Selling your home is a significant decision, and the process can sometimes be stressful and time-consuming. Homeowners often face various challenges like costly repairs, the hassle of showings, and the uncertainty of a buyer’s financing falling through.
However, selling your home to an investor can be a smooth, straightforward alternative that solves several problems. When you are selling to an investor, you might not require the repairs or staging your home needs to go to the market, and often, no worries about appraisals or inspections.
Selling to investors is often quicker and can free you from the uncertainty associated with the traditional selling route. Some sellers who initially plan to sell to a traditional buyer could find themselves gravitating toward an investor’s offer because the transactions usually have fewer contingencies and a shorter sales timeline, making the process less daunting.
As with any real estate transaction, it’s essential to understand what selling to an investor means. In this article, we’ll discuss the pros and cons of selling to an investor, what kind of investors you can sell to, and how to find the right property investor for your home.
Is selling to an investor different from selling to a regular buyer?
The major difference between an investor and a typical homeowner is what they intend to do with the property once they’ve purchased it.
Traditional homebuyers usually look for a permanent residence to live in with their loved ones. Investors, on the other hand, view your property as a financial opportunity. They plan to make money off of your home either through a fix-and-flip or buy-and-hold investment strategy.
Benefits of Selling to an Investor
Real estate investors are buyers focused on making money who have likely purchased more than one home in the past. They often try to make the sales process as smooth as possible for the seller so that their real estate investing business can continue to grow.
Here are some benefits homeowners enjoy when selling to an investor:
They buy houses AS-IS.
Property investment companies buy homes AS IS, which means they’ll purchase homes in whatever condition they’re in—even if they’re falling apart.
The investor takes full responsibility for all repair costs when they own the property. If you can’t afford to repair your house and are struggling to find a buyer, selling to an investor can be a good option.
They move quickly.
The majority of investors purchase properties in all cash. As soon as you and your cash buyer agree on the terms of your real estate transaction, you can sell your property right away.
Receiving a cash offer from an investor eliminates the need to promote the property, saving you time and money on marketing expenses such as staging, photography, and advertising.
Additionally, you won’t need to conduct showings or host open houses, eliminating the need to wait for someone to make an offer on your property.
Investors usually put in a cash offer within 24 hours of being contacted and most processes take two weeks for sellers to close with an all-cash investor. This is a much shorter timeline than selling your home to someone who needs a mortgage, which will take you at least 60 days to reach your closing.
They simplify the transfer of ownership.
In addition to handling home repairs and speeding up the closing process, investors can also address legal issues associated with your property, such as tax liens or delinquent mortgage payments.
They may even be willing to handle closing costs. This makes it much easier for the seller to transfer property ownership.
They have the funds readily available.
Since investors pay for the property in all cash, there’s no need for a lender to approve a mortgage loan. Cash offers significantly reduce the chances that a deal will fall through due to a lack of funds.
Even when a buyer is prequalified for a loan, the lender may deny the loan due to a change in a buyer’s financial situation, such as the loss of a job or a new line of credit. An investor doesn’t depend on loan approval but pays for a house in full with their own money.
However, sellers must do their due diligence and ask the investor for proof of funds before signing a purchase agreement. If an investor cannot come up with a bank statement or show liquid assets in an amount greater than the purchase price of your home, they may not be serious about buying.
Cons of Selling to an Investor
While selling to an investor comes with a unique set of benefits, there are also serious downsides to this type of real estate transaction.
Many sellers are cautious when selling to an investor for the following reasons:
You probably won’t sell your home at true market value.
Most investors are interested in purchasing homes at a lower price than what they are worth to make a profit from their investments.
Investors are not required to reveal their reasons for purchasing your property. As a result, you may not be aware of your home’s true market value and end up selling well below fair price.
An investor who owns land adjacent to your home and has plans to build a large apartment complex or commercial project might be willing to pay more for your home than the traditional buyer.
Initially, this may seem like a great deal for you as the seller. But the truth is, other investors may be willing to pay just as much or even more for your property.
In this case, selling to the first investor at your door would likely result in you selling below fair market value.
You’ll have less leverage in negotiations.
Real estate investors are looking for a bargain. While they are willing to purchase homes AS IS, invest in home repairs, and clear out tax liens, they expect a discounted rate in return.
Investors target buyers who are pressed to sell because this makes negotiations with the seller easier. As a result, you might not always get the best value for your home. Instead, your home’s current value and condition at the time of sale will determine the offer.
You may end up working with an unlicensed professional.
