When making plans to sell a house, homeowners face a big decision: do they sell to a home investor or work with a local real estate agent and list on the open market? As investor sales continue to grow, so do the options available to sellers. Here is what to know about both paths — and how to choose the right option for you.
What is the difference between an investor and a typical homebuyer?
Perhaps the biggest difference between an investor and the typical homebuyer is their intentions for the property upon buying it. In the case of the typical homebuyer, they’re looking for a permanent residence for themselves and their family.
Investors, on the other hand, see your home as a business opportunity. Depending on the type of investor, they may be looking to make some renovations and flip the house. Or they may want to rent it out as income property.
“These investors are interested in making a profit,” top-selling Houston real estate agent Creston Inderrieden says. “They’re interested in getting the home for as little as possible and then making as much as possible.”
4 common types of investors
According to the National Association of Realtors, cash sales grew by 7% in 2021, accounting for 23% of existing home sales. Much of this growth is coming from the rapid rise of investors and iBuyers that are coming onto the market and snapping up properties. “Increasingly, you have hedge funds that are acquiring properties and have turned it into a true business,” Inderrieden says. “They’re flipping hundreds of homes at a time…it’s literally a machine.”
What’s important to understand, is that not all home investors are the same. Here are a few of the most common investor types you’ll run into as a home seller.
1. Buy-and-hold investors
A buy-and-hold investor is just as the name suggests: they intend to purchase and own a property for an extended period of time. Typically, these investors will use the properties as rental income, counting on both the rental payments and property appreciation to turn a profit.
These investors often target single-family homes or condos in growing neighborhoods that are in turnkey condition. This allows them to maximize the amount of rent they can charge for the property (as well as get renters into the house as quickly as possible).
2. House flippers
House flippers, on the other hand, take a very different approach to real estate investing. Using a buy low, sell high strategy, these investors purchase properties (often at a deep discount) that they can fix up and sell for a profit.
These homes often need substantial repairs or renovations that the homeowners don’t have the time, money or interest in taking on themselves.
3. Wholesale investors
These investors will buy properties at well below market value, with the goal of selling to another investor for a higher price. They often re-sell properties almost as quickly as they purchased them without making any improvements first.
iBuyers may be the new kids on the block, but sales to these companies are quickly gaining steam — and contributing heavily to the growth in all-cash offers over the last few years. iBuyers, or instant buyers, provide a simplified online home-selling experience in exchange for a convenience fee. They look for homes in good condition that they can purchase and resell quickly (typically without renovations) at a lower per-sale profit margin than you’d see in a flipper sale.
Some of the big iBuyer players include companies such as OpenDoor, Offerpad and Redfin. HomeLight also has a Simple Sale platform that will provide sellers with a quick cash offer and the ability to close quickly on their schedule.
4 advantages of selling your home to an investor
Although it won’t be the right choice for everyone, there are some sellers who will benefit from working with an investor. Here are a few benefits it provides — as well as how to determine if it’s the right decision for you.
1. A hassle-free sale
When you sell your home to an investor, you’ll get a quick, cash offer without having to go through the typical process of cleaning and staging the house, dealing with real estate showings and paying for repair or renovation work.
According to Inderrieden, this type of sale can be appealing to someone who inherited a home — particularly if the home is in a different city or state. “It’s generally people who aren’t keen on maximizing value,” he says. “They just want to walk away and not see that house again.”
2. No financing delays
Although the number of cash sales has been growing, 87 percent of recent home buyers financed their home purchase. This not only adds extra time to the process (it currently takes 47-50 days to close a purchase loan), but it also adds a layer of uncertainty that can be stressful for buyers and sellers alike.
A cash sale means no financing contingencies based on the results of an appraisal or the buyers’ finances — either of which can create further delays or cancel the deal altogether. In fact, both investor and iBuyer deals can close in a matter of days.
3. No repairs or renovations needed
According to the latest data from the National Association of Realtors, 36% of homebuyers are looking for a turnkey property that requires little to no repair or renovation work. If you have a home that needs work, and you lack either the funds, time, or the interest in making those updates yourself, selling to an investor might be an appealing option for you. An investor (particularly a flipper investor), will typically purchase your property as-is, taking into account the needed repairs and renovations when making you an offer.
4. Greater flexibility
Whether it’s a new job in another state or a family emergency, there are situations that may require you to pick up and move quickly.
In addition to avoiding financing delays, investors may be more flexible with the close date than a traditional buyer.
The closing date is often up to the seller (within reason) so you’re free to choose the date that works best for your timeline, whether that means selling ASAP or timing it just right with the close of your new house.
