When making plans to sell a house, as a homeowner you face a big decision: should you sell to a Real Estate Investor or work with a local Real Estate Agent and list on the open market?

What is the difference between an investor and a typical homebuyer?

One of the differences between an investor and the typical homebuyer is their ability to provide an offer, a fast close, or based on your timeline. 

The other difference is that their intentions for the property. In the case of the typical homebuyer, they’re looking for a permanent residence for themselves and their family.

Investors, on the other hand, purchase homes as part of their business. Depending on the type of investor, they may do minor or major renovations and resell the house or they may want to purchase the property for rental income.

4 common types of investors

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 (and 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 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 well below market value to sell to another investor for a higher price. They often re-sell properties almost as quickly as they purchased them without making any improvements first.

4. iBuyers

iBuyers have only been around since the mid-2010s but are now widely available across the country. iBuyers, or instant buyers, offer all cash and 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 and Offerpad. With HomeLight’s Simple Sale platform, you can receive an all-cash offer from an extensive network of real estate cash buyers and investors in about 24 hours. No additional fees, agent commission, or prep work is involved, and you can get paid in as few as 10 days. You’ll also have the flexibility to move on your schedule (up to 30 days from closing).

Pros and cons of selling your home to an investor

Although it won’t be the right choice for everyone, some sellers will benefit from working with an investor. 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.”

Here are a few benefits it provides — as well as how to determine if it’s the right decision for you.

Pros of selling your home to an investor

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.

2. No financing delays

Although the number of cash sales has grown over the past few years, 80% of recent home buyers financed their home purchase. This not only adds extra time to the process (it currently takes 45 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

If you have a home that needs work, and you lack either the funds, time, or interest to make 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 you’re relocating for a job in another state or have a family emergency, some situations may require you to pick up and move quickly.

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, investors may be more flexible with the close date than a traditional buyer.

You may also be able to leave stuff behind you don’t want, which isn’t always an option in a traditional sale.

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.

Cons of selling your home to an investor

1. You’ll likely get less for your home

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. 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 that comfort 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. 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 a smooth closing process, sellers must do their research to make sure they know

How much less will I earn by selling to a home investor?

As previously mentioned, a seller typically receives less money for their home when selling to an investor compared to a traditional homebuyer. Exactly how much less depends on the chosen investor, along with factors like the home’s condition, price point, and location.

For example, a buy-and-hold investor may make an offer close to the 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.. 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.

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.

Five 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 45-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 deals on “as-is” properties, often single-family homes, that they can renovate and sell quickly for a profit.
• iBuyers want homes in good condition.

Depending on your market, multiple types of investors might be interested. Minteer says that “the majority of the properties that we see going in 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 the market, as well as the repairs a potential buyer might ask for after the home inspection process. The costs can be steep, typically 9%–10% of the sale price. A bad roof, faulty plumbing, and HVAC issues can cost more than $10,000 each in repairs.

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.

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,says real estate investor. For example, they can release the money to the seller early to help pay for moving expenses if cash is tight.

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 — could be the quick solution you’re looking for.

If a simplified sale is a 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.

Q&A: More expert tips and advice on 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 the third quarter of 2023, the share of single-family homes purchased by investors each month gradually increased despite a high-interest environment, averaging 27.3%. Compared to 2021 and 2022, however, the number of U.S. homes purchased by investors is down considerably.

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 before entering into an agreement. Reputable investors will have a website and positive online reviews, and they 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 previously mentioned, this is why it’s so important to do your research, and ensure you’re making the right decision for you and your financial future.

At TARE Real Estate, we take pride in creating win-win situations and maintaining high ethical standards in everything we do. Read more!