Selling a home can be a stressfully long process. Especially when you are selling it to traditional buyers, your work doesn’t just end at listing the house for sale. You also have to make sure that the potential buyers like the place enough to buy it. Thus, the stress and financial investments for repairing the house come, ensuring it is in an ideal condition. During the process, you also have to be available at the buyers’ convenience to show them around the property.
Even after such massive efforts and stressful situations, the chances are that the buyers might have concerns about the property, and the process might take a very long time. In addition to that, if you have tenants already living on the property, dealing with them becomes another task on the list.
You can also check this post for how to sell a house with a tenant.
Looking at all these challenges, many homeowners decide to sell their houses to real estate investors for ease of it. Selling to an investor is one of the fastest and most convenient ways to sell your house. And the best part? You don’t even have to deal with your tenants or pay for any repairs.
The next question that pops up in the mind is, “how much will an investor pay for my house?”
The question is obviously a very crucial one and it is only natural that you as a homeowner might have this question in mind if you are dealing with home investors for the first time. However, to fully understand how the investors evaluate a property, you need to understand other things as well. For example, why do people sell their property to investors? Why is it better than selling to a realtor? And how much can you negotiate with an investor to make the most out of your deal?
With this blog post, we will try to answer your questions about how selling a home to investor works.
What is a real estate investor?
Real estate investors are somewhat like an entrepreneur who buys houses as long-term investment through direct cash offers. These investors buy houses in their present condition and repair them to either hold onto them as a passive source of income by renting them out or resell them for profit.
Selling your house to an investor can make things hassle-free for you. The process of dealing is also quicker than selling to a homebuyer. Since you aren’t listing the house with a realtor, you also don’t lose some percent of your selling price as agent commission.
Another amazing feat of selling to an investor is the fact that you do not have to handle any legal procedures or repairing processes as real estate investors tend to do all of it themselves. It is considered to be a professional investment strategy for them.
Overall, selling to an investor is simple; you accept a fair cash offer, receive the payment in cash, and hand the ownership over to professional real estate investors.
Why do real estate investors buy houses?
One of the biggest concerns that most people have while selling their house to an investor is the fact that the price they get for their house is typically less than the market value. However, in reality, there are certain situations where selling your house to a real estate investor makes the most sense. Some such situations are;
- if you are facing a foreclosure and need to get out of debt.
- if the house is in very poor condition and the repair costs are exceeding the sale value.
- if you want to sell an inherited home that you cannot really afford.
- you need money in less than 2 weeks for the house you are selling.
The main goal of real estate investors to buy houses is to make a profit, which is why they offer good deals on the spot, in cash. Such practices make the selling process easy and quick for homeowners.
Making a profit is one of the many reasons. The rest are below.
Fixing it and letting out
When home investors believe that a house will be more valuable in the next 10 years or so, they may make a long-term investment. Thus, after buying, they fix the property and hold onto it. During this time, they let out the house and use it as a source of passive income.
As being a landlord is not an easy task, many people prefer selling their houses to property investors as they are ready to take the responsibility and thus, offer a good deal for the house.
The second reason some investors purchase houses is to fix them up and then flip them. House flippers usually buy houses that are in a condition of disrepair. Those who cannot afford to fix their houses or maintain them might find it hard to sell the house. In such situations, flippers buy the houses, pay cash for them, and make all the necessary repairs.
House flippers also help give new life to the communities as a whole. An unmaintained house in a neighborhood can affect the costs of other houses that are on the listing. Thus, when a real estate investor buys a house for flipping, they are not just investing in the house but also investing in the beautification of the entire neighborhood.
Replacing it with a new house
At times, the houses that investors buy may have a higher repair value than the sale value. This can affect the net profit massively. Thus, it becomes important for the investors to demolish the existing house and them replace it with a new one since repairing it doesn’t make any sense financially.
Apart from helping the investor make a profit, it also improves the overall value of the other properties in the neighborhood.
Many investors also buy houses to become a wholesaler of houses in a specific neighborhood. They invest in multiple houses in the same neighborhood and then sell them as singular units to other property investors and house-flippers.
How much will an investor pay for my house?
Most investors offer around 50% – 75% of the house’s market value. The average rate that professional investors can give you for your house is around 65%. The evaluation of the house is done by a home investor on the basis of some specific factors that help them figure out if they will be making a significant profit. The factors are;
- how desirable the house is, based on the property address, neighborhood, value, and scarcity
- what is the condition of the house
- the kind of investor that they are, i.e. house flipper or real estate investor
To get an estimate for your purchase price, you need to understand what kind of investor you are working with. So, in answer to your question “how much will an investor pay for my house?”, here’s how a house flipper and a rental property investor will evaluate your house.
House flippers’ profit comes from their ability to fix a house and sell it successfully. Thus, these investors pay the lowest amount for disrepair houses. If your house is seriously ill-maintained, so much so that other investors, realtors, and homebuyers have turned you away, flippers will happily buy your house in its present condition.
A flipper will offer you around 50% – 65% of your home’s fair market price. They calculate the value of the house by deducting the repair value from the full market value and then give you the 50% to 65% of the after-repair value (ARV), at best. For example, if the market value for your house is $250,000 dollars and it needs repairing worth $50,000, the value you might get will be around $130,000 dollars.