You may also be able to leave stuff behind you don’t want, which isn’t always an option in a traditional sale.
4 drawbacks to selling Your home to an investor
Like many things in life, there is a cost for the convenience and ease of selling to an investor rather than a traditional homebuyer. Here are a few of the key considerations to make before deciding on the right option for you.
1. You’ll likely get less for your home
It’s no secret that the real estate market has been hot these last few years. With more interested buyers than homes for sale, properties are being scooped up fast — and buyers are making competitive offers in an effort to “outbid” other buyers. In fact, over half of homes sold in the United States this past year have sold for more than the asking price.
On the other hand, when you sell to an investor, you’ll likely get an offer that is below market value. Unlike traditional home sales, emotions don’t play a role in these deals — they are strictly transactional and based on the estimated profit the investor will gain by purchasing the property. In the case of house flippers, any needed repairs and renovations will also be deducted from the offer amount.
2. You may not know who the buyer is
Many of us have an emotional attachment to our homes. It’s where we made family memories, raised children and perhaps honed our painting and landscaping skills. For some sellers, the belief that their home (as well as all of the hard work that went into it) will be the set for the lives and memories of another family can be comforting.
But it’s a comfort that is lost when you sell to a home investor. Yes, it may end up as a rental property or get flipped and sold to a new family. But it could also end up with an investor who has bigger plans for the land and intends to tear down the house altogether. Depending on the investor you sell to, the ultimate fate of your home could remain a mystery.
3. Foreign investors can take longer to close
In some ways, this simply comes down to understanding the different investor types and knowing what to be wary of. Although many foreign investors are legit and simply interested in purchasing property in the U.S., the sales process can be quite lengthy depending on where the investor is located. In fact, it can take longer than it would take to sell your house to a traditional homebuyer.
If a quick, cash sale is your primary motivation for selling to an investor, you’ll want to be careful about working with overseas buyers.
4. Not all investors are reputable
While there are many highly-reputable investors out there that will provide you with both a fair cash offer and smooth closing process, it is critical that sellers do their research to make sure they know who they’re selling to — and that they aren’t falling victim to a scam.
This is where having a top real estate agent on your side can be beneficial. “It’s important to get multiple quotes… I think that’s the simplest way not to get taken advantage of,” Inderrieden says. “When someone doesn’t get multiple quotes, I do think they’re susceptible to selling for less than what the real market value is.”
“Anytime I get called into a situation, it’s because they didn’t evaluate what their options were and were selling for too little.”
How much less money will I get selling to a home investor?
As we already discussed, a seller likely won’t get as much money for their home when selling to an investor rather than a traditional homebuyer. But how much less money will depend on the investor they choose, as well as the condition of their home, its price point and where it’s located.
For example, a buy-and-hold investor may make an offer close to asking price, because they can count on turning a profit through rental income and the property’s appreciation in value over time.
A flipper, on the other hand, doesn’t usually intend to hold onto a property very long. Rather, their goal is to get into the house quickly, make the needed repairs and renovations, and then put the house on the market for a profit. They’re also going to be putting what could be a substantial amount of money into the house prior to selling it as a turnkey home. The offer they make will reflect these repairs and renovations — as well as the profit they’ll need to make on the property for the job to be worth their time.
To get to this figure, flippers often use the 70 percent rule, which states that they should pay 70 percent of the After Repair Value (ARV) of the home.
If the house is a good candidate for an iBuyer sale, that often provides sellers with an offer that is closest to their asking price for the home, but note that these companies often prefer homes in better condition.
You don’t have to make all these decisions on your own, reassures top-selling Fort Worth real estate agent Chris Minteer. “A good agent will present both and be knowledgeable of both processes. It’s our job to give guidance on what works best for their scenario and being able to point them in that direction.”
5 questions to ask yourself before selling to an investor
With an understanding of who home investors are, as well as the benefits and downsides of working with them, your next thought might be, is this the right move for me? Let’s cover a few questions that can help you decide.
1. How urgently do you need to sell your house?
If you need to quickly settle an estate, split marital assets in a divorce, or relocate out of state swiftly for a new job, you can’t always afford to wait around for the standard 47-50 day — or longer — closing window. Home investors are much more willing to work with you and your timeline than traditional homebuyers — and can complete the entire sales process in a matter of days.
2. What kind of shape is your property in?
When deciding whether an investor might be interested in your home, keep the following in mind:
- Buy-and-hold investors are looking for single-family homes or condos in up-and-coming neighborhoods to rent out.
