— By Graham Hill

When we pay in cash, the transaction is simple for everyone involved. Because cash transactions are simple, they are also fast and more likely to be successful. In real estate, simple, fast, all-cash offers help buyers close more deals.

Savvy buyers know they can use the power of cash to be more successful in real estate transactions.

All-Cash Transactions Are at a 10-Year High

In today’s red-hot real estate market, cash creates possibilities for buyers. While we are used to hearing stories about the mortgage industry or interest rates, examples of how cash creates opportunities for buyers in real estate transactions are increasingly common.

According to statistics from the National Association of REALTORS® (NAR), as of early 2024, “all-cash buyers now stand at 32% of home sales.”

While many of the all-cash buyers are professional investors, the percentage of buyers of primary residences paying all cash is also increasing. Per the research from NAR, the percentage of repeat buyers (home buyers that had previously owned a home) that paid all cash increased from 10% in 2003 to 26% in 2023.

Prices are high, and the marketplace is competitive. Buyers that can find a way to offer cash can often negotiate better prices, and/or gain access to property where a traditional purchase with a mortgage just will not work.

Why Offer All Cash to Buy Property?

The advantages of cash are straightforward: Cash deals are easy to complete, and sellers prefer them over offers that involve more complicated financing.

When a buyer requires financing, the loan process involves not only the lender, but often inspections and other requirements that come with the loan. When the buyer can pay for the property in cash, there are fewer of these requirements and contingencies. Sellers like simple transactions; the lack of external factors means they can complete the sale faster and with more confidence.

The combination of the speed and ease of the transaction helps make all-cash offers ideal for sellers. Because sellers want easy, secure deals, buyers that can use cash are more likely to have their offers (and specific terms within those offers) accepted.

Who Buys Real Estate with Cash?

While most first-time home buyers will utilize a mortgage to make their home purchase possible, there are several types of buyers that choose to offer all-cash for property.

Some of these buyers have the capital to buy the property outright. Other buyers make cash offers, but act as an intermediary, or use tools like bridge loans to pay in cash.

To understand how all-cash offers work, we can look at some examples of categories of cash buyers, including “cash for homes companies,” professional investors, and residential home buyers.

Cash for Homes Companies

Companies that advertise to “buy your home for cash” provide a clear example of one category of cash-based buyers. Cash offers from these companies are attractive to sellers for the usual reasons; a cash offer helps a seller complete the sale quickly and easily. Because these companies offer sellers super-fast transactions (sometimes closing the sale in less than a week) these companies are often able to negotiate better terms, including better prices.

Generally speaking, cash for homes companies offer sellers less than market value for the home. Sellers that use these services agree to those terms because the all-cash offer can make the transaction painless – even for unmotivated sellers, or for properties with complications that the seller does not want to address.

“Most of the sellers we work with don’t have a background in real estate. They want to avoid the stress and work involved with a traditional sale, especially if they are selling an inherited property or a house in foreclosure. We make cash offers to sellers, even for properties that are not in great condition. When sellers want to sell property that needs repairs, or even has some legal complications, we can help them with a quick cash sale. We then step in and do the work the previous owner didn’t want to do.”

— Leave The Key Homebuyers

It isn’t just the time or the work involved that makes these “we buy homes” companies a viable option for sellers. These companies have a lot of appeal to sellers that don’t have any free capital to apply toward preparing the house for a traditional sale.

With some investment of time and money, a seller might get a higher sale price. However, for many sellers the upfront cost to create more “curb appeal” is undesirable, inconvenient, or impossible. Those sellers are often willing to forgo some profit on the sale in exchange for no out-of-pocket cost and a quick cash settlement.

Some companies operating in this “we buy homes in any condition” category function as wholesalers and intermediaries, meaning they do not buy the house themselves. They use marketing and relationships in the community to identify sellers that might benefit from a fast sale, establish a relationship with those sellers, and then earn a commission as they broker the all-cash purchase to another investor.

Professional Investors

Another example of the all-cash buyer is the professional investor. These investors apply the same focus on simple and fast transactions to gain access to properties with promising returns.

Professional investors might be high-net-worth individuals with their own money, or might be able to easily secure their own financing from their network of friends or business contacts.

These buyers often have a lot of real estate experience, and they know that if they offer all cash they can sometimes gain access to property that isn’t available to the general public. Some professional investors will contact local real estate agents directly, to spread the word that they are prepared to offer a quick, easy purchase when a good deal becomes available. The agents can work with local sellers, and connect these professional investors with sellers that are looking for a simple, clean transaction.

Through a combination of the ability to pay cash, and good communication with local agents, professional investors often gain access to valuable real estate. In many cases, these investors will receive private offers to buy property from sellers that never bother to prepare their property for sale.

The power of cash can give investors access to high-yield property, even when that property is never made publicly available on local real estate listings.

