How Much Will An Investor Pay For My House?

Andrew Whytock

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Andrew Whytock

April 9th, 2021
Updated April 9th, 2021

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How much will an investor pay for my house? | Pros & cons of selling to investors | Negotiating tips | Alternatives

🔑 Key takeaways:
  • House flippers generally pay 70% of the home's after repair value, minus repair costs, while rental property investors want a deal that will give them monthly income — ideally 2% of the purchase price.
  • Factors that affect how much an investor will pay for your house include its location, its age, and the potential for income and/or profit.
  • Selling to an investor might give you a quick, as-is sale, but there are other options, such as selling to an iBuyer and even listing on the open market, that could net you more money.

Investors buy houses with the goal of making a profit, so they almost never pay what you'd get on the open market from the typical home buyer. If you're looking to get the most possible value for your home, we can connect you with an agent who will help you sell quickly.

House flippers — investors who buy distressed homes, fix them up, and then resell them — make an offer that is tied to what they anticipate their repair costs to be versus what they expect the home might be worth in the future.

Rental property investors, on the other hand, might pay closer to fair market value, but it depends on the property's potential for rental income.

Of course, there are other factors that play a part in an investor's valuation of your home, including:

  • Age
  • Location
  • Overall condition

While selling a home to an investor isn't the most common option for homesellers, it isn't unheard of. In 2020, for example, 11.3% of home purchases across the country were made by investors.[1]

🏠 Reasons why homeowners sell to investors
  • The home is facing foreclosure.
  • The home was inherited and the inheritors don't want to put any money into repairs.
  • The home is in poor condition.
  • Investors can close quickly (sometimes in as little as two weeks).

How do investors price homes?

It really depends on what you mean by "investor." There are two main types of investors who buy houses:

According to data from CoreLogic, the majority of investors who buy homes tend to focus on low-price homes — probably because these homes offer more potential for profit from an investor's point of view.[1]

There are no hard and fast rules that investors use to decide how much they'll pay for your house, but there are some principles that many investors apply when they're putting together an offer for a house.

These guiding principles have a lot to do with the investor's ultimate goal.

How house flippers price a home

For a house flipper, the goal is to rehab a house and sell it for significantly more than they paid. Because of this, flippers generally won't pay more than 70% of the home's after-repair-value, minus repair costs.

For example, say that a house flipper identifies a house in an up-and-coming neighborhood that he believes will be worth $300,000 once it has been renovated. But, the house currently has a lot of problems and will need approximately $50,000 of work before it's ready to go on the market.

Using the 70% rule, the flipper would decide that he'll pay $160,000, at most, for the house ($300,000 x 0.70 - $50,000 = $160,000).

This still gives the flipper enough room to spend some money upfront on repairs and upgrades.

How rental property investors price a home

Rental property investors buy houses with the goal of renting them out and earning money through the monthly rental fees that they'll charge their tenants.

Because landlords are making a long term investment and they'll have the ongoing costs of things like taxes, utilities, and repairs/maintenance, it's important to them that the rental income from the property covers all of these costs and still leaves them with a net profit.

The rule that some rental property investors use to price a home is the 2% rule. This just means that the monthly income should be greater than or equal to 2% of the purchase price.[2]

For example, if an investor knows that a house could be rented out for $2,000 each month, then it makes sense for them to offer approximately $100,000 for the house ($2,000 is 2% of $100,000).

If the numbers pencil out, a rental property investor might pay more for a house than a flipper because it's a long-term investment. The difference is that house flippers generally buy homes that are more distressed because they plan on forcing appreciation quickly through major upgrades.

Selling to a flipper vs. selling to a rental property investor

If your house is in poor condition, it might be a better fit for a house flipper.

On the other hand, if your house only needs minor upgrades or repairs, it might be more attractive to a rental property investor.

