March 7, 2023

Selling a House to an Investor

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Selling a House to an Investor

Selling a House to an Investor

When the time comes to sell your house, you'll be faced with two choices: opt for a traditional sale by listing it on the open market; or go for a faster sale by selling it off-market to a real estate investor.

Ultimately, how you sell your house boils down to what you want to accomplish from the sale.

If you're looking to get top dollar for your home, you can go the traditional route by working with a realtor and then completing and spending for the necessary prep work. This ensures the property you're selling would appeal to the widest pool of prospective buyers. Spend some to earn some. However, keep in mind that there's no guarantee that you'll get back the money you put in.

On the other hand, if your goal is to sell fast, or certain life circumstances makes it necessary to do so, a real estate investor can give you a lifeline. This type of buyer can significantly speed up the sales process, but the tradeoff is you'll receive a lower price for your home. Remember, time is gold, so a quick sale is still a win for you!

In this article, we'll guide you through the process of selling your house to an investor, what to expect when doing so, and what you can do so you can get the most out of it.

Traditional Buyer vs. Real Estate Investor

The Traditional Buyer

The Traditional Buyer

Traditional buyers purchase property with the intention of living in it.

Their decision has an emotional component, and normally, what compels them to pull the trigger on a property is how much they like it: the neighborhood it's located in; the architectural style; the interiors; and other features that make it an attractive buy such as a home theater or a sunroom.

Once all these elements are present in the property they have their eye on, they're willing to pay for the asking price--sometimes more.

These buyers, the would-be homeowners, comprise the most of the prospective buyers. A majority of them are also financed buyers, hence the property you're selling would need to meet not only their criteria, but their mortgage lender's as well.

What This Means for You

Unfortunately, if your property is in a bad shape, your buyer's loan won't likely get approved unless you undertake the necessary fixes.

The Real Estate Investor

The Real Estate Investor

Unlike a traditional buyer, most investors don't necessarily make the purchase because they love the home and want to live in it. They can have different motivations for real estate investing, and this is what guides their investment strategy.

As a home seller, it is important for you to know what drives these investors, so you'd be able to properly market your home and come out with a winning deal for both you and your buyer.

Motivation #1: Financial Security - Strategy: Buy and Hold

Financial Security - Strategy: Buy and Hold

In addition to paper investments such as stocks, bonds, mutual funds, and other financial instruments, investing in real estate is another step to secure one's financial future.

Perhaps the greatest thing about real estate is that it's tangible and transferrable--a lasting legacy you can leave to your family long after you're gone.

Furthermore, since land is scarce--no, they don't make 'em anymore--chances are its fair market value will appreciate. In the United States alone, housing prices increased by about 20% between 2021 and 2022. Compare that with an inflation rate of 6.5%, real estate investing provides a pretty tall hedge against inflation.

Motivation #2: Increase Wealth - Strategy: The BRRRR Method

No, the 'brrrr' method isn't a technique to keep your teeth from chattering due to the cold.

It stands for "Buy-Renovate-Rent-Refinance-Repeat" and is a strategy to leverage the down payment into an ever-expanding portfolio of real estate gems.

Increase Wealth - Strategy: The BRRRR Method

This method is most efficiently applied to condemned or distressed properties, particularly those in terrible shape such that a much needed rehab can significantly raise the value. House flippers are the types to employ this strategy, taking advantage of the low purchase price of properties in bad condition and selling high after making improvements and upgrades.

Most home investors have an established relationship with lenders, allowing them to purchase the property using a purchase-renovation loan, infusing cash for repairs to inject enough equity for them to cash out and refinance it into a long-term mortgage. The property, once repaired, can then be leased out with the rent paying for the mortgage, or sold outright for its full market value. After the home investor gets their cash back, they can look for another property and the cycle begins again.

What This Means for You

If you're an average home seller stuck with a problem property and cannot afford the out of pocket costs for costly repairs and renovations, as well as the holding costs (mortgage, taxes, upkeep), then you might be better off selling to an investor and get cash for it instead.

