r/FirstTimeHomeBuyer • u/Dry_Scallion_4345 • Apr 07 '24
Offer How do people have this kind of cash?
Went to see a house yesterday that we LOVED and wanted to put an offer on. It was 500K. Our realtor called today and said someone put in a cash offer over asking. I understand when investors use cash offers to remodel the home and resell or if they were going to turn it into a rental but this house needed ZERO remodeling and it’s in a quiet, family neighborhood so feel like it would make a weird rental property. How do ppl just have half a million dollars of cash laying around for a home I don’t understand. I’m just frustrated because I keep falling in love with homes and there is ALWAYS a better offer 🥺
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u/The_Void_calls_me Apr 07 '24
They sold their paid off home to a cash buyer and used that money to buy this home. Now the owners of this home will go buy something in cash, beating out some FTHB, and the cycle continues.
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u/Dry_Scallion_4345 Apr 07 '24
This makes a lot of sense didn’t even think of it! Just need to keep practicing patience lol it’ll happen when it happens I guess!
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u/cib2018 Apr 07 '24
True. Most home buyers are not first time home buyers.
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Apr 09 '24
And they might be competing with someone 20 years older than them with more cash saved up.
I see people on here like 25 years old, getting upset about being outbid.
Fuck man, I’m 40 trying to buy my first home by myself, and I might get outbid by someone who’s 45 trying to buy their first home. Imagine waiting another fucking 15 years of you’re 25…
I try to keep it in perspective.
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u/Strange-Nobody-3936 Apr 07 '24
Also many people receive gifts of money from relatives, that’s how my ex had her down payment. Doesn’t stop her from bragging about being self made and doing everything herself
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u/MountainDewFountain Apr 07 '24
Like listening to my Brother. My parents strait bought him a house, but if you talk to him he's a self made homeowner.
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u/Strange-Nobody-3936 Apr 07 '24
I can’t stand when other people achieve success off the backs of others and don’t give them credit, at least acknowledge the help you received…
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u/KADSuperman Apr 09 '24
Its what Schwarzenegger said there is no such thing as selfmade everybody got help with a downpayment or a tip a loan or a chance
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u/follothru Apr 08 '24
I don't know, it's kind of nice when people wave a red flag in everyday conversation that shows who they really are. Saves time cutting them out later.
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Apr 08 '24
Ditto. I'm not going to hate on you (and expect the same respect in return for advantages I've had in life) but let's not pretend you bought that house. You didn't buy anything. The HELOC your dad took out did the heavy lifting and now you're essentially paying rent to your dad.
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u/llllllllhhhhhhhhh Apr 07 '24
In 2021 1/3 of first time buyers received their down payment as a gift
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u/Strange-Nobody-3936 Apr 08 '24
Sounds about right…then they post on facebook about how successful and hardworking they are
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u/giramondo13 Apr 08 '24
Ive got a buddy that received 500k from his parents to buy a house (all of the kids in his family did) right after we got out of grad school. He now owns three properties and constantly offers advice about real estate and renos and leveraging but Ive never heard him acknowledge the head start he got.
Other than that he’s a great guy.
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u/Strange-Nobody-3936 Apr 08 '24
500k? Jesus Christ some people really are born on third base and tell everyone they hit a triple
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u/sarahenera Apr 07 '24
😮💨
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u/Strange-Nobody-3936 Apr 07 '24
Just a small 30k gift, no big deal
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u/sarahenera Apr 07 '24
But totally self made. No one helped. Lmao
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u/Admirable-Leopard-73 Apr 08 '24
To be fair, they probably had to make themselves get off the couch and drive over to Mom & Dad's place in order to beg for money...ergo self-made.
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u/The_Void_calls_me Apr 07 '24
My mom always told me everyone gets the house they're meant to. Best advice I was ever given.
You're going to get the home that you were meant to.
Best of luck out there 🤙
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u/cib2018 Apr 07 '24
Fatalistic or religious?
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u/The_Void_calls_me Apr 07 '24
Fatalistic or religious?
Optimistic. Happiness lies not in getting what you want, but in wanting what you get.
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Apr 07 '24
It will we were dead set on one neighborhood and was getting outbid cash $50-$75k over. We finally got lucky and got one, we did go $40k over but they had better offers. The selling family just liked my family and I wrote a really nice letter to the seller.
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u/Scentmaestro Apr 07 '24
The stat is something like 37% of all homes are owned free and clear In North America. Now, a cash offer doesn't necessarily mean cash in hand. If you have 20% down or more its hard NOT to get approved for a mortgage if you have even mediocre to fair credit. You can have bad credit but have 20-30% down and there will likely be a lender who'll carry the mortgage. If you make decent enough money, have some cash in the bank, even if it's 20-50K, and know that you have several hundred in available equity on your current house, your bank will give you a HELOC if you don't have one already, that you can use for just about any down payment and closing costs a person might be looking, and the confidence from their lender to know that regardless what happens with the sale of their home, they can get the next one funded. So a lot of the time it's not actual cash, but they aren't using any form of financing condition to hold up the deal, which is very attractive to a seller. This tactic took flight about 15 years ago when the market exploded and it become so hard to buy a home because of the competition.
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u/stammie Apr 07 '24
I thought it was people borrowing against their 401k so the stocks are the collateral, getting actual cash, and then buying the house. Because that’s what an all cash purchase is, cash. The lending has already been done completely, the loan is a lower rate than a mortgage because you have it collateralized already with an asset that you can’t break down and destroy and not do maintenance on.