Unlike agents or realtors, real estate investors are not required to have a license to purchase properties. They also don’t need to reveal if they are purchasing on behalf of an investment company or other third party.
This lack of transparency may make some sellers uneasy. If you need to know who your buyer truly is and what will be done with your property after the sale, selling to an investor may not be for you.
You could get scammed.
Considering the disadvantages mentioned above, it’s clear that the biggest risk in selling to an investor is the possibility of getting scammed.
When you don’t know who you are selling to, what’s going to happen to your property after closing, or how much your home is truly worth, it’s much easier for an investor to take advantage of the situation and lowball you or even rob the property from right under you.
A common scam involves a foreign or out-of-town buyer contacting the seller and asking for an immediate closing. The investor doesn’t care about seeing the property but wants to purchase it as soon as possible.
No reputable investor will want to purchase a property without seeing it first or at least sending someone to do it on their behalf. Remember that if it sounds too good to be true, it probably is.
Types of Investors You Can Sell Your Home To
Now that we’ve reviewed the pros and cons of selling to an investor let’s discuss what kind of investors exist and what they intend to do with your property once they’ve closed.
Here is a list of common investor types you’ll run into as a home seller:
Buy-and-Hold Investors
Buy-and-hold investors plan to own a property for an extended period of time. To turn a profit, these investors usually use the properties as rental income, counting on both rental payments and property appreciation for ROI.
Most investors target turnkey rental properties in growing neighborhoods, such as single-family homes or condominiums. This way, they can maximize the rental prices and get tenants into the property as soon as possible.
This type of investor may be willing to pay more for a property in optimal condition. So, if you’ve recently invested in home renovations, a rental property investor may be the investor you want to sell to.
House Flippers
House flippers, on the other hand, use a different real estate investment strategy called the buy-low, sell-high strategy. Instead of looking for homes in great condition, they look for homes that require some TLC.
Their plan is to purchase properties at a deep discount, fix them up, and resell them to a new buyer for a profit.These homes often require substantial repairs that the owners do not have the time, money, or interest to complete themselves.
If your home hasn’t been tended to in a while and you’d like to get it off your hands, a house flipper may be the investor to do business with.
Wholesale Investors
Wholesale investors are unique in that they don’t purchase your property. Instead, they put your property under contract and then sell that contract to an investor at a higher price. They make money on the deal by charging a finder’s fee for their services.
Wholesalers usually sell to another investor almost as quickly as they put the property under contract, which is often a matter of days or weeks.
Wholesalers make between $5,000 and $10,000 per deal. However, depending on the sales price of the property, they could make up to $30,000, or even more.
While wholesaling isn’t illegal in every state, it is slightly controversial within the real estate community. Some argue wholesalers are acting as unlicensed agents, while others believe it minimizes barriers to entry for investors who don’t have large amounts of cash on hand to invest in a traditional manner.
iBuyers
iBuyers are a relatively new kind of real estate investor. They first emerged in the mid-2010s and are now available all throughout the country.
An iBuyer is an online home seller that offers cash and simplifies the home-selling process in exchange for a convenience fee. They find homes in good condition that they can quickly purchase and resell without renovations.
They’re often willing to do this at a lower per-sale profit margin than a house flipper.
How much will an investor pay for my house?
Since investors purchase homes below market value, predicting how much they’ll pay for yours can be difficult. For an accurate estimate, you’ll need to get a home appraisal.
Investors use the following factors to determine how much they will pay for an investment property.
- Renovation Expenses: This is how much money an investor plans to spend on home repairs.
- ARV: The ARV, or after-repair-value, is how much the property will go for on the open market after renovations have been made.
- 70% Rule: Investors use the 70% rule to determine their maximum cash offer for the property. They do this by multiplying the ARV by 70% and then subtracting renovation expenses.
Find an agent to help you sell your home to an investor.
Selling your home to an investor can be an easy and headache-free way of selling your home. By selling to an investor, sellers might be able to avoid the time-consuming aspects of a traditional home sale.
There are several advantages to selling to an investor, such as being able to sell the property as-is, receiving a lump-sum cash payment, and a simplified transfer of ownership. However, it’s important to be aware of potential downsides, like selling below market value, having less negotiation power, and dealing with unlicensed or untrustworthy investors.
To find the right investor for your property, research investors with a history of fair dealings. Ask for referrals from real estate agents and people familiar with investor transactions. Consult with one of the top real estate agents in your local market today to learn more about how you can sell your home to an investor.
