Buying a home in Los Angeles can be a competitive process, and as the inventory of property listings in Los Angeles dwindles, many buyers risk being outbid by folks paying well above the asking price. Competition is fierce in a market flooded with buyers taking advantage of low mortgage rates trying to outbid each other with aggressive offers.
A bank-financed mortgage keeps your hard-earned capital in your hands instead of your home. While this allows homeowners to save their cash for other investments, using mortgage financing might mean the difference between winning or losing your dream home.
Buyers flush with cash may want to consider making an all-cash purchase when transacting on their next home to avoid the competition. After all, many sellers prefer the stability and certainty that comes with an all-cash purchase.
Below we’ve highlighted some of the key benefits of an all-cash offer in Los Angeles.
Cash is king for sellers
In some cases, sellers are offloading their houses in Los Angeles because of a life event or another investment opportunity arose, and they can generate the needed funds through selling off their coveted Calabasas property.
Sellers don’t want their listing to stagnate on the market, but because of the recent strength in the real estate market, even distressed sellers have the upper hand due to the glut of high-value offers made on their property. While mortgage-based buyers are trying to outbid each other, mortgages are not guaranteed, and a seller could be left high and dry if a buyer does not pass the hurdles of their mortgage lender.
Without any mortgage underwriting risk, all cash sales allow transactions to close faster. Buyers making an all-cash offer on a $1.5 million home in Sherman Oaks can close a deal as quickly as their broker and escrow company can hash out all of the paperwork.
Sellers like certainty and an all cash offer gives them just that!
Cutting costs through an all-cash buy
Making an all-cash buy in LA is an expensive endeavor, and any all-cash buyers must ensure that they are not breaking the bank with a purchase. That said, one of the perks of making an all-cash buy on a Los Angeles property means that buyers avoid the costly closing costs associated with financing a loan.
Obtaining a mortgage to purchase a home in LA requires buyers to incur extra costs on origination fees, appraisal fees, and prepaid mortgage interest to name a few. While these costs are minimal relative to the overall cash needed to close a deal, making an all-cash offer collectively saves buyers thousands in fees.
Better prices for buyers, but at what cost?
Making an all-cash offer can secure your bid for the Redondo Beach home of your dreams, but closing a deal upfront with an all-cash buy can hamstring your wallet, and considering the historically low interest rates, buyers may be better off with a mortgage. While an all-cash offer can speed up the deal process and potentially net buyers a better price, buyers should weigh whether or not they are better suited to use a mortgage.
Buying a home is one of the most costly investments in a person’s lifetime, and depending on your financial situation, saving your cash and obtaining a mortgage might be in your best interests. Interest rates are at historic lows, which in part prompted the strong prices we currently see in the Greater Los Angeles area and surrounding areas of Southern California.
Making the decision to use your own capital or finance a purchase through a bank isn’t easy, but partnering with a buyer’s broker can greatly help prospective buyers as they weigh making an all-cash offer or choosing to fund any investments through a mortgage.
Getting a mortgage with a low-interest rate means buyers in LA can invest their money and possibly see a return on investment that beats out the all-cash value of a recently purchased North Hollywood home if the market drops out.
Weighing your options with a buyer’s agent
While showing up to buy a home or condo with cash in hand belays financial stability and ability to close a deal faster to sellers, a buyer’s agent will be able to expertly guide you through the pros and cons of your decision.
Experienced real estate agents at Prevu have an intimate knowledge of the LA market. Knowing each neighborhood intrinsically and leveraging their experience to educate buyers, Prevu’s agents can provide perspective on which real estate investments best suit your needs, whether you are purchasing with a mortgage or pursuing an all-cash buy.
For instance, buying an investment property all-cash can secure an easy addition to a buyer’s portfolio, and generate cash flow with a great cap rate. Alternatively, first-time home buyers might benefit from a low-interest rate mortgage as they can preserve their hard-earned money for other large investments.
All in all, home buyers should also speak to folks in their network that have purchased a home all-cash and others that used a mortgage, then weigh these opinions to make the best decision for you.
Prevu Real Estate, Inc. is a licensed real estate broker in California, license number 02134758.