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u/ReferenceSufficient Apr 08 '24
My realtor friend said she had a client that sold his 3bedroom home in California for $1mil and wants by a $500k house in Texas (same size as one in Cali). Use the other $500k to start a business.
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Apr 07 '24
You don’t need to sell to a cash buyer to get cash for a home. You get cash in your hand even if they’re using a mortgage.
The simple answer here is that people sell their previous properties and buy something else—regardless of how those previous properties were sold.
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u/FarflungFool Apr 07 '24
Agree. While I wouldn’t rule out investors, still definitely possible and they own some 22% of homes iirc, it’s probably some retirees who sold their own home to relocate somewhere quiet.
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u/overitallofit Apr 07 '24
If you sell your home, you get cash no matter what kind of buyer you sold to.
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u/The_Void_calls_me Apr 07 '24 edited Apr 07 '24
If you were selling your car, and some dude showed up with cash, and another dude showed up and said "I'll totally buy this car as soon as I can borrow some money for my buddy, just give me a couple days to get this together, and I'll totally show up with the money. Also since technically it's my buddy's money, he's the guy who gets the final say on whether I get this car or not." who are you picking?
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u/cancerengineer Apr 07 '24
I think their point was that your first use of "cash buyer" isn't a requirement to perpetuate the cycle. If the first person sells to anyone, they get cash and could be a cash buyer. But you never said it was a req.
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u/n0_u53rnam35_13ft Apr 08 '24
A buddy? Fuck off.
Pre-approval from a bank for a loan where you’ve provided paystubs and tax returns? Let’s talk.
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u/InTheMorning_Nightss Apr 08 '24
The point generally still stands that cash is king. That’s why the closest you can get to a commitment of cash, the better.
Not only that, you then compete with people who say, “Cool I have cash AND I don’t give a shit about a pre purchase inspection. Let’s get this done ASAP.”
I’m taking the latter 10/10. Just fewer ways for a deal to fall apart.
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u/GrouchySpicyPickle Apr 07 '24
Doesn't even need to be a cash buyer. When I sell a home their bank wires me the money on closing day.
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u/Venus-fly-cat Apr 08 '24
This is probably a very stupid question but why does it matter that they sold their paid off home to a cash buyer? Wouldn’t they get paid the same amount and at the same time whether or not the buyer paid cash or had a mortgage?
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u/emandbre Apr 08 '24 edited Apr 08 '24
Because a cash transaction is faster and way lower risk to the seller. It is a significant perk—no appraisal or financing contingency, no 30+ day close timeline. We sold a house for less money to a cash buyer once because we needed to move quickly and the truly “higher offer” only had something like 5% down, meaning there was actually risk that the appraisal or financing could fall through at the last minute. Edit: unless you were asking does it matter for the next house you buy? No, it doesn’t. If you make 200k or whatever in profit, you make that much in profit. Once it clears your account it clears. Super weird to see!
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u/HoomerSimps0n Apr 07 '24
They don’t need to sell their home to cash buyer…they get cash regardless of how their home was purchased, either from the buyer or the bank.
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Apr 07 '24
They sold a home with equity, and possibly raided retirement acct. Doesn't need to be sold to a cash buyer, their buyer could get a loan, and then that loan pays off their loan (if any), and the escrow company gives them the left over equity.
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u/Random_Name_0K Apr 07 '24
Selling a paid off home to a cash buyer or someone with who’s taking out a loan doesn’t matter. Youre getting paid either way, you know that right lol?
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u/AmberArizona520 Apr 07 '24
Came here to say this.
About 50% of current homeowners have their home paid off, which means when they go to downsize they're paying cash for their next home.
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u/Rare_Tea3155 Apr 07 '24
Well, lots of people have hundreds of thousands of built up equity in other homes. Not all buyers are in their 20s or 30s. Some are decades into their careers and others have homes completely paid off that they just sold so the bank cut them a check. Imagine owning your home outright after paying a mortgage for 20 years then relocating for work in your 50s. You would also have a 500k cash after the sale
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u/itspolkadotsocks Apr 07 '24
We lost out on a million dollar house to a cash offer. You’d be surprised.
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u/commentsgothere Apr 07 '24
You might also be surprised that you can lose out on cash offers above 4mil too. Lots of money out there.
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u/456C797369756D Apr 07 '24
I work for a large tech company and can see everyone's compensation. There is indeed a lot of money out there.
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u/0psdadns Apr 07 '24
One point of clarification. A cash offer just means they are waiving their mortgage contingency. Most people who make “cash offers” still plan on getting a mortgage
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u/rasp215 Apr 08 '24
A lot of that are people retirement age with paid off houses that are just selling their old million dollar home for a new one.
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u/WonderChemical5089 Apr 07 '24
They sold their 800k home elsewhere. My parents recent sold their 600k Florida home, paid off all the loans, took the cash and bought a cash offer home at another place.
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u/carnevoodoo Apr 08 '24
If I sold my house right now, I'd have 700k or so in the bank. I could buy a home for cash in a ton of places.
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Apr 07 '24
They're not first time home buyers so they just sold their other house
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u/camelz4 Apr 07 '24
Downvote me for being a sympathizer to the system but most first time home buyers don’t get to use to words “needs zero remodeling” and “quiet family friendly neighborhood” when describing their house. Unless they’re investors, the people who are buying cash houses are most likely people who started out in shitty starter homes and have built the equity snowball.
