When the seller of a distressed property stipulates "cash only," it is often because they need to close the deal quickly, and they are looking for a buyer who does not need to wait for approval from a lender to fund the purchase. This type of seller cannot risk having the sale fall through due to a bank's last-minute denial of a borrower's loan application.
Cash-Only Deals are Often Lucrative for Fix-and-Flip Investors
For the fix-and-flip investor who does not have cash reserves to participate in these cash-only deals, they are missing out on the opportunity to snap up properties that often have a substantial profit margin built in. The cash-only seller is often selling the property under duress, making them highly motivated to let it go for less than its market value. For the fix-and-flip investor, these cash-only sales can mean a significant return on investment.
"Close as Cash" Loan Products for Experienced, Dependable Flippers
The good news is, there are some fix-and-flip lenders who offer a special loan product for this circumstance, which allows the borrower to purchase the property and "close as cash" with the lender funding the purchase, assigning Title to the borrower, then recording a Grant Deed after close of escrow. This type of loan product is also used by experienced borrowers who are skilled at acquiring auctioned properties, but need to be able to compete at auctions with cash buyers.
Understandably, this loan product is typically offered to a trusted borrower who has built a reputation with the lender for completing flips successfully, and making their payments dependably. With a "close as cash" loan, the lender will wire cash to Title for the property purchase on the borrower's behalf. Once Title has recorded transfer from the seller to the borrower, the lender will immediately record their Deed of Trust in a separate transaction with another Title company.
In a normal real estate purchase transaction, Title would be transferred with a Grant Deed recorded simultaneously, but in a "close as cash" lending situation, the Deed of Trust is not recorded until a day or two after the Grant Deed records, which leaves the lender at risk until the loan is secured. With this loan product, the lender's risk is mitigated by the borrower paying a "close as cash" fee - which varies by lender, but can be .5% to 1.5% of the property's purchase price.
At Anchor Loans, many of our long-term borrowers have requested the "close as cash" option, and we are happy to offer this product to our trusted clients. If you would like more information about Anchor's fix-and-flip loan products, complete our free borrower application, or contact us with any questions you have.