Motivation #3: Financial Freedom - Strategy: Buy and Lease

Financial freedom is a term being thrown around a lot these days.

It simply means your passive income is more than enough to cover your expenses. Type it in any search engine and a thousand different tips to achieve it would come up, but these tips for making your home a rental are great ways to get cash rolling into your bank account every month while barely doing anything--hence, "passive".

Long-Term Rental Properties

Instead of simply holding a property, real estate investors can lease it out long-term, so they can ride the appreciation and get a steady cash flow every month.

Short-Term Vacation Rentals

With the world largely recovered from the pandemic, tourism is booming again, and some home investors are exploring the hospitality industry. And who wouldn't? Annualized, running a vacation rental is more profitable than long-term leasing.

What This Means for You

If the house you're selling is move in ready, it can be attractive to these types of buyers as they can maximize the amount of rent they can charge for very minimal work.

Motivation #4: Live Big - Strategy: Acquire Vacation Homes

What's the point of getting wealthy?

Live Big - Strategy: Acquire Vacation Homes

Isn't it to see what life has to offer and elevate your lifestyle?

Once all the essentials have been taken care of, such as a nice home, a nice car (or several), a cozy nest egg, people branch out into real estate investing. If they have plenty left over, and even more money incoming, they might be itching to invest in a second home, preferably in a very nice location.

What This Means for You

If you have property in a great, sought-after location such as one fronting a beach, a lake--or any body of water, really!--you won't have a hard time selling your house quickly. Furthermore, since the demand is high in these areas, you might even get tens of thousands more than your asking price.

Reasons to Sell Your House Fast to an Investor

Your House Is About to Be Auctioned Off

Your House Is About to Be Auctioned Off

Perhaps your mortgage is underwater and you can no longer afford to make the payments. Your lender has initiated foreclosure proceedings and your house is about to be auctioned off.

A foreclosure is a blight on your credit report, so to avoid this, you look for an investor who may be able to buy your property.

You Inherited an Unwanted Property

You live in another state and you'd rather cash in your inheritance than deal with the maintenance and upkeep of your inherited home.

You Are Going Through a Divorce

You and your ex are in the middle of bitter divorce proceedings and neither of you can buy out the other. Better sell for cash and split the proceeds, right?

You Are Tired of Being a Landlord

Maybe you are tired of dealing with stubborn tenants day after day, but unfortunately their lease terms aren't up yet. You can sell your rental, tenants and all, to a real estate investor and quickly move on with your life.

You Cannot Afford the Repairs

Deferred maintenance and neglect had driven your property in such a state of disrepair that fixing all the issues would cost as much as the house itself.

Benefits of Selling Your House to Real Estate Investors

No Contingency Offers

Most home buyers have contingencies built into their offers--even more so if they're dependent on financing.

Having contingencies adds a layer of uncertainty in the sale, as the deal may fall through if certain conditions are not met, such as an inspection turning up black mold infestation in the basement, for instance.

On the other hand, offers from professional investors aren't contingent on anything. Possible repairs, title problems, and necessary upgrades have already been factored in, so their cash offers reflect what they think your home's fair market value when sold as is.

No Need to Worry About Appraisal Concerns

In a traditional home sale, mortgage lenders typically require an appraisal after the buyer has signed the purchase agreement. This can be nerve-wracking for both buyers and home sellers alike, as getting a low appraisal can negatively impact the closing. In fact, according to the National Association of Realtors, as much as 12% of transactions have been derailed by low appraisals.

When selling a house to an investor, an appraisal isn't needed. Once their offer is on the table, it stands, and it's up to you whether to take it or leave it.

No Need to Wait for Financing

It takes around 30 days to get a home loan approved--sometimes longer, or even never, if potential buyers have a checkered financial past. This would force the entire process back to square one, and you have to go through the painstaking exercise of marketing, showing, and negotiating all over again.

No Uncertainties on the Sale

Financing problems, low appraisals, structural issues uncovered during inspection--all these could throw a wrench in the home sale process and leave the deal in shambles.