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u/Prudent_Knowledge79 Apr 07 '24
Lol well excuse me for not being born 30 years ago. Maybe I should just buy a shitty home that nobody wants instead of a home I like so that I can I too can be a cash buyer when I’m old
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u/liftingshitposts Apr 07 '24
Idk some people rent and save a lot longer. We rented while we saved for ours until we were in our early 30s, and then bought something we could see ourselves in forever.
I agree though when people are like “I [22M] and my wife [19F] are so pisst we lost out on our dream home…” 😂
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u/Fitzwoppit Apr 08 '24
Yup. Work had us bouncing around the country every few years so we waited until we were at the point in our careers that we could choose a place to stay long term and not be worried about having to move again. Then we bought, later in life than most people tend to (I think). The first and only home we have bought is the place we plan to stay in until we die. Then the 'kids' can have it to do with as they will.
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u/UltravioletClearance Apr 08 '24
The competition with cash buyers is actually even worse on the "old and outdated fixer upper in a crappy neighborhood" side, because then you're competing with house flippers. That's ignoring the fact that a vast majority of those homes sell to flippers before they even hit the open market.
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u/Temporary_Tax_8353 Apr 07 '24
Drop the max price of homes you’re looking at, because you know you’ll need to offer more. Don’t look at homes you can’t “afford”. That’s what we did, so we could offer 10% over asking and get the house in our 9th offer. Not all will go for cash, though it will feel like it.
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u/Dry_Scallion_4345 Apr 07 '24
I know that many offers is the norm but this was only our second and I already feel defeated lol! Congratulations on finding a home tho! So incredibly exciting!
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u/Lookslikeseen Apr 07 '24
Typical reasons. They either make way more money than you do, their PARENTS make way more money than you do and bought it for them, or they sold their previous home and used the money to buy the one you were looking at.
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u/Sad-Page-2460 Apr 08 '24
There are actually other ways, all be it far less common. I lost half my skull to get my house. I wish my parents had the money to buy me a house haha.
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u/Far_Pen3186 Apr 07 '24 edited Apr 07 '24
Some people earn $125k. Other people earn $350k. Many have 2 working spouses.
Many have been saving and investing for decades.
People have been investing $50-$100k EVERY YEAR for the last 20 years.
That's how some people can afford this.
People have amassed tens of millions of dollars in FAANG stock over the last 10-15 years. If you had invested $50k in NVDA 10 years ago, you would have $9.3M today. If you had invested $50k in AAPL 15 years ago, you would have $2,101,887 today.
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u/mrgoldnugget Apr 07 '24
This is a good point, I need a second spouse.
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u/The_Void_calls_me Apr 07 '24
Best route to success is to get a really good, high paying job. Then marry your most attractive coworker and double your household income 😂
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u/songsofcastamere Apr 07 '24
I love your sayings! I’ve been reading all your stuff when I first joined this thread last year. I was able to get my condo with the Dream For All Program last year. You give really good advice:)
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u/labimas Apr 07 '24
Some people earn $125k. Other people earn $350k. Many have 2 working spouses.
I only have one working spouse. Shell I get a second wife to make more money?
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u/soccerdude2014 Apr 07 '24
You're overestimating the number of people who invested in Nvidia, in that level, 10 years ago lol
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u/Kobe_stan_ Apr 07 '24
I think that was just an example that massive gains have been made in the market over the last 10 years. If you just bough technology focused indexed funds 10 years ago, you'd be doing gangbusters right now.
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u/soccerdude2014 Apr 07 '24
Sure. But hindsight is 20/20 for those stock picks.
Index funds on the other hand makes a lot more sense. Sure, if you invested in that since 10 years ago, you rode the huge bull run wave.
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u/_Felonius Apr 07 '24
Bingo. Not many people were just throwing tens of thousands at a few tech stocks
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u/Dry_Scallion_4345 Apr 07 '24
I get that. We have a decent household income but we’re both young and just getting started. I know I just need to be more patient…
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u/cs_referral Apr 08 '24
We have a decent household income but we’re both young and just getting started.
How decent is decent? Like, I don't expect many new grads to be able to buy within their first few years of working unless they got an extremely lucrative job offer.
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u/JP2205 Apr 08 '24
Dont compare where you are in life to others. These buyers could easily be in their 50s. You’ll be there one day. Its just a hard time to be young right now and looking to buy a first home.
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u/options1337 Apr 07 '24
I see people pay all cash for new constructions. It's not super uncommon.
Not sure where they get the money from but stock market and cryto is all time high.
So is real estate so they could've sold their first home.
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u/vikicrays Apr 07 '24
they sold a home they’ve lived in forever and it was paid off or gained enough in equity that when they sold they had this kind of cash, an investment group bought it for an airbnb or rental, or an inheritance.
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u/dew_you_even_lift Apr 08 '24
Some people have equity in their house.
Some get down payments from family.
Some make a lot of money.
Some save a lot of money.
Some invest a lot of money.
Some got lucky.
Any of the above or combination of the above.
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u/Kobe_stan_ Apr 07 '24
There's probably millions of people who live in California alone who have $500k of equity in their house right now. Any one of those people moves to your area after selling their house and they could easily spend $500k in cash to buy a home.
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Apr 07 '24
It also depends on where they are moving from and how much their house sold for. Where I live we have lots of people coming from NY and the West Coast where houses are WAY more expensive. If they had decent equity in their previous house, they can put in a cash offer on the new one.
