Home sellers can avoid the stress of a complicated home transaction process and sell directly to a traditional investor, like us. These kinds of sales may allow sellers to bypass things like inspection contingencies, buyer financing problems, and appraisal issues.
- Selling to an investor saves time and hassle, but it’s not for everyone.
- Personal situations, like divorce, job relocations, and potential foreclosure, are some of the various reasons people end up quickly selling a home to an investor.
- When selling to a private investor without a listing agent, you need to do your research to protect yourself from scams. There are plenty of companies that buy houses — make sure to use a reputable one.
Who are traditional home buyers?
Traditional buyers are people like you, when you bought your current home. They’re looking to purchase a property to live in, either as their primary home or as a vacation home.
Traditional buyes are emotional and will make an offer based on their perception of your home and their research on its market value. Maybe your home has that big yard for their kids or that perfect master suite they’ve dreamt of. Traditional buyers may even be willing to pay more than market value if they really love your home or if there is a multiple-offer scenario.
Who are home investors?
A home investor is either an individual or a company that buys residential properties as part of a business or investment strategy. Investors don’t get emotional about properties like traditional buyers. They invest based on their own personal business goals. Here are four key strategies that most investors will use.
A buy-and-hold investment strategy helps an investor grow a real estate portfolio over time. An individual might use this strategy to buy a home to rent for side income. They use something called a cap rate to determine their yearly expenses versus their potential profit and see if an individual investment pencils out before buying. A larger corporate investor may buy a home without renting it if they’re simply trying to grow their portfolio or want to wait for improved market conditions.
Investors who buy properties and then resell them very quickly (and without making any improvements) are using a strategy called wholesale investment. They buy homes at well below market value, with the goal of selling to another investor for a higher price. Successful wholesalers usually have a large list of buyers lined up beforehand and use direct marketing to identify inactive or off-market homes they can buy inexpensively.
Individuals or companies who buy houses, renovate them, and then sell them at a higher price are called home flippers. While the level of renovation needed and completed varies by the individual home and the local market, the goal is to make a profit on the resale, even after clearing all renovation expenses.
This type of investment is a hybrid of some of the other strategies covered above. In this case, individuals or companies buy a property, renovate it (in either minor or major ways), and then rent it out at a premium, while maintaining ownership.
7 Common reasons to sell to an investor
While most people sell their home the traditional way, there are a few scenarios where selling to an investor might make the most sense.
– INHERITED HOME – maybe you just don’t want grandma’s old house. Sell quickly to an investor and go out and buy your dream house.
– FORECLOSURE – If you’re behind on payments, selling to an investor may just save your credit from taking a big hit.
– OUTDATED – Selling your home as-is may be the better option instead of spending money on updates & repairs in order to attract traditional buyers.
– HOME CAN’T GET FINANCING – If the home you’re selling doesn’t meet safety or permitting standards, most lenders won’t finance a loan for the property, which can make it hard to sell to a traditional buyer.
– NEED TO SELL QUICKLY – Usually you’ll have more control over the close date with an investor, since they’re not timing a move-in date the same way a traditional buyer would be.
– JOB RELOCATION – Sometimes moving requires a faster-than-average timeline. Selling to an investor can be faster than waiting for that perfect buyer to come along.
– DIVORCE – The faster you can sell and split the proceeds, the faster you can move on with your life.
– TENANT OCCUPIED – Making repairs and scheduling showings with tenants living in the house can be complicated, so landlords will often turn to other investors when it’s time to sell.
Pros of selling your house to an investor
Even if your personal situation doesn’t fall under the common reasons listed above, you might benefit from selling a house to an investor. Here are some of the biggest benefits.
No prep work/Sell hassle-free
With a traditional home sale, you’ll have to do a lot of preparing beforehand, from making repairs, cleaning and decluttering, landscaping, to taking listing photos and staging. Investors care more about the financials and less about how your home looks. Since your home is being sold as-is, you won’t need to worry about making any repairs before closing. After all, we’re going to either turn around and quickly resell your home or renovate anyway once the deal has closed.
When you sell your house to us, you’ll receive an all-cash offer within a few days, and after a home evaluation, we will begin the closing process.
Quick escrow period
Unlike in a traditional sale, where a buyer will require a 45-day escrow period to allow enough time for inspections, appraisals and mortgage approval contingencies, a traditional investor can close in less than a month — and sometimes even faster. We can often close as soon as seven days (and as long as 90 days) from when your contract is signed. The closing date is up to the seller, within reason, so you’re free to choose that date that works best for your timeline, whether that means selling ASAP or timing it just right with the close of your new house!
All cash offers
Investors usually buy in cash, so there’s no danger in a buyer’s appraisal coming in below the offer price and killing the deal. And in general, cash offers can close more quickly. Securing a cash offer is especially important if your home can’t qualify for financing — for example, if it doesn’t meet the Federal Housing Administration’s (FHA) minimum property standard, which states that homes being financed with FHA-backed loans must meet safety, security and soundness guidelines.
Cons of selling your home to an investor
Although the process is faster and less complicated, selling your home to an investor isn’t always the best idea if you’re looking for top dollar.
The offer you receive from a professional investor will almost always be lower than what you would receive from a traditional buyer, especially if you’re selling in a slow real estate market. An investor will still give you a fair market value, but keep these factors in mind:
- You won’t pay for prep work: The average home seller who hires professional help spends at least $5,000 or more getting their home ready for the market. This includes things like painting, cleaning, making repairs, and lawn care. When you sell to an investor, these steps aren’t required. So, you actually don’t have any out of pocket expenses.
- The offer reflects needed repairs: If your home is outdated, an investor has factored the cost of needed repairs into their offer.
- No real estate commissions to pay: Since there’s no commissions to pay, the investor has factored that into their offer as well.
- Lack of emotional connection: Unlike traditional buyers, a professional investor won’t be buying your home to live in with their family, so there’s no emotional connection and they may be very stern with their offer.
Possible scams with all-cash offers
Unlike real estate agents, who have to be licensed to represent buyers and sellers, investors don’t need any credentials to buy property. This lack of licensing or any sort of professional affiliation leaves sellers susceptible to “we buy houses” scams. Always do your due diligence when you’re considering an investor offer.
How to avoid scams from home investors
If you decide not to have a listing agent represent you, you’ll need to do a lot of research to make sure the offer you’re considering is legitimate and that you aren’t being taken advantage of. Here are a few important steps you should take:
- Check their website. If they don’t have a website, ask the investor if they have any materials to support their business claims.
- Read reviews online. Most professional investors, even if not part of a large investment company, have some sort of online presence.
- Check your local Better Business Bureau for warnings.
- Never give any money to the investor until the closing date, and even then, all transactions should take place through a closing or escrow agent.