You’ve likely seen the signs crop up all over the place: we buy houses for cash, we buy ugly houses, we buy houses — there are many variations that all stem from the same thing: these are home investment companies. While many sellers put their focus on getting the highest price they can from their homes, usually, by listing it on an open market through a real estate agent, the direct-buy method has been one of the most successful ways to sell a house fast.
Whether you need to move away for a job opportunity or are experiencing financial difficulty and need to downsize, selling to a home investor is a quick way out. The only thing you’ll need to do is sell at a discount for such convenience, as well as the certainty and speed with which is the transaction can be completed.
Who Are the Home Investors?
The pool of buyers that are currently making bids in a direct-buy market is diverse and vast. There are different types of buyers, including:
- Flippers
- Buy and hold investors
- Venture capital-backed investors
- iBuyers
Different kinds of buyers have different types of packages that also target various property types. Some only want to purchase homes in tear-down condition, while others choose homes in decent condition. Because of such differences throughout, it’s important to do your research and understand just who it is you may sell to.
What Is a Real Estate Investor?
Many cash buyers are also real estate investors. The investor buys a property intending to build up their wealth. A real estate investor can be a single individual or a corporation, and their perks include flexibility, speed and cash for your property. There are three main kinds of real estate investors, which we mentioned earlier:
- iBuyers. These are groupings of “instant buyers” that are backed by venture capital.
- Fix and flippers. These are buyers that renovate a property and then sell it.
- Buy and hold investors. These investors buy a property and then rent it for passive income.
Once you become familiar with such groupings, you can begin to look at how these investors work. Remember that each company has fee breakdowns and business models. Even so, you can get a general idea of the way that most of them operate by reading below. This includes usual service fees, usual speed of sale and the general business model.
3 Kinds of Residential Real Estate Investors
-iBuyers-
iBuyers take a new approach to the fix and flip method. The term iBuyer refers to the kinds of investors in modern times, such as Redfin and Zillow, that use automated valuation models and other kinds of technology to generate swift offers on homes and reach closing in days. Purchasing homes with cash and then turning around and selling them at a profit is a type of business that relies on much overhead, so this often forces home investors to purchase a home at a steep discount, which means they run the risk of losing money. Theoretically, they are different from other kinds of investors such as home flippers because they make more competitive offers and do so on homes that are in better condition. They also use technology to accomplish this.
Working with an iBuyer
The process of selling a home with an iBuyer begins with some general questions about the property itself, such as any recent upgrades you’ve made to it and its overall condition. Afterward, an algorithm will find the home’s value using various points of data. iBuyers will usually choose their homes based on the following points:
- Built after a certain period of time or year.
- Valued somewhere between $200,000 to $500,000.
- In relatively decent condition.
If your house qualifies for purchase under their conditions, you’ll get an offer in only a few days. If you accept this offer, you’ll begin to move forward with the process and close on the deal, sometimes in only a week. When you sell to one of these iBuyer investors, you will be free from the time-consuming tasks that often come with a conventional home sale. This includes listing photos, staging, showings, open houses and other traditional aspects. You can usually expect to take out the costs of the necessary repairs from the proceeds and profits that you take home.
For instance, Opendoor, an iBuyer, indicates on its pricing model that any necessary repairs needed for selling a house are considered a “?” transaction cost because it isn’t known. This iBuyer looks for things that are in bad condition, are broken or can negatively impact the functionality, structure or safety of the home, which is pretty typical for a red flag in-home inspection.
iBuyers is a quick-growing business model that is rapidly expanding across the country, making them quite popular. Typically, their service fees tend to be between six percent and 12 percent.
-Buy and Hold Investors-
These investors will buy up single family rentals faster than most other kinds of investors. This is an institutional investor that is backed by Wall Street and has hefty reserves of cash that can be invested on behalf of those who have membership with them. REITs, or real estate investment trusts, buy thousands of houses and then transform them into rental properties to pull a profit from them.
American Homes for Rent and Blackwood’s Invitation Homes are two of the largest instances of a real estate investment trust. Both of them have tens of thousands of these houses that are bought each year. These REITs purchase leased, vacant or occupied single-family homes all across the nation.
Working with an Institutional Investor
If you work with a real estate investment trust, you can expect the sale to be executed quickly through a team of local real estate professionals, underwriters and acquisition experts. Intuitional investors often offer dependable and quick cash offers that are complete with flexible closing dates. Through advanced pricing models and a track record of successful transactions, real estate investment trusts usually have better pricing options than the others.
-Fix and Flip-
These investors can swiftly renovate a property and then sell it for a profit. This type of investor can renovate and then sell a home in only a few weeks, though it can take as long as a year depending on how many repairs need to be made, as well as the health of the local real estate market.
Working with a Fix and Flipper
They will offer less than the market value of the house in order to make room in the budget for renovations, but they will usually work with any home, no matter what condition it’s in. We Buy Ugly Houses and We Buy Houses are two of the largest of these investors, and they make a no-obligation offer on homes no matter the condition.
In Conclusion
The main benefit of selling with an investor is a streamlined, fast transaction that doesn’t require jumping through any hoops common when working with a buyer that needs financing. The experience and the packages that are offered vary from investor to investor and even with separate companies, so it is important to get to know the methods of each and decide what works best for you.
