Selling your home is a tedious process, but selling it to an investor isn’t. Many home sellers, particularly first-time sellers, are unaware that selling to an investor is an option that many homeowners have used to sell their properties quickly.
It’s a hassle way to sell a house, and if you’re thinking about selling your home to an investor, this article will tell you everything you need to know regarding the same.
We’ve created this detailed guide to selling a house that addresses all of the key questions, so you don’t have to go elsewhere for answers. You will get a fair idea of what to expect when selling your home to an investor.
We have explained things simplest terms to help first-time sellers understand them better. You will have a fair knowledge about selling your property to an investor by the end of this guide, which will certainly help you make better real estate decisions.
Let us begin by answering the most basic question.
Who is a real estate investor?
An investor is an individual or a company that buys and sells houses to make a profit. It’s the same as investing in the stock market (or any other asset class). You buy some stocks and sell them when the market is doing well.
Real estate investors also buy houses for a lower price to make more money out of them in the future. This is just one aspect of it. There are a number of things they do with the houses they buy; we will take a look at them in just a short time.
For most people, purchasing a home is a once-in-a-lifetime event and perhaps, the most important part of their lives. On the other hand, investors are not buying homes as a place to live. They see the property as an investment with the potential to earn a higher return on investment. As a result, they may purchase many homes. The majority of investors will pay you in cash and do so right away.
Please keep in mind that investors are business people who want to earn money, but it does not imply they will give you a terrible bargain. There are several advantages to selling your house to an investor, including immediate cash, quick sale, and more.
2 Types of investors
There are two types of investors you can sell your house to. One is an organization or an institution, and the other is an individual investor.
Institutional investors
Institutional investors are the big fishes in the ocean who have a lot of individual investors working for them. All these individual investors find properties to invest in, negotiate and make a profitable deals for their clients.
Since they receive huge amounts of funds, they buy many houses from an investment point of view. They are professionals who are great at researching, negotiating, and finding potential high ROI properties. They use their expertise for the benefit of the company and their clients.
They make investments on behalf of their client, so you may or may not know the real identity of the person to whom the ownership of the property is being given after it is brought from you. However, this may be true in the case of individual investors.
Some popular examples are Zillow, Open Door, and Redfin Now.
Individual investors
As the name suggests, individual investors are usually single-person or a small group of individuals who invest in the real estate market. They will buy and sell houses for a profit. If you compare them to big organizations, then we can say individual investors work on a much smaller scale.
Whether a small-scale business or a huge company, they will certainly buy your house. There are few things these investors do with the properties they believe.
What do investors do with the houses they buy?
Real estate is great for investment. There are a few ways to make money out of properties. When investors buy houses, they generally resort to 3 options.
Remodeling for resale
We commonly refer to such investors as “home flippers.” These investors will buy houses that need home improvements. They will even invest in places with big and small repairs. Such dwellings are purchased at a lower price and remodeled to resell at a better price. If your home isn’t well kept, it may need repairs and renovations before you put it on listing websites. If you want to avoid this trouble, you can simply sell your house to an investor.
This is the most common method for investors to make money out of the properties they buy. This method is beneficial for both the investor and the buyer. The buyers don’t have to invest their time and money in remodeling the house that they are eventually going to sell. Investors get a cheaper deal, and the gap between the price they bought it for and the price they will sell it at increases, providing them with a greater profit margin.
Selling when the market value increases
This is a classic strategy for increasing the profit margin. Investors buy the house when its market value has dropped and sell it when the market value increases. The market value of a house depends on a variety of factors, including the locality, the condition of the house, the neighborhood, the chances of infrastructural development in the area, and more. The market value keeps fluctuating. Most investors will buy a house, wait for the market value to increase, and then sell it to enjoy a handsome profit.
Become landlords
If investors think they will earn more money by renting the house than by selling it, investors may choose to become landlords. They will make it a rental property and enjoy a continuous income. This method is more beneficial when the investors buy a building. Since there are more homes, they will get more rent payments.
The new generation prefers renting an apartment near their job to buying a completely new apartment. So, if a house or building is in or close to the city, renting it out is usually the most profitable option.
Some investors are too busy to carry out the duties of a landlord, like collecting mortgages, so they become members of real estate investor groups and let the group handle the job.
