Rising tides lift all boats. In our immediately preceding real estate boom, everyone was an “investor” and everyone made money. Opportunities are present in this market, but without traditional financing available, the risks and rewards are far greater when you are not playing with the bank’s money.
Without generous market appreciation, investors need to be much smarter and more selective about which projects to choose and how much to pay for them. In the past, many investors left the bulk of the due diligence and financial analysis to their lenders. However, today’s cash buyers cannot rely on any assistance from bank underwriting to expose project weaknesses. The banks are also not there now to ensure that transactions are properly documented and all boxes have been checked.
While a cash deal may seem like an appropriate time for a cavalier attitude toward formalities, it is precisely in this situation that investors are most exposed. And this goes far beyond having a properly formed LLC (which you should!).
Now more than ever, cash buyers need to focus on:
• Due diligence and investigations
• Conservative underwriting criteria
• Structuring a deal to protect both personal and professional assets
• Properly papering a deal to receive the full benefit of your bargain
Cash is powerful, but as our pal Spiderman cautions, “with great powers, come great responsibility.” It is your money, protect it!