not happy with the recent performance of the stock market and other long term paper assets. Many of these investors having pulled their money from the financial markets are looking for safe places to park their money while earning a respectable return. Real estate is usually at the top of the list where they can look to purchase assets that will provide long term appreciation and steady cash-flow. All-cash buyers must now compete with many of these investors. This does not necessarily spell the end of the easy low priced market for traditional All-cash buyers but an opportunity to harness these large sums of cash from the financial sector investors wanting a better return on their investment dollars. Many of these investors do not have experience in buying, rehabbing and renting real estate. They will be seeking those with experience to whom they can loan their money. This creates the perfect storm for finding additional investment capital for expanding real estate portfolios for the traditional All-cash investor while at the same time creating a win/win scenario for all parties (i.e. city governments, tenants in need of shelter, improving neighborhoods, investors and politicians).

Sellers Living in Yester Year: All-cash buyers currently demand low prices due to the large supply of properties on the market and low number of qualified buyers. Many sellers refuse to accept new market realities of over-supply and opt to hold out for yesterday's prices. In frustration of not being able to secure their inflated asking price they pull their properties off the market eying a future time for better selling conditions. This could take 2 to 3 years or even more for the market to recover.

No one truly knows how long the current buyers market will last but to those who are currently buying with All-cash it will be arriving too soon.