Real estate investor VS real estate agent
Since this is a beginner-friendly guide, let us tackle this typical confusion that a lot of people have. Contrary to what many think, real estate agents and real estate investors have nothing in common. Let us discuss a few points of difference.
To begin with, real estate agents or realtors (members of NAR-National Association of Realtors) do not buy your house. Instead, they help you find the right buyer. They have a lot of experience and knowledge of the local real estate market and can find potential buyers easily. Investors, on the other hand, are the ones who will buy your house. With investors, you don’t have to wait until an ideal buyer comes along with a deal.
Another point of distinction is that real estate agents will take a small percentage of your payout as their commission. Investors don’t require any commission; they simply buy the property directly from you without any third-party intervention.
Investors are not licensed. Realtors are. It is not mandatory for investors to have a license. However, there are some investors who do have a real estate license. With investors, their credibility is not defined by their license but by how many houses they have bought and sold and their general reputation in the market.
Lastly, realtors are not independent. They have enough liberty to work as per their wish, but after all, they are working under a broker, so they are not completely independent. An investor is an independent body.
This is a basic overview of how they are different from each other. In case you are interested in knowing more, you can click here.
Whom should I choose between an agent and an investor?
This decision is entirely dependent on what you want to get out of this real estate transaction. If you have already relocated to a new location and are not in a rush to sell your home, taking help from an agent may prove to be the best.
However, you will need to make renovations to your home in order to attract buyers, host an open house, improve curb appeal, and do a variety of other tasks. You’re dealing with a standard buyer here, most likely someone who will move into the property. So, before you sell your home, you must make it appear beautiful.
When should you seek out an investor? The most significant benefit of selling your property to an investor is that you may be able to sell it in as little as a week. That’s why, if you want a large sum of money in a short period of time, an investor is the best choice.
Why should you choose an investor over a real estate agent?
An investor brings a lot to the table. Selling your home to an investor has a number of distinct benefits when compared to selling to a regular buyer with the assistance of a realtor. Let us provide you with further reasons to choose an investor versus a realtor.
Sell your house as it is
Investors are ready to buy houses that are not in a very appealing condition. Even if your house needs major repairs, you can still sell to an investor. When selling to a regular buyer, you have to make your house look great, conduct a home inspection, and improve the curb appeal, among many other things. House flippers are the ones who buy problematic houses at a lower price and renovate them to sell them at a higher price.
If you have no time to make these changes to your house, you can simply sell it to an investor, and they will take the home as it is.
Quick Sale
A week is all it takes to sell a property to an investor. Investors buy properties as-is, so you won’t have to waste time repairing the property.
Moreover, it may take months for a real estate agent to sell your home. They’ll need time to find the right home buyers and negotiate an attractive sale price. Investors don’t need to do that because they are the ones buying your house. They sense potential profit in a place, and they purchase it, resulting in a successful home sale for you.
For instance, consider a situation where you need a large sum of money to pay your remaining mortgage balance, but you don’t have much money on hand. Selling through an agent will not help you in this situation. You require funds immediately. That is what an investor will provide.
Payment options
If you want immediate cash, then selling your home to an investor is a superb idea. The majority of investors will pay you in cash right away.
There are also pre-scheduled cash payments and scheduled cash payments available.
Another payment technique used by investors is a certified fund or a certified check. A certified fund ensures that you will receive your funds. For instance, suppose you sell your home to an investor who, instead of giving you cash, gives you a check. You will undoubtedly have questions about the legitimacy of the check. What happens if it bounces? With these concerns in mind, you might reject the request to instantly transfer ownership of your property to the investor.
A certified fund is employed in this scenario. The bank or institute that verifies it assures you that you will get your funds. With that, you can peacefully complete all the paperwork and complete the transaction.
No extra expenses
As mentioned earlier, there are a lot of things that you will have to do in order to sell a house, even with the help of a good real estate agent.
These are all the extra expenses you can avoid if you sell your home to an investor.
- Minor and major repairs
- Hiring house staging professionals
- Professional photos for the listing
- Hosting open houses
- Pre-sale home inspection
- Commission of the buyer’s agent and the seller’s agent
- Closing costs
- Title insurance fees
- Escrow service
- Transfer tax
All of this will cost you at least a few hundred dollars, depending on the purchase price of your house (most services will take a percentage of the purchase price). Selling your property to an investor allows you to save the money you would have spent on a traditional sale.
