When you sell a house, there are just a couple of options. Do you want to sell it with representation, or do you want to sell it yourself? To maximize the sale, you’ll need to do a few things first, and when you couple that with the stress of a traditional home sale, selling yourself to an investor may be a good solution for situations like when you’re facing liens, possibly foreclosure, or even have a house with too much to repair.
Real estate investors make the sale quick and easy. They use cash offers to erase many contingencies that reset a traditional sales process and make closing quick. It can allow for the flexibility of changing dates if you need to and less confusion about a buyer needing to obtain a loan for the property as well. There are subtle differences in the types of buyers you may be dealing with, but the consistent advantages will be less hassle and convenience. Let’s look at the different types of investor buyers you may be dealing with and the differences you can expect.
There are 4 main ways to invest in real estate, with differences in each type. There are wholesalers (or no-risk investing), buy-and-hold investors (low-risk investing), and home flippers (high-risk investing). The last category is volume-type investing (think like Walmart type of business with minimal profit but many transactions), and those are iBuyers. Let’s go over the strategy involved with each type of investing.
Types Of Real Estate Investors – 4 Strategies
As we mentioned above, there are 4 types of strategies investors use. They have their risk and time needed to complete each strategy. One is a strategy that is only used by large corporate cash buyers, but they are a strategy you should be aware of if you’re looking to sell your house for a cash offer. And that is:
iBuyers Investors
IBuyers are investors who use technology to create an offer for your property. They take data you put in and compare it to other data received for other property sales. They then run it through a proprietary algorithm to develop your offer. They traditionally have fees you will need to pay as well. Some companies use speculation on appreciation as a factor in their offer, leading to relatively large companies having closed their iBuying business. Examples of this are Zillow Offers and RedfinNow.
This is your most guaranteed sale and can also be your fastest sale. The downside is that you don’t know what price to expect from your offer, and they can use any strategy to make a profit from your home, but generally, they don’t want to hold on to it for long. The price range could be very low, and it could be very high. It depends on the algorithm used by the iBuyer you get an offer from. This is also where most sellers turn to first and have a high percentage of cash offers in the market.
Wholesaler Investors
With this strategy, a wholesaler will offer to buy your house for cash and then sell the contract to another investor. The idea is to buy at a really low price and still have enough room for other strategies to make money. Most times, wholesalers have no intention of buying the property to hold on to it or do any work to it. This is usually for properties in significant distress or people who must leave a situation quickly.
Most wholesalers must be very communicative about their intent and what they plan to do. If they are, you have an honest wholesaler who will work diligently to get your house sold in the time frame they say. The downside is that they may not close as fast as a cash buyer investor and may not be the ones to close on purchasing your house. Wholesalers with a strong reputation won’t usually have these problems, though.
Buy-and-Hold Investors
There are quite a few buy and hold investors, but the goal is to hold on to your property once they purchase it. They will usually look to rent the property out in various strategies. What these kinds of investors are looking for is appreciation of the property and to make income monthly from the property. These kinds of investors are usually looking for steep discounts because of the repair needed or looking to purchase more turn-key-ready properties.
If your property has less needed repair, you could end up with a close-to-market offer. When you factor that in with a quicker close, it should be something you consider if you want the convenience of fewer showings and a fast and easy closing. The downside is that most buy-and-hold investors will still expect some discount due to the convenience they are providing. They also may look to shorten the time to close because they won’t start making money on the property while waiting to close. Also, remember that this may likely have a tenant placed in it, so you may find it difficult to sell if you still have an emotional attachment.
If you’re looking to sell a condo, townhouse, or single-family home, these might be the investors you want for the best offer. It will be best for you and them if the property is rentable and in a good area. They will look for similar things that future renters will want to ensure future profit growth.
Fix-and-Flip Investors
Fix and Flip investors expect steep discounts because they know the home will need repair. Those with owners who can’t afford the repairs or new property owners who don’t want the property who are willing to take a discount to sell the property quickly. They have connections to local contractors to help make repairs. Ultimately, these investors are willing to take on the repairs to “force appreciation” and sell the property at a much higher price to make their profit.
The downside is that you will give these investors a much more significant discount. They can’t wait and hope for much higher future appreciation and can’t take on a renter to help offset costs. Factor in much higher taxes and potential unforeseen costs, and they could lose the profit they planned for quickly. They expect a steep discount because this could be the most significant risk of an investment.
How Much Will An Investor Pay For My House?
As we explained above, each type of investor will expect some discount for the house. There is a standard formula that most investors use. As we alluded to above, each type of investor has a bit of variance in their formula. But that formula is:
To determine the most significant variables, you’ll want to know what they compare your house to and the repair costs. The subtle difference is that fix-and-flip investors will look for a percentage of the profit of the final sale, buy-and-hold investors will look for a return on investment, and the wholesaler will look to get as low as possible to make their profit upfront. So, you may not know exactly what an investor will offer, but you can start to get an idea based on what kind of investor you’re dealing with, what amount they are assigning for their comparable properties, and the rehab costs.
