Cash vs financing

ever get a guy from a craigslist listing come over look at your ipod and say yep, let me just get some financing in order and another guy comes in with cash and says thank you? financing contingency... a little thing that was so so so "standard" for 100 yrs went bye bye in 2001-2007... hmmmmmmm hmmmmmm hmmmmmm .... oh a sign of a F'n BUBBLE...

Step 1, admit BUBBLE...

Chase has stepped into the jumbo loan market recently, but it's been nearly impossible to finance more than a million dollars for ... maybe the past 15 months? So if you're selling an apartment with a price tag of more than, say, $1.5M, the risk of the mortgage not closing has been significant. Sellers understandably want to avoid that.

ali r.
{downtown broker}

Also, if the property is a coop and the sale requires board approval, an all cash deal gets approval much more easily.

but it's been nearly impossible to finance more than a million dollars for ... maybe the past 15 months?

with what ltv? and what kind of income? these kinds of statements are very, very troubling to me.

FP: I have not found this to be the case at all. I'm trying to refi, have had no trouble. Lenders like to see 70% LTV and excellent scores.

We are total cash buyers, bidding on apartments over a million, and I can honestly say that I have seen no advantage to date.

Newbie, you're bidding on apartments (plural?) and not getting them offering cash? In this market? Explain, please.

not offering enough?

Firstly, it's important to note that it's not like it's some fixed amount: it is an arbitrary number based on comfort levels of individual sellers. For example, an owner living in a condo who is planning on moving out of state "whenever it sells" is probably going to care more about getting the highest possible price ans less about all cash, whereas the owner of a vacant condo with a toguh Board is probably going to can a lot more about an all cash deal.

But even given that, any seller may care more or less, just like different investors have very different risk premiums they put on various other factors or investments. But I can say that last down cycle I saw more than a few make HUGE mistakes by NOT discounting for all cash deals, taking marginally higher offers which did not close, and then ended up with substantially less when they finally found a buyer who closed, chasing the market down.

"We are total cash buyers, bidding on apartments over a million, and I can honestly say that I have seen no advantage to date. "

I really am not sure how, as a buyer, you could really "see" what was and wast not happening as a result of being all cash. It's just not that transparent.

Why is cash so much more preferable than a financed deal?
and I guess the risk of the mortgage not closing)

you answered your own question.

Ali, if you can't borrow more than a million bucks, then those apartments arent worth the asking prices any longer! Financing options create price. This is the lesson of the bubble. Every other reason for the bubble existed before 2000, was in play before prices tripled in 7 years.

Newbie, just wait. As an all cash buyer you have a pure analytical decision. Crunch the numbers. You are clearly better off being invested in short term bonds than you are buying real estate here.

"Ali, if you can't borrow more than a million bucks, then those apartments arent worth the asking prices any longer! Financing options create price. This is the lesson of the bubble. Every other reason for the bubble existed before 2000, was in play before prices tripled in 7 years."

How do you make that argument in the Coops on Park, Fifth, etc. that don't allow financing anyway? (of course, I agree with your general premise: that it has almost always been the turning on to "high" the cash spigot that has caused booms and the turning off of that same spigot which has caused busts).

Those people never needed a mortgage to begin with... You know what I mean.

Again playing Devil's advocate: you know those aren't the only buildings where people were buying all ash: lots of all cash transactions even in Condos.

But I'll also point out that for the buildings which fared the worst in the last bust, it was almost universal that you couldn't get ANY financing in them, and the buyer profile for the units was that of a person who did not have the ability to do an all cash transaction.

As you know, the marginal buyer is all that matters. And the marginal buyer of a $1.5mm apartment in Manhattan probably had a $1mm mortgage. This market is running on the fumes of money made in 2004-2008. We'll see how far it goes. I do agree with the point you once made, however. The longer it can hold at a level the less likely it is to go down further.