Selling your house to an investor eliminates these uncertainties. There is no risk of the sale falling through due to lack of funding. They're also prepared for whatever issues they might discover, and most investors have a construction crew ready to perform the necessary rehab work if needed.

No Need to Pay Commissions and Closing Costs

No Need to Pay Commissions and Closing Costs

It's rare to go through a middleman when working with home investors.

The entire selling process is straightforward, with only two parties in the transaction: you, and the investor, who is almost always a cash buyer. The closing costs are usually taken care of by the buyer, so everything that's on offer goes to your pocket.

You also don't have to worry about dealing with a truckload of paperwork, resulting in a convenient and quick sale.

Drawbacks of Selling Your House to an Investor

You Sell for Below Market Value

Real estate investors don't get to where they are without being strategic in their business dealings.

If you're wondering how much will an investor pay for your house, you have to know about their70% rule in real estate. This means their cash offer won't be higher than 70% of the After Repair Value, or ARV, less repair costs.

To illustrate, say your property has an ARV of $250,000, but repairing it would require them to shell out $50,000. Their cash offer would then have a ceiling of $140,000, in order to recoup their projected repair expenses and leave them with a healthy profit margin.

Better be aware of this so you can manage your expectations on the sale and plan accordingly.

You Can Get Scammed

Not all those who say they're real estate investors are legit.

Some may pretend to be foreign investors claiming to want your property so bad, they're willing to send you a check even before you meet. So you deposit the check, get the amount deposited in your account.

All seems to be good. But what happens next?

You Can Get Scammed

They'll back out of the deal and ask for a refund, even offering you to keep some of it to compensate you for the hassle. Once you "return" the money, the check would bounce, and they'd be incommunicado. It turns out the money you "returned" is actually your money, leaving you in the red.

For your safety, and to make sure that you are dealing with reputable investors, do your due diligence in verifying their legitimacy.

Look for positive online reviews and testimonials. Check out the Better Business Bureau to make sure you're working with trustworthy individuals and avoid getting conned.

You Miss Out on Possible Future Profits

Turning idle real estate into a rental property can provide a stable and steady cash flow every month instead of a one-time, big-time payout. Additionally, there might be some upcoming big developments in the neighborhood, providing a boon to the local market, which means a higher asking price for your property.

On the other hand, there's a good reason for the saying "A bird in hand is worth two in the bush".

Land appreciation, while fairly common, is not guaranteed.

A reversal in the real estate market is also not guaranteed.

Meanwhile, a cash home buyer with a ready offer is guaranteed.

Depending on your personal situation, getting cash for your property now, despite selling for below market price, might be the out you need for the bind you're currently in.

If Selling to an Investor Has These Drawbacks, Why Bother?

You Want to Sell Quickly

You Want to Sell Quickly

A medical emergency, a promising job in another state, an impending foreclosure: if you're facing any of these, it means selling ASAP.

You don't have the luxury of waiting around so you won't mind taking a hit on the fair market value of your property by selling to an investor.

As a cash buyer, a private investor doesn't rely on lenders for financing. They have the liquidity to fund their purchases and can close immediately--sometimes in as quick as seven days--and as a bonus, they usually let home sellers choose the closing date.

You Want a Hassle Free Sale

Repair works, cleanups, stagings, open houses, and negotiations can significantly draw out the sales process and dash your hopes for a fast and stress-free sale.

Selling your house for cash to an investor frees you up from having to do all that. In fact, you can just pack your stuff in boxes (leaving your junk behind), trade your keys for cash, and get on with your life somewhere else.

You Want to Sell in as Is Condition

In a traditional sale, if you're working with a real estate agent, they'd probably refuse to list your home if it's unsightly, smelly, and in dire need of repairs. The prep work involved before initiating the sales process is monumental, to say the least.

It includes, but is not limited to the following:

Inspection

You need to find out everything that needs to be fixed. Or at the very least, be able to provide your potential buyer a snapshot of your property's condition so they'd be able to make an informed decision.

