Not all cash buyers are created equal. Yes, they all buy real estate in some form or another, but that is about as similar as each of these types get in any real estate market. They evaluate properties in a variety of different ways and they look for different returns. Some cash buyers are very creative, while others are implementing a more traditional approach to profiting from real estate. Let’s get started by identifying the 3 main categories of cash buyer of residential real estate.
- Cash Flow Investors
In many markets, you will find that Rehabbers are having a harder time finding properties that have a large enough spread for them to buy, rehab, and resell. It is occurring due to the lack of inventory available in many real estate markets throughout the USA. Most rehabbers are still trying to buy at 70% or 75% of ARV minus repairs. If they are targeting properties on the MLS, they are hard pressed to find large quantities of those deals in a lot of real estate markets. They will usually try to flip these properties within 3 to 6 months.
Cash Flow Investors are finding it a bit easier to find properties that meet their criteria than Rehabbers. The reason why Cash Flow Investors are finding it easier to make a profit, because they are selling their properties in a future real estate market. If they do a lease option, they are setting the option to purchase for one to three years out, which is in a different real estate market. If real estate values continue to appreciate then they can sell that property for a nice profit in the near future. If they do seller financing, they are selling the property in todays market, but the borrower will need to refinance the property in 5 years or so, due to a balloon coming due. Thus, the borrower will need to refinance the property in a future real estate market and for an appreciated price. As you can see, they could buy today for one price, but they will sell at a future value for a nice profit spread. The Rehabber buys and sells in the same market, so they don’t have the same type of spread.
Landlords buy properties based on the net cash flow the property produces rather than just current sold comparables. If rental properties are cash flowing well in the area and expenses are generally low, you will find that Landlords will being paying market value or higher than market value for their rental properties. Landlord buy based off of cash flow and certain returns per year. Typically, the Landlord is not going to sell the rental property for 5 to 30 years from now. Thus, they will be selling in a different market too.
Hopefully, you can see the opportunities in what I just wrote above. The cash buyers who are selling in future real estate markets are the ones who should be the main targets and the main people making up your cash buyers list in todays market. They are the ones that will be buying higher and leave enough room in the deal for a wholesaler to still make a profit.