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Mar
08

Is Cash Still King at the Jersey Shore?

image from masspropertybuyers.com

There is an old saying “Cash is King”. This has held true for much of the last few years, and a lot of very smart investors have made a fortune by accumulating cash and then using it as leverage in real estate deals. However, we might be seeing an end to that era at the Jersey Shore.

Let me explain. For a long time now, the belief has been that an all-cash offer carried amazing weight – and in the not-so-distant-past climate of obtaining mortgages, this was very true. Sellers may have been more willing to accept a lower offer if it was all-cash rather than a higher offer that required a mortgage contingency. Mortgages have proven difficult to obtain, and the security of knowing that a deal is not at the mercy of the banks and new stringent banking regulations can go a long way when negotiating. Sellers who had been sitting with their homes on the market eventually get worn down by buyers looking to “steal” a home, and finding an all–cash buyer makes it a done deal so they can finally move on.

However, times appear to be changing: there is no question that cash is a significant component, but my recent experience has demonstrated that an all-cash offer is not necessarily a substitute for price. While price is undoubtedly the primary factor for sellers, they will take many other points into consideration. Aside from how the price will be paid (cash, small mortgage, larger mortgage), other factors could include down payment, closing date, and other contingencies, like the need to close on a current home.

Over the last couple of months I have been working with an investor who is buying properties with the intent to rent them. He is an all-cash buyer with the ability to close quickly. There is zero emotional attachment to the properties because since they are for investment purposes only, he is strictly buying by the numbers. We have been experiencing a definite change in the real estate market: not only are newly listed properties getting multiple offers very quickly, but even properties that have been sitting unable to get sufficient interest are all of a sudden getting more than one offer. In many cases, the other offers are also all cash. Now the game changes: whatever leverage you thought you had as a cash buyer is not so strong anymore. The other players in the game have similar terms, which obviously drives the price up: typical supply and demand.

There is less good inventory, there are more buyers, and there are more people with cash. Cash buyers who have been enjoying an environment in which their cash enabled them to secure amazing deals are getting pushback now. Almost like water being thrown in their faces, they can’t understand why sellers have stopped being so eager to practically give their homes away in exchange for cold, hard cash.

So, is cash still king? In my opinion, cash will always be king – it just appears that there are more kings out there looking to purchase Jersey Shore real estate. Cash will always make you a better buyer, but it is not the driving factor that it was in the not-so-distant past.