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I have a friend who is a real estate broker for a rental property investment company. His company goes into neighborhoods that are often struggling, buy houses

I have a friend who is a real estate broker for a rental property investment company. His company goes into neighborhoods that are often struggling, buy houses for cash, gut them, then rent them. They have a lot of buying leverage, because there's no mortgage to deal with. They just slap down the cash. That's one way that higher interest rates cause problems. It's hard to compete with someone that can hand you a cashier's check for $500,000.

bradfa 1y ago
Lots of banks now offer “cash equivalent” mortgages. You do more to pre qualify and the bank locks you in with some contracts but then you can make a cash equivalent offer that has no mortgage contingency which can close just as fast as an all cash offer.
jihadjihad 1y ago
I’m having a little trouble squaring the circle of “neighborhoods that are often struggling” and “a cashier's check for $500,000”, but maybe it is a regional US thing.
- ChrisMarshallNY 1y ago
  In Long Island, cheap houses are a half mil. I suspect that the Bay Area is even worse.
- giraffe_lady 1y ago
  My neighborhood is like this. It's been underresourced and neglected for decades, but is well connected to transit and is adjacent to more prestigious neighborhoods. The buildings being bought are 2-4 unit apartment rental buildings, and quite old, so 300-500k is typical. Then they're downzoned into single family homes or possibly two condos and resold for about double the price I think. Obviously the ones using (and then losing) them as rental housing and the ones buying are completely different groups.
- zdragnar 1y ago
  It is very regional. An older house on 5 acres (2 hectare / 20k square meters) could go for $300k. $500k could get you a really nice house. Picking a random rural area in a random midwest state found this beauty: https://www.landsearch.com/properties/16167-160th-st-letts-ia-52754/4546509 https://www.landsearch.com/properties/16167-160th-st-letts-i... The homes investors would look to pick up to flip and sell or rent would go in the $80-120 range in this area, I'd think.
terminalshort 1y ago
Cash doesn't really give you much more leverage. A seller really couldn't care less where the money comes from as long as they get paid. Cash will get you a better price in the case where a seller really needs to sell instantly, but that's a rarity. Most of the time the higher offer wins regardless of how the buyer finances it.
- ChrisMarshallNY 1y ago
  According to my friend, the issue is that financed deals frequently fall apart at the last minute. Cash is more secure, when you turn down a bunch of offers for one that goes belly-up, at the end.
- ryandrake 1y ago
  When we were buying a house, we made offers on around 30 properties, and about 10 of them lost out to lower dollar value cash offers. In a hot real estate market, nobody wants to deal with any contingencies.
- adgjlsfhk1 1y ago
  The leverage cash gives you is convenience. A normal buyer will have very specific times they can do the transaction (since they need to almost finish selling their house before they can buy yours). Showing up with cash offers means that the buyer can be done right now.
JumpCrisscross 1y ago
“Cash offer” just means no financing contingency. I made a cash offer for my place despite financing it with a mortgage; it just meant I couldn’t pull out of the deal if my financing fell through. (We would have had to settle to break the contract.)
unethical_ban 1y ago
I hate to pass judgement on the individuals who work in industries. We have families and retirements to secure. But to me, this kind of corporate, large scale buy-out of residential property is immoral and dangerous to our society. They tell themselves they're increasing liquidity in the market or that they're helping people who can't afford to buy, have a place to rent. It's just excuses for taking advantage of a situation, and I wish what your friend did was against the law (or else regulated into oblivion) so regular people could afford a home in cities.
- ChrisMarshallNY 1y ago
  I agree. I’ve said as much. He just shrugs. I think he makes a lot of money.

bradfa 1y ago

Lots of banks now offer “cash equivalent” mortgages. You do more to pre qualify and the bank locks you in with some contracts but then you can make a cash equivalent offer that has no mortgage contingency which can close just as fast as an all cash offer.

jihadjihad 1y ago

I’m having a little trouble squaring the circle of “neighborhoods that are often struggling” and “a cashier's check for $500,000”, but maybe it is a regional US thing.

ChrisMarshallNY 1y ago
In Long Island, cheap houses are a half mil. I suspect that the Bay Area is even worse.
giraffe_lady 1y ago
My neighborhood is like this. It's been underresourced and neglected for decades, but is well connected to transit and is adjacent to more prestigious neighborhoods. The buildings being bought are 2-4 unit apartment rental buildings, and quite old, so 300-500k is typical. Then they're downzoned into single family homes or possibly two condos and resold for about double the price I think. Obviously the ones using (and then losing) them as rental housing and the ones buying are completely different groups.
zdragnar 1y ago
It is very regional. An older house on 5 acres (2 hectare / 20k square meters) could go for $300k. $500k could get you a really nice house. Picking a random rural area in a random midwest state found this beauty: https://www.landsearch.com/properties/16167-160th-st-letts-ia-52754/4546509 https://www.landsearch.com/properties/16167-160th-st-letts-i... The homes investors would look to pick up to flip and sell or rent would go in the $80-120 range in this area, I'd think.

terminalshort 1y ago

Cash doesn't really give you much more leverage. A seller really couldn't care less where the money comes from as long as they get paid. Cash will get you a better price in the case where a seller really needs to sell instantly, but that's a rarity. Most of the time the higher offer wins regardless of how the buyer finances it.

ChrisMarshallNY 1y ago
According to my friend, the issue is that financed deals frequently fall apart at the last minute. Cash is more secure, when you turn down a bunch of offers for one that goes belly-up, at the end.
ryandrake 1y ago
When we were buying a house, we made offers on around 30 properties, and about 10 of them lost out to lower dollar value cash offers. In a hot real estate market, nobody wants to deal with any contingencies.
adgjlsfhk1 1y ago
The leverage cash gives you is convenience. A normal buyer will have very specific times they can do the transaction (since they need to almost finish selling their house before they can buy yours). Showing up with cash offers means that the buyer can be done right now.

JumpCrisscross 1y ago

“Cash offer” just means no financing contingency. I made a cash offer for my place despite financing it with a mortgage; it just meant I couldn’t pull out of the deal if my financing fell through. (We would have had to settle to break the contract.)

unethical_ban 1y ago

I hate to pass judgement on the individuals who work in industries. We have families and retirements to secure. But to me, this kind of corporate, large scale buy-out of residential property is immoral and dangerous to our society. They tell themselves they're increasing liquidity in the market or that they're helping people who can't afford to buy, have a place to rent. It's just excuses for taking advantage of a situation, and I wish what your friend did was against the law (or else regulated into oblivion) so regular people could afford a home in cities.

ChrisMarshallNY 1y ago
I agree. I’ve said as much. He just shrugs. I think he makes a lot of money.