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  • Buy-to-Let

    What constitutes a "cash" buyer?

    I was wondering precisely what it means to be a "cash buyer" and would like to understand exactly what I would need to do to become one so that I could potentially negotiate a possible cash buyer discount (something that I have read Vanessa and others mention on here before).

    To use my example...

    I have seen a property that I am interested in for 430k. This is the price before any SDLT and purchase/mortgage costs. Assuming I have 250k in cash, I am not able to buy the property in cash?? Am I correct in thinking that I can use some of the equity (around 750k) that I have on two other 2 properties that I own (1 unencumbered, 1 with a small mortgage) and remortgage one of those properties so that I can get the cash to become a cash buyer?

    Also, what would be the best way for me to go about doing this? Which of the two properties (unencumbered or small mortgage) would be the best one to remortgage and why?

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    Hi,

    Put simply, to qualify as a 'cash buyer' you are able to pay for the full (total) value of the property in cash only. Thus if the property is worth £430k, then you pay £430k cash only for the property, raising no loans, debt or other methods of securing payment, only cash. If you need to finance the purchase via other methods, mortgage etc. after offer, then you are not a cash buyer.

    The point of a cash buyer is that you are usually able to purchase more quickly (as you do not require approval for the finance on any property), and are thus a lower risk of the purchase falling through for the seller. If this is of benefit to the seller, you can negotiate a discount.

    If you can remortgage other properties and have the cash prior to first  approach / offer to the seller, then you would be a cash buyer, but if you are relying on remortgaging the other properties during the purchase process / after first offer, and making the cash offer on the basis of being able to remortgage other properties, then there is no benefit to the seller, and you are not a cash buyer.

    I have purchased as both a cash buyer and with mortgaged finance. As a cash buyer I went from first viewing to completion in under 4 weeks, and secured a discount on my ability to do so. As a mortgaged purchaser, although I had finance agreed in principle, the purchase typically takes an average of 3 months by the time the lender is satisfied and will agree the mortgage on the specific property.

    By the by, I am also expat and mortgages can be easy or hard (or impossible) to arrange as an expat, depending on which country you are resident in.

    I am sure others will add thoughts too.

    Martin

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    Hi Martin

    Thank you kindly for your response. This was the reason that I asked as I wasn't really sure what it meant to be a true cash buyer. A few months ago I had arranged a mortgage in principal so I know that I can get the funding, but it is a while since I have bought anything and I didn't realise it can take up to 3 months to push the purchase through.

    Out of interest, the discount that you were able to secure on the cash purchase - was it a significant amount on that occasion? Say I had the 430k in cash, what should I be looking to get as a discount?

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    Hi,

    I don't remember exactly, but I think it was in the region of 5% to 6% at the time (2010). It will inevitably depend on how urgently the vendor needs to sell, and the individual circumstances. In my case the vendor didn't need to sell (new overseas development), but was willing to offer some negotiation for cash.

    I do remember though I had to complete within 4 weeks from offer as part of the deal.

    I paid cash because it was a holiday home purchase and I didn't want finance on an overseas property, either locally arranged, or from the UK.

    edit; thinking back I think we also agreed a few other 'cost savers', which were probably also worth a further 5+%, but they weren't directly off the price paid, as such

    Martin

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    Yes cash buyer is cash in your hand so you can evidence that to the agent if required

    An AIP on another house is good but not nearly as good . They may let you down

    Any 3rd party involved can get messy even if its say parents funding

    People even family sometimes change their mind when the going gets tough.

    The less people involved the better . Get cash in your bank

    Factor in the cost and time its in there so view vigorously

    But you could consider a hybrid approach

    Offer as a cash buyer and evidence you can complete if required

    But run a mortgage app alongside it . If pressure to complete is there use the cash

    If not use the mortgage funding and then you still have cash for maybe another cash purchase

    Then top up the cash pile maybe from cash flow / earnings etc

    As a cash buyer you may get a discount say 5% especially  with the now tougher PRA rules

    But a vendor may not recognise the beauty of cash and be greedy and go with the higher mortgaged offer

    Then they come back to you maybe when that falls through and you suddenly become their best mate

    Cash is useful also on short leases. small studios or non standard construction properties

    Then a healthy discount should be expected maybe 10 - 15%

    But when we say discount its a discount of MV not necessarily off advertised price

    So Ive paid full asking before as the asking is sometimes  a discounted  MV anyway to attract interest

    But  you will not always get a discount .

    Sometimes in a bubbly market you just get the deal ahead of a mortgage buyer but for the same price

    On repos cash is always good because they often require a 4 week completion

    Cash buyers are normally welcomed but as cash buyers are richer they sometimes put in multiple offers but do not follow through on all of them if accepted as they are rich but not that rich . To lose 1000 in fees is worth it sometimes if they are making 10K on another deal . A mortgage buyer who puts their heart and soul and savings into maybe their 1st BTL has more determination to see it through and losing a 1000 in fees for pulling out on a whim is not on their radar so could be seen by some as a better bet .

    Cash reduces the competition but does not eliminate it

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    Jonathan Clarke. http://www.buytoletmk.com


    A cash buyer is someone who has access to ready cash.  This could be:

    1.  Cash in the bank.

    2.  Approved for bridging finance.  This can often be secured against equity in another property.

    There are two sales channels in property in the UK - like most sectors.  These are "retail" and "trade".  Cash buyers operate mainly in the trade space paying lower prices buying discounted properties, often through auctions.

    Retail buyers are far more likely to pay full market value and be using mortgages.  They may also be in a chain.  Cash buyers are typically looking for a discount based on the fact that they can complete quickly and are not in a chain.

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    Conversely, loads of buyers state they are cash buyers when they are not.

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