- Flippers want a deal on an “as is” property, often single-family homes, that they can renovate and sell quickly for a profit.
- iBuyers want a home in good condition typically valued within $200,000 to $500,000.
Depending on your market, multiple types of investors might be interested. Minteer says that “the majority of the properties that we see go the direction of an investor sale are the ones that need more love.”
3. How much money do you have for home preparations and repairs?
Of course you want to make money selling your home, but you also have to consider the cost of preparing the house for market, as well as the repairs a potential buyer might ask for after the home inspection process. The costs can be steep, with a recent survey finding that the average cost of selling a house (including agent fees and closing costs) is $21,000. A bad roof, faulty plumbing and HVAC issues can run up to $10,000 each in repairs alone.
As you compare an estimation of what you could fetch on the open market against a cash offer, you should calculate your estimated net proceeds rather than compare offers at face value.
To help you sort out the math, HomeLight has a handy Net Proceeds Calculator where you can input your home’s worth and subtract the cost of agent commissions, home repairs, staging and preparation work, seller concessions, homeownership and overlap costs, and transfer taxes to get a ballpark idea of how much you’d actually pocket.
4. How does this fit your moving plans?
If you’ve already got your eyes on a new property and need the proceeds from the sale of your house to take the next step, then a cash sale liquifies your assets faster. Investors can typically close on the date of your choosing, even if it’s within a few days, and in some cases, they “can provide specialized solutions for each specific seller’s situation. For example, they can release the money to the seller early to help pay for moving expenses if cash is tight,” says real estate investor Ryan Substad.
5. Are you available to be present throughout the sales and closing process?
If you’ve inherited a property that is out of the area, the process of cleaning out the home, staging it for sale, and being present for the closing process might seem like more than you want to take on. In this case, working with a local investor — particularly one who will manage the home cleanout, as well — could be the quick solution you’re looking for.
Q&A: More expert tips and advice about selling to a home investor
Can I refuse to sell my house to an investor?
Just as in a traditional home sale, you’re under no obligation until the contract is signed. It’s perfectly acceptable (and encouraged) to get multiple investor offers to compare your options and ensure you’re getting the most value from the sale of your home.
What percentage of home sales are to investors?
In 2021, about 20% of housing purchases were made by a real estate investor. Seventy-four percent of these sales were for single-family homes.
What are the biggest mistakes sellers make when working with a home investor?
The biggest mistake sellers make is to accept the first investor offer they receive — without doing their homework on their property’s value or the investor’s reputation first. In addition to getting multiple offers, make sure you research each of the investors you’re considering doing business with prior to entering into an agreement. Reputable investors will have a website, positive online reviews and should be able to provide a record of recent purchases.
Are home investors legit?
Yes, but like all things, not all home investors are created equally — and there are some bad apples in the mix.
As we previously mentioned, this is why it’s so important to get multiple quotes, do your research, and have a top real estate agent on your side who can help you evaluate offers and ensure you’re making the right decision for you and your financial future.
One thing to watch out for, in particular, is an investor who tries to put down less than 10%. A serious buyer will have the cash available to put down with the offer.
How much do home investors make?
According to ZipRecruiter, the national average salary for real estate investors is $124,000. Of course, there is a lot of variability in this number, as some investors consider real estate a part-time side income rather than a full-time job. Top earners can earn $190,000 or more annually.
If a simplified sale is the priority, selling to an investor might be right for you
Now that you understand the key differences between selling to a traditional homebuyer and a home investor, the next step is to evaluate which path is right for you. As we stated earlier, while working with an investor won’t necessarily result in the biggest financial gain, what it will bring you is a speedy and simplified selling process.
To make sure you’re getting the greatest value for your home, and working with a reputable investor, you still might want to consider working with a top real estate agent in your area to provide guidance throughout the process. With a growing number of traditional homebuyers bringing cash to the table, you might even find that you’re able to get the quick sale you’re looking for through the traditional home sales process — without dipping below asking price.
Homelight’s Home Value Estimator is a great first stop in this process, as it will give you a ballpark idea of the range of your home’s current value. You can also request a no-obligation all-cash offer by using HomeLight’s Simple Sale platform.
Header Image Source: (MisterStock/ Shutterstock)
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- "2021 Home Buyers and Sellers Generational Trends Report," National Association of Realtors® (2021)
- "Highlights From the Profile of Home Buyers and Sellers," National Association of Realtors® (2021)
- "A Record Share of Homes Are Selling Above List Price," REALTOR® Magazine (June 2021)
- "Investors Smash Record with 18% of Home Purchases," The Real Deal: New York Real Estate News (November 2021)