🔨 House flipper
Benefits for the seller
House might be in terrible shape and need numerous repairs, but the flipper won't care
Cost considerations for the investor
Repairs, upgrades, staging, realtor commission when the house is ready to sell
Goal
Make a profit by reselling the home for significantly more than the original purchase price.
How they determine what to pay
Never pay more than 70% of the home's after repair value (AVR) minus repair costs

💰 Rental property investor
Benefits for the seller
A rental property investor might pay closer to fair market value for your home, particularly if it's in a high-rent area
Cost considerations for the investor
Ongoing utilities, tax bills, maintenance, mortgage (if financing)
Goal
Have ongoing cash flow by making a small profit each month from rental income after all the building's expenses have been paid.
How they determine what to pay
  1. Assume the property's expenses will be about 50% of its income.
  2. The property's monthly income should be equal to or greater than 2% of the purchase price.

Pros and cons of selling your house to an investor

✅ Pros
  • Investors are more likely to buy a house "as-is."
  • Experienced investors can usually close on a deal very quickly — sometimes in as little as two weeks.
  • Some investors can pay cash, which eliminates the delays that can come with financing.
❌ Cons
  • Investors don't have much room for negotiation. Because the investor is buying the house to make a profit, the math needs to make sense for them.
  • Investors are experienced negotiators, so they're probably better at negotiating terms than the average home seller is.
  • There's a risk of getting ripped off. An investor might know that your house is worth way more than they're offering, but they'll try to pull a fast one by offering you cash and the opportunity to close quickly.

How do I find an investor to sell my house to?

If you've decided that you want to sell your house to an investor, there are a few ways that you can find one:

  • Post on the BiggerPockets.com forum. BiggerPockets is an online community for real estate investors. If you express your interest in selling to an investor and specify what town or city you're in, there's a good chance that you'll get connected with someone!
  • Respond to "We Buy Houses" ads in your neighborhood. Companies that buy houses for cash make a profit by buying distressed properties, fixing them up, and then reselling them. These companies may be centralized, run by individual franchisees, or made up of a network of cash buyers. Some "we buy houses" companies are legit, but others are a scam. If you work with one of these companies, never pay any money upfront.
  • Identify houses in your neighborhood that have been flipped. You can do this by looking up local listings on Zillow. Houses that are vacant and have recently been fully renovated have likely been purchased by flippers. You can usually identify the owner by searching your county's public records.
  • Contact an auctioneer. Holding a real estate auction for your house could bring investors to your front door to bid on the property. Working with an auctioneer could help you to find investors who will make competitive bids on your house.

How to negotiate with an investor

Once you've found an investor who's interested in buying your house, you'll want to negotiate to get the best possible price.

Investors typically make their best offer up front because they've already worked out what it'll cost them to own your house, but there are still some negotiation tactics that you can employ as a home seller:

  • Provide utility bills and property tax records. Rental property investors will consider monthly expenses when determining how much to offer. If they over-estimate these costs, you can prove that your home is actually more affordable than they think by providing them with utility statements and property tax bills.
  • Show the investor data on similar properties that have sold recently. Any good investor will already be looking at local comps to determine a price point, but pulling them up yourself helps you to know if the offer is fair and shows the investor that you're aware of the true value of your home.
  • Ask the investor to cover some of your closing costs. If the investor won't raise their offer at all, try asking them to cover some of your closing costs, like title recording fees and escrow charges. This will raise your net profit from the sale.

Alternatives to selling to an investor

If you're looking for a quick, as-is sale, there are alternatives that might net you more money than selling your home to an investor.

Sell with the help of a real estate agent

Even if your home is being sold "as-is," a real estate agent can market it as an investment opportunity for the right buyer.

The reality is that selling on the open market might not take as long as you think. In 2020, the average house was only on the market for 25 days before going under contract.[3]

Sell fast without sacrificing!

Our Concierge Team can connect you with an agent that can help you sell on a timeline and at a price that works for you.

Sell to an iBuyer

Another option is to sell your house to an iBuyer like Opendoor. iBuyers make cash offers and can close quickly — sometimes in as little as two weeks.

All you have to do to sell to an iBuyer is complete an online form to request an offer. If your home qualifies and you accept the offer, the iBuyer will take care of the repairs and prep work after they buy the house from you.

» Request a free, no obligation offer from Opendoor now!

The only catch is that iBuyers typically don't buy distressed homes, so this might not be an option if your house needs more than minor repairs and upgrades.

ARTICLE SOURCES
[2]

The Book on Rental Property Investing, Brandon Turner. Page(s) 124.

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