Repair and Renovation

All the issues uncovered during the inspection must be addressed. This means looking for contractors, screening them, evaluating their bids, and ensuring they do everything that needs to be done. If there aren't any major problems, sometimes little cosmetic adjustments such as a fresh coat of paint makes all the difference.

If you'd like to skip this step, you can disclose the issues to your buyer. Be ready for buyer concessions though.

Cleaning and Decluttering

Regardless whether you proceed with the repairs or not, cleanup is necessary. You must remove all personal items from your property so that it will be easier to stage for selling.

In case of a hoarder house, it is necessary to call for a professional cleaning company to dispose of years', sometimes decades' worth of junk.

The Solution

Prepping a house for sale can take weeks, sometimes months, depending on the condition of your house. Let's face it, not everyone has the time, energy, nor the money to spend sprucing up their property!

A home investor is unfazed by whatever condition your property is in. Their whole business model is built on buying houses in bad shape and flipping it after making improvements. They aren't deterred by leaky roofs, sagging floor joists, or gutters falling off--they've seen it all! So go ahead and check out their cash offers.

Frequently Asked Questions: Selling to an Investor

Do You Need a Real Estate Agent When Selling a House to an Investor?

A key advantage in working with a home investor is that there are no intermediaries involved. Since you deal directly with the buyer, all proceeds of the sale go to you--no commissions to be paid, no escrow fees , and no closing costs.

When Selling to an Investor, Do You Have to Sell for Below Market Value?

Real estate investors are bargain hunters. They buy houses in order to turn them into an income source by renting them out, or selling them later on for a profit.

Without requiring an inspection, they'd have to factor in plenty of variables in their offer such as: possibly repairing major issues like a cracked foundation or replacing a nonfunctional septic system; potential title problems that may only show up during closing; or, possibly evicting, or offering cash for keys to squatters who refuse to leave.

The bottom line is, your buyer must be compensated for whatever they have to deal with, which means yes, selling for below market value. But if it gives you an out from all the stress, the headaches, and the hassle, you still come out on top.

How Do You Find Real Estate Investors?

Network With Investor-Friendly Real Estate Agents

The field of real estate is a pretty small world, and industry professionals such as realtors can readily connect you with local investors who might be interested in your property.

Check Out Public Records

Property sales are a matter of public record. Be proactive and visit your local registry of deeds, chat up the county clerk, and they might be able to point you to individuals who buy houses wholesale. You can then give them a call and offer up your property.

Go to Real Estate Auctions

Call up your bank, they might have a foreclosure auction lined up. You can also browse the local paper for estate auction announcements.

Investors flock to this events so don't hesitate to join one. Who knows, they might even entice you to go into the business yourself? One of them might even be a mentor. In any case, this would be a win for you.

Closing Thoughts: Selling Your House to a Real Estate Investor

Here at House Buyer Network, we don't link you to just any other home investor. Instead, we connect you to a local investor familiar with your neighborhood, so you get a fair and honest cash offer that's reflective of the prevailing market trends.

Working with us means a quick and straightforward real estate transaction, and all you need to do is fill out the form below with your property address, your phone number, and your email. Within 24 hours, you'll get a no obligation cash offer, and if everything's good on your end, go ahead and choose a closing date! We work on your timeline, and even cover all closing costs for you!

If you'd like to know more, give us a call at (855) 835-2544 and we'd love an opportunity to walk you through our process!

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catherine mack
Author: Catherine Mack

Catherine Mack is a seasoned real estate investor and enjoys sharing her expertise through writing on relevant real estate topics. Catherine aims to educate home sellers, so they can make the best decision for their real estate problems.

She’s been featured on a plethora of publications including Better Homes & Gardens, Acorns, Realtor.com, Apartment Therapy, MSN, Yahoo Finance, HomeLight, and Business.com.

House Buyer Network™ since 2004. We buy houses nationwide. As house buyers, we offer cash for houses to homeowners looking to sell their house fast. Our cash offers are free and come with no obligations. See what we can offer and get cash for your house!

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