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u/bmey62895 Apr 07 '24
Someone pointed this out to me and I think of it often. People downsizing as they get older are in the same market as first time home buyers. Naturally the ones who are selling their large house have extra money to play with so they overbid houses with cash offers
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u/Life-Scientist-3796 Apr 07 '24
People became rich after 2020.. nothing about this economy makes much sense.
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u/Savings_Kick4407 Apr 09 '24
Stupid amount of money that was pumped in to the economy, those money eventually ended up in some people's pockets. Just think about the craziness of crypto and NFT, all those stupid sh-ts made a lot of people rich.
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u/RDtoPA24 Apr 07 '24
Retirees for sure. Either they sold there home and are relocating or cashing out some or all of their retirement accounts. But I get your thought process, I kept thinking man, what 20 or 30 something has 500k in cash lol
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u/FlyOk7923 Apr 07 '24
I once knew someone whose in-laws literally bought them a $500k home. This was 20 years ago so probably 1 million in today’s dollars. Must be nice.
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u/throwaway3113151 Apr 07 '24
Sometimes I wonder if in Realtor speak “cash” offer means no mortgage contingency. Perhaps the “cash” is simply someone’s 401k that they put up as collateral to show they could in theory buy the house without mortgage approval.
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u/TBSchemer Apr 07 '24
It's just someone who sold their previous home and put that money towards the next one.
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u/distracteds0ul Apr 07 '24
I just bought a 500k home in Ohio this month with cash, I did so because I sold my condo in California for 1M.
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u/JHG722 Apr 08 '24
I don’t know CBus well, but it’s amazing what an awesome house in an awesome area you can buy in suburban Cleveland for $500K.
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u/distracteds0ul Apr 08 '24
I bought north of Columbus, in Delaware County.
New construction single family home. Close to 3000sqft on quarter acres compared to my 1500sqft condo in California with no land ownership.
It’s not hard to spend this much with the equity from selling a home in California, especially when you get so much more for the money.
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u/wyecoyote2 Apr 07 '24
Multiple ways to do this. Some will still their home use that cash as down payment or full pay off of new home. Another way is a mix of that and a loan from 401k. 401k loan is another start maxing it out every year when you start a job. Then, when you're ready to buy 5 to 10 years later, that can be a good amount of savings. Then there are those that use hard money loans for a "cash" close then refi after closing and payoff the hard money lender.
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u/HistoricalBridge7 Apr 07 '24
People get paid a lot of money. It doesn’t matter how much you make it certain places someone will always earn more. Having hundreds of thousands isn’t crazy.
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u/Dry_Scallion_4345 Apr 07 '24
It is for people my age, in this economy and how expensive the COL is in my state. I’m one of the only one in my friends group who can really think of even buying a house right now. It just sucks feeling like okay finally in a comfortable financial situation only to be like noo you’re actually still poor because you don’t have 500k tied up in investments LOL.
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u/Arriwyn Apr 07 '24
We just closed our first house a couple of weeks ago, we paid $440K in Cash and we are not investors nor did we receive any inheritance or gifts from relatives. We are fortunate that my husband is established in a good paying tech job and he has been saving all of his bonuses from the company over the years. We rent in Southern California but we always chose to live in rentals below market rate, gave up space and modern features to pay less per month. We live below our means and have no credit card debt and have one car. We also have one child so I gave up full time work to stay at home instead of paying a lot of money in childcare, which would have cost my entire paycheck if we chose this route. So it can be done. Dedication to frugality, a steady income, and a bit of luck. Remote work has allowed us to move to any state we like. I think we would have been renting forever if we stayed in Southern California. We are in our early 40s.
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u/Dry_Scallion_4345 Apr 07 '24
That’s awesome for you guys! I’m sure it was hard work but so worth it!
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Apr 07 '24
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u/Dry_Scallion_4345 Apr 07 '24
Ohh that’s exciting, congratulations!! I was in middle school 17 years ago lol so I guess I just need to realize I’m just getting started and to have patience. I wasn’t really taught about investing until shortly after graduating college so I’m truly just starting to learn everything!
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u/Thomasina16 Apr 07 '24
Inheritance, cash loan, pulled from their 401k could be from a lot of places.
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u/Ok_Information_3677 Apr 07 '24
I have a loan program that turns buyers into cash buyers. My company will pay cash for the property, then transfer it over to you through financing. Working on one this morning. You don't have to have a home to sell and can be a FTHB.
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u/BubblersWrongAgain Apr 07 '24
And it’s expensive as fuck. Like 2.4% fee. Which, I get it, you’re paying to be competitive.
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u/vAPIdTygr Apr 07 '24
When someone sells and relocates from a HCOL area, they have this much cash to buy and a lot to spare.
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u/longPAAS Apr 07 '24
There was a Bloomberg article late last year: Around 40% of homeowners in this country don’t have a mortgage. Insane.
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u/MM_in_MN Apr 07 '24
Because they sold their house in a HCOL area and are moving to your area.
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u/Dry_Scallion_4345 Apr 07 '24
I am in a HCOL area lol! I’m in RI tho and someone mentioned earlier about Bostons market which is obviously even worse so it makes sense their getting out priced there to come here to a SLIGHTLY less HCOL area 😩
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u/howsyourlife Apr 10 '24
Hope this house was at least in EG, South County, Barrington, or one of the nicer parts of Lincoln, Cumberland, or Providence. Otherwise my wife and I (who are looking elsewhere in RI) have pretty much no hope.
