This article uncovers the truth about what you can really expect to receive from a “Home Investor” for your home… and the pitfalls you should watch out for.
So, “How much will an investor pay for my house?” The truth is, you will actually get several different offers, based on what TYPE of investor makes the offers. Here’s the breakdown:
Main Investor Types:
- Local Cash Buyers
- Out Of State Investors
Local Cash Buyers
This is generally your best bet. Local Cash Buyers meet all the criteria listed below in Criteria you want in an investor.
- They should already have the cash on hand to buy your home. This means they don’t have to get approved for financing. Nothing can hang up or kill a home sale like trying to get approved for financing.
- The professional buyers can send their own representative out almost immediately (within a day or so) and can usually make a cash offer right then. You want to avoid someone having to hire a contractor or inspector to go out to make the estimates.
- Professional Cash Buyers will always accept the home AS-IS. You don’t want any contingencies in the offer.
- Because a professional Cash Buyer doesn’t need financing, they can close quickly. You may not want to close in a few days, but its critical to know that the investor can. To find out if they really have cash, just ask them: “Can we close this week? Will you provide proof of funds?” You will find out really quick if they actually have the funds on hand.
- Local professional buyers will already have a working relationship with a licensed title company. This means they can start title research quickly, with just a call if need be, and work in concert to overcome any issues that may arise.
Out Of State Investors
This group can go either way. Some are Cash Buyers and some are Wholesalers (see below). Some are better than others. Some you should avoid. Here’s what you should look for:
- Are they paying cash? (ask if they can close in a week and will they provide proof of funds)
- Do they have to find and hire a local contractor or inspector to come estimate the property?
- Are they buying the home AS-IS?
- Can they close quickly? (Ask if they can close in a week.)
- Do they already have a relationship with a good local title company?
The thing to be very careful of here is Investors that make offers over the phone but can’t back up what they say. Unfortunately, unscrupulous operators will make offers sight unseen, knowing they can “re-negotiate” later, once they have you under contract, and as you get close to the closing date. There are some good out of state Investors, but at best they will take longer than a local cash buyer, and at worse, they will just tie-up your home in a contract that puts you on the hook, but lets them get out if they can’t “wholesale” the house (see below).
This is where you must be very careful. This group of investors typically tie-up your property in a contract and hope to go find another investor to “flip” the contract for a fee. This doesn’t make them unethical, but problems can come in two ways:
- When they don’t disclose all the facts to you, namely that they are not really going to purchase the home themselves and have to find another buyer.
- If they are not able to find another cash buyer by closing time, and they can’t perform. Or worse, the really bad actors intend on waiting til closing and negotiating a lower price at the closing table, knowing you will be very vulnerable then.
To be fair, there are some wholesalers who will deal upfront and fair with you. If they disclose everything to you, that’s a good sign. Wholesalers have been able to help a lot of people. So, if you have limited options, don’t dismiss this option right away.
Criteria you want in an investor:
- Someone that already has the cash on hand
- Someone that can come out immediately themselves and give you an offer on the spot
- Someone that will buy the home AS-IS
- Someone that can close quickly (in a few days), or whenever you are ready
- Someone who has lower costs of remodeling because they are local
- Someone that understands the Houston market and uses a local title company
- Someone who is upfront with you and discloses everything (especially the fact they are not going to buy the home themselves, but try and wholesale it!)
“OK, But How Much Will an Investor Pay for My House?”
- Typically, an investor needs to net 10 to 15% profit on the investment and remodel of a home. This is after they pay for the remodeling, pay for any holding costs (financing, taxes, maintenance), and then pay any commissions or costs of selling the property. Obviously, it is unrealistic to expect an investor to invest $100 – $250 thousand into a home, remodel it, and then sell it to lose money!
- The good news for you (the seller), is the investor is going to remodel and improve the home, which will raise the value. Meaning, they will base their offer on the After Repair Value. After Repair Value is the value they hope to achieve by remodeling the home to the top of what buyers are willing to pay.
- Also, the current market conditions will effect how aggressive investors will be. In a hot market, they can take more risks. In a “soft” or slow market, investors must be more conservative.
How Each “Investor Type” Approaches Making An Offer:
- Local Cash Buyer: This is your most realistic offer. The Local Cash Buyer is generally going to remodel and sell the home. Their offer should be a real number. And, they benefit from having their own local remodeling crews ready to go, so their costs are lower.
- Out of State Buyer: Again, this can go either way. If it is a real cash offer, then it should be legitimate. Only problem is, he doesn’t have his own local crew ready to go, and must pay more for the remodeling, thus, their offer to you might need to be lower than a local investor. Also, be wary of offers made over the phone without viewing the home. The price will usually change later, once they have seen the home. If it is a Wholesale offer, then the next applies…
- Wholesale Buyer: Sometimes, these “buyers” will offer you a higher price than a cash buyer. The problem here is the wholesaler is not going to actually buy the property, he is passing it off to another cash buyer. Accordingly, he can offer you more than what is realistic, and then try and get you to lower the price later. Again, wholesalers can be fine, if they are upfront about what they are doing, and if they offer you a realistic cash offer.
So, Beware of Investors who make you an offer without seeing your home…. and who are not upfront about their intentions to actually pay cash themselves.
The Benefit To You: Selling to an investor will save you: TIME, MONEY and BLOOD SUGAR.
- Time: With an Investor, you can close instantly or on the date of your choice. No Marketing or showing the home
- Money: With an Investor, you pay no repairs, no fees or commissions, and you can stop the taxes, maintenance and interest payments instantly
- Blood Sugar: With an Investor you save all the headache of remodeling the home yourself, and trying to show and market the property— often with no results!
Conclusion: Selling to an investor is not for everyone. If you have all the time, money needed to complete necessary repairs, and especially the blood sugar to deal with the headaches of remodeling and selling the home the traditional route, then that may be your best bet. However, selling to an Investor can save you a lot of time and effort. If you choose to get offers from investors, always be careful what type of investor you are dealing with. Your best bet is to use someone local and use someone who is up-front and honest with you (always check their Better Business Bureau rating and local reviews). And remember, Investors need to make a profit, so their offers will be based on how much work your home needs, and the current market conditions.
A Plug For American Home Buyer
I am proud to work for a company that is a leader in the Houston Real Estate Home Investment Market. American Home Buyer has bought and sold hundreds of homes for cash over the last 20 years. They have an A+ rating with the Better Business Bureau (click here to see BBB Reviews), and a stellar reputation in the community (click here to see Testimonials). If you want a professional, up-front, REAL cash offer for your home, give them a call!