Should I Sell to a Home Investor?
These days, many home sellers decide to avoid the stress of a complicated home sale by selling directly to a real estate investor. They know that this way, they’re able to sidestep traditional issues like inspection contingencies, appraisal concerns and buyer’s financing issues. They also know they can get cash in their pockets quickly.
What you should know about selling your house to an investor
- Selling to an investor saves time and hassle, but it’s not for everyone.
- Personal situations, like an unwanted inheritance, downsizing, divorce or potential foreclosure are common reasons people want to sell quickly to an investor.
- You can expect a quicker close, an as-is sale and an all-cash offer.
Who are traditional home buyers? Traditional buyers are people like you, when you bought your current home. They’re purchasing a property to reside in, either as their primary home or vacation home.
Who are home investors? Investors buy residential properties as part of a business or investment strategy and usually employ one of four key strategies:
Buy-and-hold – A buy-and-hold investment strategy helps an investor grow a real estate rental portfolio over time. They’ll do the math to determine yearly expenses versus potential profit and see if an individual investment pencils out before buying.
Wholesale – Investors who buy properties they resell quickly, without any improvements, are called wholesalers. They buy homes below market value, then sell to other investors at a higher price. Successful wholesalers identify inactive or off-market homes they can buy inexpensively.
Flip – Investors who buy houses, renovate them, then sell them at a higher price are called home flippers. The goal is to make a profit on the resale after renovations are made.
Renovate and hold – Sometimes investors will buy a property, renovate it, then rent it out while maintaining ownership.
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 – If you’ve inherited a property from a family member and you don’t plan to live in the home, you won’t want it to sit empty for too long. Not only can a vacant home be a target for vandalism, but if you sit on the property in a fast-moving real estate market, you could be on the hook for capital gains taxes.
- Foreclosure – If you’re behind on payments and need to sell quickly, an investor can be a good option.
- Disrepair – If your home requires a lot of updating or repair work to be attractive to traditional buyers, it may be appealing to sell your home as-is to an investor.
- No financing possible – 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.
- Divorce – Divorce settlements require both parties to divide the assets, and selling fast and splitting proceeds can often be an easier way to go.
- Tenant-occupied – Doing repairs, taking listing photos and scheduling showings with tenants living in a house can be complicated, so people who own rental properties often turn to investors when it’s time to sell.
Pros of selling your house to an investor
Even if your 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 – With a traditional home sale, you’ll have to do a lot of prep before you list, from cleaning and decluttering to taking listing photos and staging. Research shows that the average seller spends $4,985 just getting ready to sell, which includes hiring a professional for projects like painting, staging, house and carpet cleaning, lawn care and gardening. Most investors care more about the financials and less about how your home looks. After all, they’re going to either turn around and quickly resell your home or renovate anyway.
- No realtor’s commissions – No realtor means you save 5-7% right off the top.
- 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, sometimes even faster.
- Simplified transaction – Because the home is being sold as-is, you won’t need to worry about making any repairs before closing. Traditional buyers commonly request repairs as part of their home inspection contingency.
- All cash offers – Investors don’t take out bank mortgages, so there’s no danger of a buyer’s appraisal coming in below the offer price and killing the deal. In general, cash offers can close 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.
Lower offers – 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 almost $5,000 simply getting their home ready to sell, including things like painting, staging, cleaning and lawn care. When you sell to an investor, these steps aren’t required.
- You won’t pay a realtor’s commission.
- The offer reflects needed repairs: If your home needs updating or repairs, an investor has factored those costs into their offer, as well as holding costs and back-end resale costs.
If you’d rather have the cash than the headache, you’re not alone. You can try one of those “bandit signs” you see on the side of the road or plastered on telephone poles; you can answer one of those mass-mailed direct mail letters you might get; or you can call us here at Vital Capital Strategies at 302-635-0205 for more help and answers to all your questions. We’ll get that cash right where you want it – in your pocket.