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Cash or Credit?

Writer's picture: Jesse BrewerJesse Brewer

The old saying goes, “Cash is king,” and while that is true, cash is king in the marketplace. No matter what asset you are buying, a strong contender is vying for the top spot, waiting to dethrone the cash king, and for now, it’s the prince called credit.  



Ever since people have been investing and buying anything, cash has always talked, and bullshit has always walked, no matter what.  Today, if you have the cash, then at the end of the day, you can close the deal, and that is all that sellers ultimately care about.  Most of the time, they could care less about what you will do with the property once you buy it, nor how qualified of a buyer you are, if you have the cash, they know you will close it.  


Today’s marketplace is experiencing a major shift, and more and more people are becoming worthy buyers based on their ability to obtain credit. Interest rates are at historic lows and continue to decline. Add to that the scarcity of creditworthy buyers due to the fallout of the crashing housing market, and a perfect storm has been in the works for creditworthy individuals to come onto the scene. 



Now I know what I said before that “cash is king,” and yes, cash is still king; however, the credit-worthy investor is starting to change the landscape.  With interest rates being lower and lower, credit-driven investors can push up the pricing they are willing to pay because they are factoring in leveraged returns and tax benefits that cash buyers are not able to take advantage of.  To take it a step further, the influx of credit investors that are paying more is causing a false market compression, increasing the asset's value higher than what it truly is and making it harder and harder for the cash buyer to remain “king of the ring” because they are not able to pay as much.  


The smart investor will put their cash with their credit and utilize both.  So instead of purchasing an asset for all out cash, even if they are able, the savvy investor will leverage that cash with cheap credit (assuming they are able, or they can team with an able credit partner), and not only will they see better returns they will be able to take their stockpile of cash and let it work even more across more assets.  


Jesse Brewer 

Licensed Real Estate Broker and property investor

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