Off-Market Property and Pocket-Listings

It is intriguing to discover that a lot of property in the real estate game is never publicly listed for sale. Some estimates show that as much as 30-35% of the real estate in a local market is never shared on local multiple listing services. Instead, that property is traded within the networks of real estate professionals and their personal contacts.

In all-cash, off-market real estate transactions, professional investors (or agents representing sellers) communicate to other agents that a particular property is for sale. The transaction happens “off-market,” and the seller is able to avoid the effort, the exposure, and the expense of a traditional sale listed online.

These properties (which are sometimes called “pocket listings”) include many high-yield investment properties that are bought and sold privately, off-market, in all-cash transactions. Because many of these properties generate strong returns for their owners, sellers can easily find multiple buyers in their network.

Professional investors often prefer cash-only offers, as they are simpler and create more certainty for the seller, than offers from buyers that require financing.

All Cash for Real Estate in Resort Communities

Resort communities, and other high-demand locations that are popular with tourists, provide another example where most (or all) of the real estate is purchased on an all-cash basis.

For some real estate markets, natural amenities (like access to skiing) create strong demand from investors and second-home buyers. While there are buyers that are willing to pay cash for luxury homes, or real estate speculators anticipating higher prices in the future, many banks see loans for these types of properties as high-risk.

In these cases, banks and other lenders may feel the sales prices for these properties exceed their inherent value, and they will not provide loans. For locations like Aspen in the United States, or property in Niseko, Japan, 60-90% of the property transactions may proceed as all-cash purchases.

When banks will not offer property loans in a given area, cash offers become the dominant basis for real estate transactions.

Borrowed Money in Cash Deals

Even when buyers make all-cash offers, they do not always use their own money. A cash-buyer may arrange to borrow money for a purchase in advance, and then use that cash position to make the offer more attractive to the seller.

Buyers that want to negotiate from a position of an all-cash offer can borrow money in advance, preparing them to offer cash when they approach the seller. Some buyers get their funds from friends or family, take a home equity loan, or arrange for a business loan. Some high-net-worth individuals with large stock positions can secure low- or no-interest loans from their brokerage (using their stock holdings as collateral for those loans).

As long as the cash is in the buyer’s possession before closing, with no contingencies from a lender, the deal proceeds with the same simplicity and speed of a cash sale.

Bridge Loans

Another way in which buyers secure the money to make an all-cash offer is through the use of a bridge loan. With a bridge loan there is financing involved, but because the money is secured before the offer is made, the experience for the seller belongs in this category of a fast, simple, certain sale, with no financial complications.

Like the example of the professional investor taking private money in order to offer the seller “cash,” there are various companies offering bridge financing to investors, and even to residential home owners.

One example where a bridge loan makes sense is when the buyer wants to buy a new home, but has not yet sold their current home. That buyer can secure a bridge loan, using their current property as collateral. The lender provides the buyer with the funds needed to make a “cash offer” on the new home. While that buyer is utilizing a loan, they are still offering the seller the speed and ease of an all-cash offer. The buyer can then buy the new property, move in, and take their time selling their previous home. When the original home is sold, the bridge loan is repaid.

Bridge loans typically have considerably higher interest rates than traditional mortgages. However, as these loans are intended to be paid back relatively quickly, using a bridge loan can be an effective way for a buyer to create an all-cash offer to buy the new home. If that loan creates some short-term debt from interest on the loan, the power of cash is often worth the expense.

Cash First, then Refinancing

Even when a buyer uses their own money to make an all-cash offer, it does not mean they cannot later use a loan to free up their capital. After the buyer takes delivery of the property, that buyer can commonly finance the property to pull capital out for reinvestment elsewhere.

Distressed property provides a good example of when a buyer might pay cash to close on a property, and then establish a loan after the sale is complete. Some property is not eligible for a loan, because the property is in poor condition, has legal issues, or otherwise seems like an unsuitable risk to typical lenders. A buyer or investor can sometimes use cash (or private money) to purchase the property and then resolve the issues that made that property ineligible for a loan (such as repairs, delinquent tenants, etc.). As the issues are resolved, the property can be reassessed, and may then qualify for a mortgage.

While a large amount of capital is temporarily tied up until a mortgage can be established, these buyers can use cash offers to buy property that buyers with loans cannot purchase. As they add value to the property by resolving issues, they can use a loan to pull money out of the property, and still retain the increased value they have created (coming from rental income or resale value from a future sale). In these cases, creative financing using cash can help these buyers acquire property below market rates, creating profit for the investor.

Cash Offers Create Strong Returns

It is often said that in real estate, “you make your money when you buy.” The idea is that property acquired at the right price leads to profits (as the property delivers returns or is resold).

All-cash terms help buyers create more attractive offers, enabling them to buy property (often at a better price) that might otherwise go to someone else. In a competitive game like real estate, the power of cash is a compelling advantage.

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