With a flipper investor, you might make a little less money but you can sell your house fast in whatever condition it is in. In simpler words, you will not have to worry about any house repair costs.
Rental property investor evaluation
Rental property investors may give you a more fair price for your house. Rental property investors typically pay you 60% to 75% of your sale value as they deduct repair costs from the value. So, for example, if the value of your property is $300,000 dollars in an open market, you may land on somewhere between $180,000 dollars to $225,000 dollars.
Such a real estate investor focuses on buying houses in bulks and turning the purchased houses into rental properties. They collect money from the new tenants and get their investment back within a short period. As this is a slightly clever real estate investment, these investors pay more money for the house compared to the flippers.
However, rental property investors may prefer houses in better conditions, but they’re still not too selective because it is possible for them to work with a not-so-perfect house that they have purchased for far less than its market value.
When do real estate investors pay more money for a house?
Real estate investors typically make cash offers for the houses they are purchasing. This is why they get their deals done quickly. A typical home buyer will wait for home inspections and the mortgage company but when you deal with an investor, you can skip all the steps and make the sale process shorter.
There are some situations where real estate investors are willing to pay more for the house as they can see that it is a good investment for them. Some such cases are;
If you know your property’s value well
Knowing the real value of your property can help you ask a fair price for your house from an investor rather than simply taking the investor’s words. When you have an idea of how much your house is worth, you can negotiate better and more confidently with an investor.
If you take care of the necessary repairs
If you want to get the prices that are as close as possible to the prices of your local market, it is better to take care of the necessary repairs of the house. Naturally, the more damaged your property is, the less negotiation power you have to the investor and vice-versa.
If you make some minor cosmetic changes in the house
One of the easiest ways to get your investor to pay more money for your house is by making small aesthetic upgrades to your house. Thorough cleaning by a professional cleaning service, a fresh coat of paint on the exterior, or new wallpapers on the interior walls can do the trick.
Negotiating with real estate investors for fair market value
As an average seller, after finding the right investors you may have to negotiate to get the best price for the property. There are certain ways that you can actually negotiate even after they have calculated and presented their best offer to you.
Provide utility bills and tax records
Rental property investors consider the monthly expenses of a property while evaluating it. If they over-estimate the prices, you can show them utility bills and tax records of the house to prove that your home is more affordable than other comparable homes. This can help you negotiate for a better price.
Present data on recently sold properties similar to yours
Most investors or an investment business bureau will look at the data on recently sold similar properties during the evaluation process. However, if you take initiative and present them with the data yourself, they will understand the fact that you are aware of how much your house actually costs in the market.
Ask your investor to cover some of the closing costs
It is important to remember that even after providing investors and cash buyers with the required documentation and data, they might not raise their offer. Thus, in this situation, a great way to make the most out of the offer is to ask your investor to cover some of your closing costs which might consist of a title recording fee and escrow charges.
Why should I sell my house to an investor?
Faster closing than a traditional sale
Unlike the traditional home buyers who wait for mortgage companies, home inspections, and escrow charges to be cleared before making a deal and closing it, investors can help you skip all the steps and make a deal quickly. Investors provide you with a no-obligation offer and usually close the deal faster than a traditional sale.
No need for repairs
If you do not get into the hassles and invest in making repairs for your home while you are in the process of selling your house, you can opt for an as-is sale with a real estate investor.
Usually, investors pay for the purchased property in cash. Thus, there is no delay in the finances due to processing or other such reasons. You receive the money for your house in cash within a very small period, which can be as short as two weeks.
Selling to an investor Vs a traditional buyer
The first benefit that you get with investors over traditional home buyers is the fact that the whole process is easier, more convenient, and a lot less time-consuming. Traditional buyers who buy the house for ownership purposes want the best for their money and thus they make sure that your property serves their needs. This can mean more invested time in home inspections. You will also have to keep your property properly maintained and cleaned for traditional buyers to buy it from you. The inspection reports that will come at the end might even contribute to lowering the prices of your property.
However, while selling to an investor, you can skip all of it unlike during a traditional home sale. They don’t just buy the houses as they are, but they also help you skip home inspections and reparation fees. Rental property investors might even let your original tenants stay in the property after the closing and you would be spared from the task of dealing with them.
Real estate investors Vs real estate agents
While dealing with a real estate agent, you have to pay a closing fee and their commission. Secondly, realtors are also very picky about the conditions of the house and require thorough home inspection reports. The process of the sale with a realtor is also pretty time-consuming.
When you are selling your house to an investor, you do not have to pay any commission, closing fees, or preparing charges. Investors calculate and offer you the best value for your house on the spot and make sure that you are paid as soon as possible.
If you are looking for a home buyer in Spokane WA that will help you avoid all kinds of hassles related to repairing and dealing with your existing tenants, dealing with real estate investors might just be the right thing for you. To avoid jumping all legal hoops and get paid in cash instantly with the bare minimum due diligence from your side, selling your house to a real estate investor or an investment company is advisable.