No need for relisting
Once a listing agent has listed your home on online listings, it will be on the market for a defined length of time. If your home is sold within that duration, it will be taken off the list. If it doesn’t sell, you will have to relist it. The longer your house stays on the list, the lower the chances of finding an ideal buyer. Not getting any enquires for your house is a clear indication that your property lacks something.
For relisting, you can work with a different agent or the same one. But relisting means doing all the procedures all over again. It may also involve checking what is wrong with your offer and making it more attractive.
You can totally skip this hassle and sell your home to an investor after it has been taken off the list.
The risks of selling a house to an investor
We have given you enough reasons to sell your house to an investor. But there are also some risks associated with selling your house to an investor.
Real estate scams
You will find scammers everywhere these days. In the real estate industry, such fraudsters can readily deceive first-time sellers. It is a common scenario that fake investors pretend to be out-of-town investors and make you a nice offer. They may offer you a bogus name, documentation, and even a check. Learn how to avoid scams before you sell a house to an investor.
How to avoid scammers?
Avoiding scammers is your responsibility. Do a lot of research before you sign any documents. Be vigilant. If someone is offering an unrealistic price, be smart enough to detect that something is fishy. You can also make use of the internet. You can use the Better Business Bureau website to check the legitimacy of a business.
Lookup for their reviews online. If an investor is actually good, they will certainly have a good reputation and good online reviews.
It may also be worthwhile to check out their website. These are small things but can really help you save yourself from scammers.
Try to get as much information as you can about your investor. Verify that information online. Only after doing thorough research should you sell your house to an investor.
You can also hire lawyers to help you verify the legitimacy of the documents presented to you.
Investors are not licensed
This is not a drawback as such because investors don’t need to have a license. However, since they don’t require a license, there is an absence of a governing body. Most investors are part of an investor’s group or club, so they have to maintain a good reputation to continue being a part of it. So you won’t have to worry about the license part.
If they do have a license, that is great. It means you are dealing with recognized and knowledgeable real estate professionals.
The sale happens at less than the fair market value
The biggest disadvantage of selling to an investor is that your house will be sold at a price lower than the fair market value. If you think about it, going by the traditional method will cost you a long list of extra expenses. Since the investors buy your house as-is, they will certainly demand a reduced price.
If you want to get the highest possible price for your house, you should probably go for a traditional sale.
How can you find the market value of your house? You can check the prices of the recently sold properties in the local market. Get information on houses similar to yours. Alternatively, you could use some online tools.
Why do you need to know the fair market value of your house? Well, even though the investors will pay you less than the market value, you don’t want it to be a minimal amount. If you know the price of your house in the market, you can make some calculations, subtract the cost of the extra expenses, and check if you are getting a fair deal or not.
Can I negotiate a better price?
Yes! You don’t have to agree to the first offer made by the investor. Do some comparative market analysis before you offer your asking price. You can hire your own appraiser to negotiate a better price for you. If there are some small repairs, you can get them done and demand a slight increase in the price. But if you decide to do the repairs, it will take time to close the deal. Also, note that the investor may not agree to the same. Just like you, even the investor has complete freedom to negotiate.
How to find a real estate investor?
The internet is the biggest source of information. Just search for buy my house in Spokane, and you will find many investors and home buying companies.
Some home investors are part of groups or clubs. You can find a real estate investor group and approach them to find an investor for your house.
Investors will also have their own websites, so you can search for them on the internet.
Don’t limit yourself to your friends and family. Leverage your LinkedIn contacts and other social media networks to contact an investor.
Recap
The home selling process is tedious but selling to an investor is rather easy.
An investor is an individual or a company that buys and sells houses to make a profit.
There are two types of investors you can sell your house to. One is an organization or an institution, and the other is an individual investor.
When investors buy houses, they generally resort to 3 options –
- Remodeling for resale
- Selling when the market value increases
- Become landlords
Real estate agents and real estate investors have nothing in common. Agents are a third party that will help you find a buyer, whereas investors are the ultimate buyers of your house.
Why choose an investor over a real estate agent?
- Sell your home as it is
- Quick Sale
- Payment options
- No extra expenses
- No need for relisting
Risks in selling your house to an investor
- Real estate scams
- Investors are not licensed
- The sale happens at less than the fair market value
Leverage your LinkedIn contacts and other social media networks to contact an investor.