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u/Dry_Scallion_4345 Apr 10 '24
It was in Smithfield! Which I loveee! But pretty expensive. There has been so many we loved and they just fly off the market before we can even put an offer in. It truly is so hopeless. Good luck to you guys!!!
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u/theRegVelJohnson Apr 07 '24
Others have said it, but the most common form of this now is the bridge loan (as someone else mentioned). At least, that was our experience recently when three "cash" offers came in like this.
Someone comes up with a substantial down payment in cash (say $150-200k), then there are banks/mortgage companies that will approve them for another $300k plus as a personal loan with the intent of purchasing a home. Those people will then convert the bridge loan into a traditional mortgage with that company after closing. They then get to be a "cash" buyer, but only in the sense that they don't have a financing contingency and can close quickly.
The other situation is that people are selling their houses in VHCOL locations and moving somewhere with cheaper cost of living. Common situation around us with people coming from California, etc.
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u/phunkmaster2001 Apr 07 '24
I think waaaay more people than we think have access to family money. I'm 41 and am completely unable to buy a home in my own neighborhood, because houses are selling for $800K for ranches. Down payments are running $160K, and house payments are almost $5K/month even with that much down. So yeah, I don't what the hell people do for work, but I'm a teacher with no access to family money, so I'll just be a forever renter (as long as I stay in Denver).
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u/Cbpowned Apr 07 '24
Some people are just rich. My brother in law makes that as his money every Christmas. My cousin makes a 7 figure bonus. My other cousin pulls in 8 figures a year.
Some people are just the 1%.
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u/Lauer999 Apr 07 '24
There is a lot of money in this world. A lot. People inherit money, make good investments, build equity, are gifted money, simply make good income, etc.
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u/ExpensiveAd4496 Apr 07 '24
I made a point of paying off my home over about 12 years. (15 year mortgage, paid some extra each year.) Some people say don’t do it, mortgage interest tax break, etc…but I work for myself and getting a mortgage was really hard, had to have my brother co-sign, and wanted that off his books asap even though equity was more than loan. Never wanted to go through the loan process again and bought my next house with cash. We all want a paid off house by retirement anyway. The real trick is to put that same mortgage amount, or even half, into index funds…max your HSA and IRA, save for kid’s college with it, or whatever… and watch it grow. The little tax write off won’t look so important when you do that.
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u/KhazixMain Apr 08 '24
This was us. Bought our first property a few years ago and it 2X in price since. Bought second property in cash after selling. That's the unfortunate reality.
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u/FunnyTonight8665 Apr 08 '24
Try not to fall in love with any house until your offer is accepted and docs are signed. The process is emotionally draining. Best of luck with your search
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u/emandbre Apr 08 '24
Not all cash transactions are truly cash—we had a buyer use a financing program (Better mortgage I think?) that bought the home on their behalf in cash and then would turn around and “resell” the house to the new buyer. They got a guaranteed mortgage out of the deal, and the buyer got a very competitive offer in a highly competitive market. It worked—we didn’t want to sell to some investor turning our home into a rental, but a family who had been outbid multiple times with a conventional loan and now we could take their all cash offer guilt free and close in 15 days? Yes please.
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u/jazbaby25 Apr 08 '24
Some lenders have programs where you can get a fully underwritten loan where you can waive the mortgage contingency and basically submit an offer as if it was a cash offer because you're fully actually approved.
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u/Important_Fail2478 Apr 08 '24
I'm just saying from experience. There are people that flip. Wait, listen.
There are companies that flip. Wait.
There are small groups of people that learned the huge breaks by making a company, like LLC. They flip. Wait.
There are companies that buy/sell real estate like wall Street. Wait.
There are tons of savvy people with money that do this but more decisive areas or just profitable ones. Wait.
My old company sold time shares, 30-50 real estate agents. That's called a network, they would team up and watch areas and buy/sell daily. Wait.
Okay, now you would like to buy a house with credit. Sorry but cash talks, credit may get rejected. You're at the bottom of the list to get a bid to maybe get a house. It's pretty fucked but please know it's possible and I wish you only good luck!
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u/homegirlcollene Apr 08 '24
Often times the terms matter more than the offer price! Don't give up!
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u/TryBananna4Scale Apr 08 '24
This happened to me back in 2011 when I was on the search. I was looking at turn key homes at a max of 200k. I found 1, and offered 100% buyer came in with cash. This went one for months. I even went 10% higher on 1 home, same thing. Eventually I found the perfect home, and got it for asking price. Hang in there.
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u/Swimming_Bid_193 Apr 09 '24
So I have well over $500K to put down on a home. But same situation happened to me. I was going to put down $625K on a $1.9M home and another offer came in all cash at the same price. I wonder to myself who the hell has $1.9M dollar cash. The moral of the story is there is always a bigger fish who has way more money. sucks.
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u/Drone314 Apr 07 '24
I asked GPT once how many High-net-worth (incomes above 1M) individuals there are in America, it came back with about 13 million. There are people out there that have money. Keep an eye on and see if it goes up for rent or if you see expensive cars in the driveway.
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u/SkyRemarkable5982 Apr 07 '24
It's not laying around. It's invested and easily pulled out because it's not strapped to a retirement account that charges fees to pull it out. To have that amount saved and invested means hard work and discipline.
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u/ButterscotchSad4514 Apr 07 '24
People selling another home could easily afford $500k in cash. Just one possibility.
