Should I Sell to a Home Investor?

Should I Sell to a Home Investor?

Home sellers can avoid the stress of a complicated home transaction process and sell directly to a traditional investor or aniBuyer.

These kinds of sales may allow sellers to bypass things like inspection contingencies and avoid appraisal concerns or buyer financing issues.

Even if you start off intending to sell to a traditional buyer, you might end up getting a compelling offer from an investor, perhaps one with minimal contingencies and the promise of a quick close. But before you accept, it’s important to understand how the process differs from a typical transaction. And if it feels too good to be true, it probably is.

Read on for everything you need to know about selling your home to a professional home investor.

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 a job relocation, divorce or potential foreclosure, are some common reasons people end up quickly selling a home to an investor.
• There’s a new type of home investor, called an  iBuyer .
• Whether you sell to a traditional investor or an iBuyer, you can expect a quicker close, an as-is sale and an all-cash offer.
• When selling to a private investor without a listing agent, you need to do your research to protect yourself from scams. There are plenty of companies that buy houses — make sure to use a reputable one.

How do traditional buyers and house investors differ?

The term buyer is used to broadly describe people who buy homes, but buyers can come in varying forms — traditional buyers, traditional investors and iBuyers. The type of buyer you accept an offer from can impact the rest of the transaction process.

Who are traditional home buyers?

Traditional buyers are people like you, when you bought your current home. They’re looking to purchase a property to reside in, either as their primary home or as a vacation home.

A traditional buyer will make an offer based on their perception of your home and their research on its market value. There’s also an emotional component to the purchase. Maybe your home has a unique quality they’ve been looking for, like a big yard for their kids or the perfect layout for their needs. Traditional buyers may pay more than market value for the features they crave, or they may be willing to pay above asking price in a multiple-offer scenario.

According to the Zillow Group Consumer Housing Trends Report 2018, these attributes comprise today’s  average traditional home buyer :

• 41 years old
• College-educated couple
• Middle-class income
• Looking for a single-family home

Who are home investors?

A professional home investor is either an individual or a company that buys residential properties as part of a business or investment strategy. Individual investors may own just one or two investment homes (that they either keep and rent out or flip and quickly resell), but companies that buy houses usually do so in bulk. Home buyer investors usually employ one of four key strategies.

BUY-AND-HOLD INVESTMENT

A buy-and-hold investment strategy helps an investor grow a real estate portfolio over time. An individual might use this strategy to buy a home to rent for side income. They use something called a cap rate to determine their yearly expenses versus their potential profit and see if an individual investment pencils out before buying. A larger corporate investor may buy a home without renting it if they’re simply trying to grow their portfolio or want to wait for improved market conditions.

WHOLESALE INVESTMENT

Investors who buy properties and then resell them very quickly (and without making any improvements) are using a strategy called wholesale investment. They buy homes at well below market value, with the goal of selling to another investor for a higher price. Successful wholesalers usually have a large list of buyers lined up beforehand and use direct marketing to identify inactive or off-market homes they can buy inexpensively.

HOUSE-FLIP INVESTMENT

Individuals or companies who buy houses, renovate them, and then sell them at a higher price are called home flippers. While the level of renovation needed and completed varies by the individual home and the local market, the goal is to make a profit on the resale, even after clearing all renovation expenses.

BUY/FLIP/HOLD INVESTMENT

This type of investment is a hybrid of some of the other strategies covered above. In this case, individuals or companies buy a property, renovate it (in either minor or major ways), and then rent it out at a premium, while maintaining ownership.

Who are iBuyers?

Like other professional home investor companies, an iBuyer is a house-buying service (not an individual). What makes an iBuyer different is that they use technology to streamline the selling process, which can mean less hassle for you as the seller. iBuyers rely on a wealth of data and comparable home sales to make offers, often sight unseen.

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 might 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.

Need timeline flexibility

If you’re selling on a very specific timeline, you usually have more control over the close date with an investor, since they’re not timing a move-in date the same way a traditional buyer is.

Currently in escrow

If you’re trying to time a  sale and a purchase at the same time  and your new purchase is contingent on your old home selling, going with an investor offer can speed up the process.

Relocating for work

Often a  job relocation  requires a faster-than-average timeline. Selling to an investor can be faster than waiting for the perfect 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 owning rental properties often turn to investors when it’s time to sell.

Pros of selling your house to an investor

Even if your personal 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.

Partial source: zillow.com