The All Cash Offer

You hear stories of people getting beat out for a home by an all cash offer. How does this work?

To make an all cash offer, you don't actually need a big pile of cash sitting around; you just need access to the cash before the closing. Unfortunately, this usually means that you or a helpful friend has access to money. The most common way to access cash is through a margin loan at a brokerage. If you or a parent or friend has a large investment account, they can often pull money from this account at a low rate of interest. Rates currently hover at around 1.2% at Interactive Brokers. The person with the account simply does a withdrawal and the money shows up in their bank account in a day or two with no credit checks. The loan is secured by assets in the account.

The risk with a margin loan is that the holder can receive a margin call if the stock market crashes. Therefore, it's best to hold a low amount of margin and refinance the loan into a long term mortgage.

Here's an example of how it could work. You make an all cash offer on a home for $250k. You or a trusted friend has a brokerage account with $800k. You now have a huge advantage because you can close quick and pay all cash. You get the cash before the closing and buy the house. Then you can refinance into a 30 year mortgage.

This strategy is a way to do an all cash offer in a competitive market. It's probably best reserved for experienced investors since the traditional safeguards associated with a bank loan are removed.

My experience with an all cash offer

I helped my parents find a house in Ann Arbor. We went to 20 open houses and finally saw the house that we wanted. It was perfect and I didn't want to miss out. I made an all cash offer with a 2 week close. This made it easy for the seller to accept my offer. I pulled cash from my brokerage and bought the house quickly. I was able to pay all cash without holding any cash or selling any investments.


Contact me if you'd like some helpful and free advice.

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If you're doing a larger renovation, I recommend working with an architect with Ann Arbor historic experience. Jill Thatcher is the point person in the Ann Arbor government for historic district questions. Contact her before buying your home or starting a renovation project.
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