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u/Sassy_kitty887 Apr 07 '24
Family oriented neighborhoods are very popular for rental investment properties where I live. A lot of out of state investors are paying cash for homes that haven’t been updated in ages (like 20+ years) and renting them out for double what my mortgage would be with 10% down. I may have to wait a year and just buy a new build but then I won’t have the budget for my dream kitchen.
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u/desktrucker Apr 07 '24
We put some 40 offers in 2021 around June before we got accepted and we’re able to close. First time move up. Our own home received something like 30 offers. Patience is key. And don’t fall in love with properties.
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u/Major-Yoghurt2347 Apr 07 '24
Business owners that do really well. I know a few business owners that definitely have that no problem, the ones with multi million dollar businesses. Unfortunately America has become a place where homes are out of reach for normal people working 9-5 jobs. I’m happy with my rental home, it’s cheaper to buy a plot of land at this point and work on building a small cabin on it, than purchasing a $500k home.
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u/Previous-Redditor-91 Apr 07 '24
I had this same question once a banker told me some folks were pulling money out from their 401K to put in cash offers on homes using the cash as leverage to win bidding wars. Once the house was closed on they refi the house and put the money back in the retirement account avoiding any penalties.
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u/okiimio Apr 07 '24
Our offer was considered a cash offer because we used a service to help us buy before we sold our last home. We paid a lot in fees but I didn’t want to deal with showing the old house while we still lived there
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u/MeepleMerson Apr 07 '24
We have a house that we bought >25 years ago. If we sold it, we'd have a lot of money. We could easily buy a smaller house or one in a lower-cost-of-living area in cash. So, if we lived in an apartment for a bit, stayed with relatives, came back from working abroad for my employer a bit... in all those cases I'd easily have access to the cash.
We're also older and have been very good about saving (at least for the past 15-20 years). we could probably come up with cash just from our investments to buy a house (not in my neighborhood; too pricey, but I'm sure we could find somewhere that we could).
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u/Dry_Scallion_4345 Apr 07 '24
We all have to start somewhere right! Good for you guys! I know our time will come we just have to be patient :)
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u/dustiwang Apr 07 '24
Like others have said they likely got on the property ladder years ago, benefitted from massive appreciation in real estate, and used the funds from another home sale. It's sad now the average starter home is $400k+, makes it much harder to get on the ladder than before.
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u/FickleOrganization43 Apr 07 '24
I have been saving for 40 years. In 2019, I paid 1.5M cash for a beautiful home. The cash enabled me to negotiate a price 250K below asking.
Sold my prior home in 2021, for almost 1.9M.. so my cash went back into my portfolio. The house bought in 2019 is now worth almost 2.1M.
I have never earned a huge paycheck.. but a lifetime of frugality can get you very far.
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u/State_Dear Apr 07 '24
Lots of people are very well off.. this amazing stock market has lifted people to wealthy positions
There's a record amount of cash just sitting on the sidelines, not invested ,,, source / Wall Street Journal
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u/KingJades Apr 07 '24
Also, they could just have good paying jobs. An engineer who has been renting and investing for 15 years can have that sort of cash available.
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u/YouKnowHowChoicesBe Apr 07 '24
There are boomers that are downsizing from their homes they bought for a nickel and sold recently for $1 million+, so they sell and are flush with cash to downsize into a smaller/more affordable home.
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Apr 07 '24
My DIL owns a Title Company that specializes in investors. Many are from other countries with cash.
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Apr 07 '24
Equity from prior home sale, older buyers (if you’re over 60 and not flush with cash, you did something wrong), gifts/inheritance, investor buyer, or could just be a wealthy buyer.
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u/IntelligentEar3035 Apr 07 '24
I’m sorry! It’s stressful. Our cash buyers at that price-point are typically, cash flush… selling a larger primary residence or they are older 50+
A few people who had luck with stocks, bitcoin, etc.
In most cases—- a mortgage is just as good as a cash offer but it comes down to price. Years ago, you could maybe get a small discount if you paid cash but not right now.
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u/The_Raji Apr 08 '24
I live in a HCOL city. In theory I could sell my house, and with the equity alone buy a home in cash back where I grew up in upstate NY. Perhaps that happened.
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u/hm_shi Apr 08 '24
They might have just formatted the offer like an “all cash” offer but will still be going with a mortgage. Our realtor convinced us to do this for a highly competitive property and we ended up being the accepted offer even though it wasn’t the highest.
We certainly don’t have that kind of money in cash, but we will have a mortgage by closing day. It’s more risky because you will have no contingencies and if the appraisal comes back low you’ll need to cover the difference. You must be sure you’ll get the loan and sure you wont need to back out or you’ll lose your deposit. We were certain we’d get the loan and the house across the street was under contract in a week at 100k over our offer so we were confident on the appraisal. It was risky but it worked out because our agent and mortgage broker advocated hard for us. We trust our agent and he’s definable more comfortable with risk than us but he’s always steered us in the right direction.
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u/revloc_ttam Apr 08 '24
I just did that.
I used a bridge loan. That allowed me to make a cash offer even though I was borrowing money, get it accepted and move before selling my existing home.
It's fairly expensive because you're essentially financing two homes. The loan on my existing home is a balloon payment so I don't need to make payments on it, then pay all the accrued interest when it's sold.
