When making an offer on a buy-to-let property, many believe that buying in cash puts you at a major advantage.
But is this really true?
The answer is… sometimes.
…a lot depends on the vendor – that’s the person you’re buying off, and their situation. It’s not a given, so it’s not an assumption you should make with every buy-to-let property you make an offer on.
“The vendor wants to sell quickly…” the one sentence that almost every cash buyer wants to hear because you might be able to negotiate a deal.
If bagging a deal wasn’t enough, you’ll also have certain advantages that make you particularly appealing to a vendor – not needing a mortgage is the major one. Without a mortgage, you can pretty much half the time to completion. Who wouldn’t want that?
If things are getting competitive, being a cash buyer can certainly help get a vendor on your side.
There are ways of presenting yourself as being a cash buyer even if you’re technically not.
How so? Well, if you use a short term finance such as bridging, then you are – to all intents and purposes – a cash buyer. That type of finance can be arranged very quickly, and a few weeks wait on a bridging loan isn’t too different a situation to having the cash in your bank.
Not familiar with bridging? There’s a podcast on bridging finance we did right here.
Other advantages? Credit worthiness won’t be part of the equation, which is a bonus. Also, agents might pay you more attention as this can just give you the edge in certain situations.
That’s the upside of being a cash buy-to-let buyer – what about the disadvantages?
As with anything in life, there are some disadvantages to being a cash buy-to-let buyer. The main one is that investors grow their portfolios quickly by using leverage. So, for example, you could pay for one £100,000 property for cash – but you could also split the £100,000 into four £25,000 deposits.That’s capital growth and rental income from four properties instead of just one.
And if an investor is hellbent on purchasing with cash, it leaves them with little or no cashflow to grow their portfolio. So if growing your property portfolio is a priority, maybe being a cash buy-to-let buyer isn’t for you.
Also, you’ll lose out on liquidity – make sure you know you’ve got enough in your bank account to weather making such a big cash payment.
There’s also no tax advantage to paying directly in cash.