When talking with top producing real estate agents, I often get “I don’t work with investors”, or “I have a large referral business”, or “I only do listings”, or some form of ‘hey, I don’t need to work with you’.
This is an interesting perspective in that an ‘investor’ does all of those things! I think this pushback comes from not understanding what an investor or professional rehabber brings to the table.
The expectation is that if you sell to an investor, you may be leaving money on the table or doing your client a disservice.
These thoughts and preconceived ideas all make sense. I mean, if the investor is going to get compensated for what he does, that money has to come from somewhere, right!?
The reason I’m writing this post is to shed some light on what a professional rehabber does and when you might want to leverage one to buy your property or listing (or, partner with one to service your clients and grow your business!).
The normal or average investor buyer provides the following:
Buy your property in As-Is and in (almost) any condition
Quick (and usually cash) close
Less stress (or what I like to call ‘no drama’)
To go a little deeper into this, and also highlight what a ‘professional’ rehabber can bring to the table – both to a Realtor and a seller – here’s the real value proposition and why you should add an investor to your list of partners…
Liquidity What this really means is fast cash!Some investors have money sitting in an account ready to pay all-cash for the right property. So, if a seller is in a distressed situation or just wants to cash-out quickly, the investor (after some due diligence) can close immediately.
Speed This one is really about not having any baggage like a retail buyer. An investor doesn’t have to sell their existing home, move out, deal with conventional financing, move their kid’s schools, analyze every inch of the property and items on a roof or termite report, etc. etc.
In fact, in most situations the investor wants to buy as soon as possible so they can start the rehab process to sell the property on the back-end. This will help insure they don’t miss the market or end up selling in a worse market. In this case, speed is a good thing. The flip side to this is most investors can be extremely patient and able to close when the seller is ready, taking the stress of whether the buyer will stay in the deal if delays arise, like in a probate, divorce or foreclosure situation.
Liability This is a key advantage that most agents or sellers don’t know about. Many investors will indemnify the seller from disclosing any major issues with the house. This is important on non-owner occupied properties or inherited properties that are in major disrepair or have major issues (like mold, foundation damage, water damage, noise, etc). At the very least, most rehabbers will buy the property in As-Is condition, since they will most likely gut the property and won’t care if there’s dry rot, mold issues or termites.
No Drama There are many factors that increase the level of drama or stress in a real estate transaction. Most of that is related to price, timing and if the buyer is really going to close.The retail buyer will make their decision to buy and close escrow based on emotion. The investor makes their decision based on logic, and takes a pragmatic approach based on the numbers and whether the property and project fits their model.The investor-buyer also doesn’t have to do multiple inspections, get their spouse sold on the purchase, measure rooms to be sure it will fit their furniture, check out the neighbors, schools and a million other factors that weigh in on this ‘life decision’ they’re making.Once the investor can make the numbers work, they’re in, and in most cases will make it a stress-free transaction for everyone involved.
Lower cost transaction This actually depends more on the agent than the investor, but in many cases the seller will pay less commissions and closing costs when working with an investor.The savvy investor will work with the seller and agent to come up with the best scenario for everyone.The ‘selling’ agent or buyer’s agent can get paid by the investor (increasing the net proceeds to the seller), or get paid on the back end when the investor lists and sells the property after the renovation.
No clean-up or spending money to sell
This can be huge! Many sellers, especially when dealing with a death in the family or inheritance, will be saddled with cleaning up the house, removing all the trash and unwanted items, and then having the spend money cleaning up and improve the property for sale. And the real nightmare is that most sellers fix or improve all the wrong items and end up throwing the money away!
When selling to a professional investor, the seller doesn’t have to touch a thing. Just go through the house and take the items that have value and leave everything else behind, including trash, sheds, old appliances and any unwanted items…even if it was a hoarder house.
Pay more What many people don’t understand is that in some cases, the professional rehabber can actually pay more for a property!
This usually only works for the professional flipper, and not the ‘lipstick on a pig’ guy who just does paint and carpet. The pro does a complete remodel – new kitchen, baths, floors, electrical, plumbing, windows, roof, etc. – to maximize the exit value of the house. The goal is to not only make it look as new as possible, but also to have a superior floor plan (by moving walls) and design that will sell for a higher price than all the other comparable properties being sold in the area. Having a professional designer is also a key here. I call our interior designer our ‘secret weapon’.
This is where you get rewarded for creating an amazing feel (with colors, layout, lighting, etc) without spending more money. A new house will bring 5 to 15% over a remodeled home in the same area. If the investor can create a final product that is comparable to a new house and achieve that additional margin, they can pass it on to the seller as a higher purchase price…and still make their return on investment threshold. These are just a few reasons to utilize an investor when selling a home. Be sure to check out future posts on maximizing your sale price, what questions to ask every investor you work with and how to double your income as a Realtor.