Remember that even though most offers will be similar, there is still room to negotiate. We even encourage it. Just because someone buys cash doesn’t mean it’s take it or leave it. Most will have a walkaway point, but you won’t know about it until you start looking for it.
Are Companies That Say “We Buy Houses a Ripoff?”
When selling to a company that buys your house for cash, you have to know that they trade your convenience for a piece of the equity you have in your property. Even if some say it’s a ripoff, some are considered the best companies that buy houses for cash. It’s the same thing most people expect when paying cash for anything. Some companies may take advantage of that. So, instead of asking if they are a ripoff, let’s see how to tell you’re getting a fair price and when to take it.
They Don’t Just Use ARV (or After Repair Value)
This may seem like an oxymoron, but just because a commonly used formula says to use it doesn’t mean a cash buyer should use ONLY that. An example is knowing what the market value minus sales expenses and costs to repair the property should be if a similar property to yours has been recently sold. Ideally, it only has minor repairs that need to be made. A good cash buyer can show you that amount and what you’d expect to actually walk away with, making it easier to value their fair cash offer.
Please remember that your property should be in good shape when considering this. If there is a lot more damage to fix on the property, it becomes more problematic to assign an accurate market value to the property because of the costs it will take to rehab the property. If the house is in good shape, there are also things you shouldn’t spend money on fixing. If your cash buyer starts discussing your need to repair those, you should also worry about their offer.
They Show You Comparable Properties
A company giving you a fair cash offer will have no problem showing you similar properties that have been rehabbed as a way to display their hopes for your property. This means giving you an idea of the amount of money they will spend on the property to allow another buyer to have it with none of the problems you are selling it to them. It also means that these are expenses you won’t have to worry about or the time you’re waiting for the property to be repaired.
They should have no problem showing you this because it can create the best picture of the typical formula for a fair cash offer. You’ll get to see what they think the ARV is and the expected rehab expense. This is before they can put it on the market and the costs they expect to have when they sell. If your property has significant damage, you should expect a much lower offer than any realtor would say to list it for.
They Feel Legitimate
Only some We Buy Houses companies register and get accredited with the BBB. It’s not that it costs money, but that there is a legitimate look into your business. If you find one that is BBB accredited, they allowed the BBB to look into their business to ensure you won’t be taken advantage of. They also allow reviews and insight into the info of the business. Again, this isn’t for everyone. So, how do you know if they are legitimate?
They should at least have a website with good, clear info on it. This includes a phone number and address. They should have helpful info about what to do in certain situations, like selling a house that was involved in a fire or selling a property that has tenants. This displays credibility and shows they can deal with any situation to help you sell your house. And lastly, they are open and communicative about the offer and easy to get a hold of. This doesn’t mean that you can get a hold of them any time, but that they follow up on your phone calls and get back to you promptly, or they set an expectation of when they will follow up with you and actually do it. It also means they may explain what they hope to accomplish with your property. While not all will know exactly what they want to do with your property, they will likely have multiple thoughts about where it could go and should be willing to answer that for you.
They Have Good Reviews
They not only have good reviews, but they are from multiple sources. Places like the BBB, Yelp, Trustpilot, and even Google are great places where people commonly leave reviews. Some may even ask for them on social media like Facebook or a target-specific site like TrustedREI. You want to make sure they have reviews and they are consistent.
There obviously may be a one-off, or something that happened that made someone upset. They should be willing to address it publicly and explain how that situation has helped them improve. If they aren’t willing to do that, you may want to avoid getting a cash offer from them.
If this makes sense and you want to see how a reputable cash buyer can help you, fill out the short form below. We’ll contact you shortly to find out about your situation and help you decide if you should sell your house to an investor.
Help Me Sell My House
Can I Refuse To Sell My House To An Investor?
If there is no accepted contract on the property, you only sell your house to people if their offer is acceptable. There are protected classes federally and locally. You CAN NOT base your denial of the sale of your house solely on any of those reasons. However, an investor is not a protected class, so you can deny it solely because they are investors. There are things to think about, though.
Why would you decline if it’s listed on the MLS and an investor offer is your best or only offer? It probably means you didn’t have a realtor who understood the actual value of your property or didn’t market it well. Or maybe you can’t get financing approved because of the buyer’s financial situation or the property’s condition. And if your realtor is only bringing you “bad offers” from an agent, it’s time to rethink the listing and price. You might be better off selling it to an investor without an agent to save those fees and commissions.