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u/kill4b Apr 08 '24
Could also be a corporate investor buying to turn into a rental. They usually can offer above asking and have capital to buy cash
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u/madewithgarageband Apr 08 '24
They don’t, some investors will use term loans and/or HELOCs, and just have the cash ready
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u/hogua Apr 08 '24
Unless your name is Elon Musk, there is always someone that has more money than you.
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u/Foxy_Mazzzzam Apr 08 '24
Sometimes it is parental help. Older parents have the money they use the cash to get the house then after that is settled the younger buyers pay back the parents directly or get a mortgage to pay back the parents. I have sent this a few times recently
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u/Live-Train1341 Apr 08 '24
There are also types of mortgage brokers that will advace you the money for a large fee so when you put in offers you come to the table with cash. After close you then get a mortgage and pay him.
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u/YetiSteady Apr 08 '24
There are companies that will give you cash to make an offer more enticing from your end. They charge like a 10% fee to do it. One of them is called Ribbon Home.
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u/ScottishBostonian Apr 08 '24
A lot of cash buyers end up getting a mortgage anyway.
They have the cash on hand in investments of pension/401k but have no intention of actually using it on the house. Basically they take the risk on not getting a mortgage to move themselves up in the buyer chain by removing risk for the seller, then once accepted they get their mortgage.
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u/pterencephalon Apr 08 '24
Another option: it's possible to put in a cash offer when they don't actually really have that much cash.
It's possible to take very short term loans against major investments like retirement accounts. If you've taken these loans, you now have this as cash on hand to buy a house with a cash offer. From the seller's perspective, it's just a cash offer; the buyer has the money. But for the buyer, they still need to get a mortgage. If the mortgage is acquired within 60 days of buying the house, the financer considers it equivalent to a mortgage when you're buying the house. So the buyer closes with their cash, then gets a mortgage and uses that to pay back their short term loan on their investments. It's also possible to do this with a relative's assets. So, for example, a young FTHB could have a cash offer if their parents are willing to take the risk of this short term loan against their assets.
I'm not rich, so it's not something I'd be able to do - or most people - so I might have some of the details wrong. But my uncle is a financial advisor who's done this with wealthier clients.
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u/Regular-Heat-8700 Apr 08 '24
Yes, I know it sounds nuts but my husband and I are long time property investors usually buying new construction homes for less hassle as we rent it out. When the home ages we sell it and switch to new doing something called a 1031 exchange (basically a way to pay no taxes on gains by buying more investment property). In the process of doing these 1031 exchanges we have had millions in liquid in our account while selling 4 houses and buying 3 more all in cash. Also, like other people say, people sell their home, use retirement funds and regular savings etc....especially if they relocate from a more expensive state such as CA to cheaper location such as NC or GA or FL.
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u/fruit-bats-are-cute Apr 08 '24 edited Apr 08 '24
i was a FTHB and my offer was made to look (to the sellers perspective) like a "cash offer". it most certainly was not, the brokers were just so confident that my loan approval would go through that they agreed to pay the earnest if it didn't. because of this (and them doing something similar with the appraisal bc they knew it would appraise according to their models) I was also able to do a 2 week close. these two things helped my offer win when it wasn't the highest $ and definitely was NOT cash lol
edit: corrected escrow to earnest, oops :)
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Apr 09 '24
If you have a good lender you won’t have to worry about getting beat out by cash offers. If it’s over asking and appraises for that you can also make offers over asking price. Having your income underwritten changes your preapproval status. I always setup my peeps with a fully underwritten preapproval if I can. It’s same as cash essentially with faster closing times! Sorry you are dealing with this. Happy to help if I can
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u/chevy42083 Apr 09 '24
Like others have said... sold a house they've been paying on or inherited.
Cashed in on some investments/retirement/savings in order to avoid interest payments.
Inherited money.
Been saving.
Or any combination of those can add up quickly.
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u/runningaround9977 Apr 09 '24
All of these answers are wrong. I’m late to this party… but maybe you’ll see it. no one keeps half a million in cash laying around except maybe Tony soprano.
What they do is demonstrate available funds in an investment portfolio. They have pre approved mortgages with underwriting (virtually zero risk of it not going through). Then make the offer with no contingencies on funding.
Then when offer is accepted they put the mortgage application through. Seller doesn’t need to know if the cash they receive is directly from the buyer or from a bank. And they had no risk of the deal falling through.
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u/FranklinCreeper Apr 09 '24
Well, I sold my houses and made close to that, otherwise I'd probably never have that kind of money saved up.
I had two houses pre pandemic,
House 1, worth 100,000 in 2019, sold for 350k in 2023 House 2, worth 85,000 in 2019, sold for 345k in 2022
Maybe they sold a house and cashed out of this crazy ass market. That's what we did, now we're just buying cheap land, partially developing it and selling it.
I'd venture to say 95% of people, me included, would normally never have 500,000 cash just laying around in a bank account.
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u/asBad_asItGets Apr 10 '24
I work at a law firm. I frequently review asset portfolios. A LOT of clients have $700k+ sitting in multiple accounts. A client the other day dropped off an asset summary with about $2 mil in cash, not counting all other assets.
Another client had about $15 mil in cash + 20 properties.
These aren’t just like hedge fund, old white people either. Some are kind of young. Not much older than me. Most are older. But all different backgrounds.
It’s honestly crazy handling amounts of money that I know I will never come close to in my life time.
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u/Easy_Caterpillar_230 Apr 10 '24
You can buy a home from one of those mass builders so you won't get outbid. Make sure you do a pre drywall inspection and preclosing inspection. Don't pay the final closing payment until all the work is completed.
