Is Cash Always King?
February 15, 2017
In financial circles, there's a saying, a summation of a long held belief: "Cash is King."
But what does it mean?
When investing, the best companies to invest in are the companies with the largest cash reserves. It's commonly known when an individual is dealing with a vendor (Chimney Sweep, HVAC Company, a painter, the person that keeps you in firewood) that there is often a discount when cash is offered.
And it's often assumed that when purchasing real estate, cash is not only king, but it reigns supreme. This often gives investors an advantage over owner-occupants. Most owner-occupants, especially the first time buyer, will be purchasing their home with financing of some type. If an individual or corporate seller is reviewing comparable offers from an owner-occupant and an investor, and the investor offer is cash, well, cash IS king and the owner-occupant just lost their potential home.
But there's one place where King Cash just might lose his crown and that's on the purchase of a HUD home.
When a buyer makes an offer on a HUD home, they have to choose between two financing options: FHA 203b/FHA 203k or other financing/cash. See? Cash loses its prestige, because HUD doesn't differentiate between cash and financing; HUD only differentiates between FHA products and everything else.
In a seller's market, this can make all the difference in the world to the owner-occupant buyer, making their offer every bit as appealing to HUD as a an investor's comparable cash offer.
While which offer is accepted is ultimately a product of the bottom line, the owner-occupant has two advantages in this situation: 1) HUD is about promoting home ownership and prefers to sell to owner occupants and 2) this levels the playing field and takes away the advantage an investor's cash offer would have elsewhere.
So, while in every other situation, Cash is King, in purchasing a HUD home, the owner-occupant is King and his HUD home is his castle!