On the other side, why are you declining their offer if you’ve engaged with an investor to buy your house, and it isn’t listed? If they are reputable and have shown you all the info you need to make an informed decision, what about their offer is terrible to you? Maybe mention that, and they can help. Sometimes it may just come down to getting a second opinion from an agent to show you what real market value is.
And lastly, if you’re under contract for a property, you can technically be forced to perform on the contract on the sale of your home. Most investors won’t enforce this because it can leave them with a bad reputation. Once under contract on the MLS, though, most contingencies protect the buyer, so getting out of the sale may be challenging if the buyer wants to enforce it. If something has changed and you are under contract, the most important thing to do is talk to the buyer. They may be willing to make exceptions for you or even give you additional help for whatever unique needs have popped up. Something like needing more time to move or maybe even a POD and labor to help you go through your items can be something they help provide. It all comes down to communication.
Other Common Questions About Selling To A Cash Buyer Investor
Do Investors Buy Houses In Foreclosure?
They absolutely can, and they do. This may be your best option if you’re facing a time crunch and have equity in the house. Most investors don’t need long to close and need to clear title, and as a cash buyer, they have the funds to make the deal work. You must be honest and open about deadlines and may need to work just as hard to help the investor. If you have time before your house gets sold at auction, you might be better off working with an agent.
Is There A Problem An Investor Won’t Buy A House With?
Investors can solve any problem with money. It’s commonly thought that they won’t buy a house with foundation issues or roof problems because of the cost to repair. That is not accurate. It just may come out of the price they offer for your house, or they may ask to delay paying you a little more until after they have fixed the issue. You will still need equity in your property and be willing to accept a lower offer. Any good investor cash buyer can help with any problem your property has.
Can An Investor Buy A House With Unknown Liens or Encumbrances?
Once you are under contract and something like a lien, claim, or encumbrance is found, it can throw a wrench into the situation. Ultimately, they can help you out of the situation. You may be concerned with whether it will cost you money from what the investor is paying you. The answer to this is yes. The problem becomes when the lien or clearing of an encumbrance costs more than what you would have walked away with. It could mean you must come to the table with your own cash to close. This is not ideal in most situations. That’s why it’s required that you are honest and willing to communicate through the whole process. You may have to be willing to accept less money to walk away with or a more creative solution if something new is found.
What Do Investors Look For When Buying A House?
This will depend on the type of investor that is looking to buy your house. It can range from profit on sale to return on investment or even finding the house with the most significant spread. The only way to know is to talk to them and listen to what and how they explain their offer. They are ultimately looking for profit. They will want to be able to buy lower and sell higher. Some will even look to make some money along the way. The best ones will look to solve your problems and help you out of whatever situation you may be facing.
Do Investors Require An Inspection?
Most investors will want to walk the property at some point. Some may even want to bring a contractor in to ensure the rehab costs are as expected. If an investor says they don’t need to walk or inspect the property, be leery. They could be looking to talk you down once it’s under contract, or they know they have a significant deal under market value and won’t need to worry about making the difference, even if additional repairs are needed.
What Mistakes Should I Avoid When Selling To An Investor?
The biggest mistake we have seen home sellers make is not vetting the investor and verifying their credibility. If they haven’t tried to make sure they are legitimate by the ways mentioned above, they may be looking to take advantage of you by marketing through letters or signs to get you to sell your house for a meager price. You can also avoid this by not accepting your first offer unless they have given you plenty of good information to justify it.
Do I Need A Real Estate Agent To Sell My House?
People have been selling houses without agents for hundreds of years. You don’t need an agent. They usually expect a commission for prepping, staging, marketing, and negotiating the sale of your home. Why would you want to pay them if you haven’t done any of that?
Depending on your market, an attorney may be encouraged. Or, if you don’t have time to sell your property, you may ask an agent to step in. Just expect some compensation for them.
Do Investors Back Out Of Purchases?
Investors don’t generally back out of a purchase of a property. Typical times you hear about this is when they are not honest about who they are or when the seller isn’t honest about their situation. Fraud can cause either party to walk away from a deal. It’s best to be open and honest about everything in the situation, including known issues financially and structurally.
Final Thoughts About Selling Your House To An Investor
There may be some worries about selling your house to an investor, and we hope this has helped alleviate some of them. Ultimately, selling to an investor is most helpful to those with lots of equity, who have major needed repairs, or who need to sell quickly. They can give you a cash offer and help you sell quickly. They can even allow you to set a closing date to allow you the time you need to make your moving plans.
If you’re unsure if you want to sell your house to an investor like SILT Real Estate and Investments, LLC, please don’t hesitate to contact us or call us at (708) 415-3801. We’d be glad to answer any questions you have. Or you can start by filling out this short form below.