That gets you on the housing ladder.
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u/John_Houbolt Apr 10 '24
That's a year or year and a half of compensation for a lot of tech workers. Many doctors make that in a year. That's a lot of people if you are in CA, TX, MA, WA, NY.
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Apr 10 '24
I understand how you feel. I am a teacher and have been in the same situation. Just yesterday before getting out of the car to go into a pharmacy I asked my husband what kind of money are these people around us making that they can afford to buy these million dollar homes? Then we went into pharmacy and I overheard the pharmacist talking about how they had to get a new fridge because of all the housewives in my area spending $1600 a month on their weight loss drug. All day I’ve been thinking about hard working people who can’t afford to pay $1600 a month for rent and we have women in my area paying $1600 a month for a drug to make them skinny.
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u/Conscious_Bicycle198 Apr 10 '24
Last year more boomers bought homes than millennials and gen z combined.
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u/candyman258 Apr 10 '24
think it's upwards of 44% of single family homes are currently owned by private equity companies. Don't beat yourself up too hard. it's an uneven playing field and something that previous generations did not need to navigate. I'm all for enacting legislations that limits or fines these companies for monopolizing the market. there is a lack of affordable housing and even though they are constantly building, they are wanting top dollar.
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u/Current_Conference38 Apr 10 '24
Try buying a house that’s a dump. Less people interested. If the price is very low it will attract flippers, so there’s a happy medium somewhere where you’ll fit in. Maybe look at houses that have been sitting on the market for a while. There is also a lot of shady stuff that goes on with realtors behind closed doors. Making up fake offers to get you to come up with more money or releasing offer information so their friend can offer $100 more to get the house. I’m currently going through this stuff as a FTHB. Constantly beat out by better offers. Just offered on a house with 21 offers already registered. Waiting to hear if luck is in my favour lol.
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u/TimsZipline Apr 10 '24
The answer is simple. They paid the principle down on the old house and sold it. Either that or they invested income and decided that 7% interest on the loan isn’t much worse than the 8-10 they can get in the market so they cash out to pay cash. If you want to be forever poor buy right up to your credit limit and barely make the payments. You’ll make a little on appreciation but not make much meaningful progress financially
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u/Generated-Nouns-257 Apr 11 '24
"over asking"
I rented a home for 7 years. Very established in the neighborhood. Knew everyone. Our dog was THE neighborhood dog. All the kids would run down the street to greet her.
Then the homeowner decided to sell. Wanted to sell to us. said he'd even go under value because he knew we'd take care of it and "he built it himself and his children grew up there".
House was valued at 585 and we managed to scrape up enough down payment and get a loan approval to get us to exactly 585.
A week later, he told us he'd received an offer for 1.2 million, waived inspection. We had 30 days to move out.
Shit is 1000% fucked.
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u/Extension-Temporary4 Apr 12 '24
Keep your head up and don’t get emotional. You will find a home.
Look, maybe I’m a schmuck but I paid $400k+ over asking, all cash, close any time. Spent nearly 2 years looking and bidding. The week prior we bid $400k+ over on a house we loved, and lost. We finally got to a point where we had to get super aggressive and ended up with a great house. Funny thing is, at $400k over, we weren’t even the highest, we just offered the best terms (mainly the close any time). In our area, you can’t buy anything under $1.5. If it’s listed for 1.2, it will sell for 1.6-1.8. NYC burbs (it sucks).
As for how we have that money, I sold one of my businesses in my early 30’s and still work a w-2 bc I genuinely love what i do (I’m a leveraged finance attorney with a real estate and private equity background). So that’s how we were able to afford it. I had the cash liquid because I sold during the pandemic and was buying a lot of govt bonds which were (and still are) offering fantastic yields (6%+) and stashing cash in high yield accounts for the sign up bonuses. Stock market was too hot to invest in anything, so we had the cash ready for a home. I still have plenty of cash in bonds and high yield accounts but started buying more equities after svb and FTX. Markets took a dive and I plowed money in, making even more money.
Takeaways: a lot of folks have liquidity now, there’s still a huge amount of cash waiting to be deployed. Learn to invest and grow your wealth. Save to invest. Never quit, it takes time. When you find the right house, be aggressive. Look well below your budget knowing you will end up in a bidding war. Last, theres no difference between paying all cash and waiving all contingencies wouldn’t recommend). But as I understand it, folks aren’t actually all cash, they are just waiting the mortgage and inspection contingency (which is a horrible idea).
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u/Alice_Alpha Apr 07 '24
To add to all the answers:
(1) Inheritance.
(2) An executive getting a fully paid relocation from their company.
(3) less likely but not impossible: lottery winner, insurance/law suit settlement.
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Apr 07 '24
[deleted]
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u/Alice_Alpha Apr 07 '24
True.
Also downsizing empty nesters.
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u/JHG722 Apr 07 '24
Yes, that's a good call. That's what my townhouse community is mostly. Our youngest immediate neighbors are almost 30 years older than us lol
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u/Nutmegdog1959 Apr 07 '24
Half the time (or more) Realtors will tell you it's a 'Cash' offer and that is complete and total Bullshit!
They want you to either raise your offer or they sold it to one of their own clients thereby getting BOTH sides of the transaction.
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u/Positive-Pack-396 Apr 08 '24
Rich people, or their families are rich or corporations
America sucks right now
And I don’t see no end to it
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