The Business of “We Buy Houses”
This is the third in a series of blogs that delve into the pros and cons of “We Buy Houses” investors and companies. If you read the first two blogs, you know how to identify credible investors. Now, we’ll give you a glimpse into the business of “We Buy Houses” to help manage your expectations when selling a property quickly.
TV programs about flipping houses show “We Buy Houses” investors buy properties really low and sell them for a significant profit. This process could make sellers feel like they’re being scammed. This blog will explain what an investor will do from start to finish in an effort to provide a bit of transparency so sellers don’t feel they’ve received a raw deal when the property goes back on the market.
Credible investors typically will offer a motivated seller a percentage of the home’s “as new” appraised value. This percentage can vary widely based on the property’s “as is” condition, the cost to bring it to a nearly-new condition, costs of other homes in the neighborhood and other factors, such as the local school system, and of course some profit for the investor’s time and money for rehabbing the property.
The benefit to the seller as we’ve mentioned before is a quick, no-hassle sale, especially if the seller either needs the money immediately, or doesn’t have the money and time to get the home in top shape. The seller doesn’t have to clean or otherwise prepare the home for open houses or inspections by home buyers. Most retail home buyers want a “move-in-ready” home, so it could take months to find a do-it-yourselfer who would want to buy the home and tackle all the work and expense.
After the investor purchases the property, consultations are made with general contractors, electricians, plumbers and other home services that will help correct deficiencies and modernize the home. During the rehabbing phase, an investor easily can spend between $50,000 to $150,000 and more to knock down walls, upgrade kitchens and bathrooms, install exterior siding, convert oil to gas and repair or replace water and septic systems.
Improving a property can take months to complete. Inclement weather, construction delays, building code issues, hidden mold, rot and infestations, and other unforeseen circumstances can extend project timelines and budgets. Each month of rehabbing includes holding costs, such as property taxes, insurance and interest.
Since this is a business, an investor will make a profit only if the house sells for more than what the investor paid to buy, rehab and hold it. This business is not for the faint of heart. Investors take a calculated risk that the home will sell for a profit after the all the work is complete. There is some complicated arithmetic that takes place at the bank to minimize that risk, but nothing is 100 percent guaranteed.
So if you need or want to sell your house quickly, a reputable real estate investor could well be your best option.
If you’d like to talk to Jim more about how the “We Buy Houses” process works, don’t hesitate to call 609-701-1000 or email Jim@FirstTeamRealtyExchange.com.