Buying Investment Properties All Cash? Watch Your Step

Even as the Sacramento real estate market’s lower price range turns frothy once again with first-time buyers and investors slugging it out over for bank foreclosures, the lending noose draws a little tighter.

The Pitfalls of Buying Auction Properties

A client called last week. She had purchased a home–a condo actually–at auction last November, and she got a great price. However, she was unable to arrange a loan because the condo was “non-warrantable”, a term that means the condo project didn’t meet Fannie/Freddie requirements. After paying late fees and penalties for failure to close on time, and not wanting to lose their deposit, she pulled money from their home on an equity line and paid cash for the condo.

Now she wants to refinance the condo and pull some of her cash back out. The trouble is, lenders have reinstituted “property seasoning” requirements and tightened up the cash-out rules. Fannie Mae and Freddie Mac now require 12 months “seasoning” before she can refinance and get any cash back out of that condo.

Moral of the Story

I hear frequent tales of all-cash buyers in the market. It makes sense. Some of these bank-owned properties are so trashed that banks won’t lend money on them. The only solution is to buy for cash, fix the place up, and then get the loan when the property is in decent shape.

Now, that game is over. I think lenders want to finance responsible investmentments, and they’re sick of “flippers” and people trying to make a quick buck. So, watch your step. And if buying for cash was going to be your strategy, plan to have your money tied up for a bit longer.

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