Florida: Cash isn't king - Torcana

Cash isn't king when buying property abroad

I have never been a big fan of using everyday expressions and phrases to describe selling property.

I’ll admit they can be handy tools for getting an affirmative nod from the person listening to you, but I always end up feeling that the salesperson is talking on automatic.

The ones I hear most at exhibitions and conferences include terms like: "you get what you pay for", "it’s a buyer's market", "the clock is ticking" & "it’s a no brainer".

However I think one of the most used and abused terms of all over the past few years (and I’ve been guilty of using it myself), is the ubiquitous "cash is king".

Most of the properties we source are for cash buyers, so obviously you can’t do much without it. However, the more I think about it, the more I realise that cash isn’t king at all. In fact, it never has been king. If anything deserves a royal title, it’s knowledge.

Knowledge Beats Cash Every Time
Knowledge will beat cash every time. Negotiating a lower price from a seller by posing as a cash buyer isn´t all that difficult. To put it bluntly, a bad investment is bad whether you paid cash for it or not.

Over the past 10 years, I’ve had the good fortune to speak with, learn from and sell to hundreds of experienced and successful investors. Some of these guys have truckloads of cash, but that’s generally not what sets them apart.

Solid Analysis
One of the recurring themes I’ve noticed is the importance professional investors place on solid analysis. Every deal will be researched and analysed carefully to see if it conforms to their particular strategy. If they don’t have time to do it, they’ll pay someone they trust to do it for them.

A solid analysis on a property or property development should include information on when it was built, what materials it was built with, how many have been sold, who has been buying them, what rents and occupancy levels are being achieved, all the hidden running and closing costs, what the accounts and reserves of the home ownership association look like, the history of the real estate taxes in each unit and its proximity to important schools, offices & attractions.

When you think about it, every single person who buys a property will end up paying for a solid analysis, either before or after they purchase. As anybody who has ever bought the wrong property can attest it’s a lot cheaper and quicker to do it at the beginning.

One Step Ahead
Those with cash are very fortunate right now because they can purchase properties that less liquid people simply don’t have access to. When financing does become more widely available for both Americans and overseas buyers in Florida - it will be far tougher to find that bargain.

For starters, the price of everything will increase once the supply of people who can purchase increases. You needed an average of $70,000 in cash to purchase one of the thirty condos we secured in Siesta Lago in Orlando (now sold out). If banks were willing to offer 70% mortgages, the price would jump up way over $100,000 and you’d be competing with a far bigger group of buyers to secure one.

Fortune Magazine produced a very comprehensive report a couple of weeks ago entitled "Real Estate: It is time to buy again". This is a very authoritative publication and to me that headline says a lot more than 100 similar ones in a property magazine or real estate association website. They also published a "Top Ten Cities for Home Buyers" index.

Florida had three in the top 10, with Orlando ranked number two nationwide. That’s a pretty big thumbs up for the Sunshine State in my book.

Colin Murphy

Colin Murphy is Director of Torcana.com, a Dublin & Florida based investment specialist which promotes a variety of real estate investments in the USA (primarily Florida) and solar energy investments in Italy, Germany and the United Kingdom.