When you sell your house to an investor, you can expect a fast, cash-based sale that typically closes in 7-14 days. Investors buy houses as-is, meaning you won’t need to make repairs or stage your home, and they often handle closing costs. However, you should also expect to receive 70-80% of your home’s market value in most cases.
This guide will walk you through everything you need to know about selling to investors. You’ll learn about the step-by-step process, pricing methods, potential benefits and drawbacks, and how to spot red flags to protect yourself from scams.
Understanding Real Estate Investors
What Are Real Estate Investors?
Real estate investors are people or companies that buy homes to make money, not to live in them. Unlike typical homebuyers who are looking for a permanent residence, investors see your home as a business opportunity. They make money by fixing up properties, renting them out, or reselling them quickly.
Types of Real Estate Investors
House Flippers
House flippers purchase properties at a deep discount that they can fix up and sell for a profit using a “buy low, sell high” strategy. They look for homes that need work but have good potential after repairs.
Buy-and-Hold Investors
Buy-and-hold investors purchase and own properties for an extended period, typically using them to earn rental income while counting on both lease payments and property appreciation to turn a profit.
Wholesalers
Wholesale investors buy properties at well below market value and then sell them quickly without making any upgrades or improvements to another investor at a higher price.
iBuyers
iBuyers are companies that use technology to make instant offers on homes, often closing deals within days. They typically focus on move-in ready homes in good condition.
The Investor Buying Process
Step 1: Initial Contact and Property Details
The process usually starts when you contact an investor or they reach out to you. You’ll either fill out a form online or take a quick phone call where you’ll answer questions about your home’s condition and location.
Step 2: Property Evaluation
Some investors give a ballpark number right away, while others may visit or ask for photos first. The investor will look at your home’s condition, location, and potential for profit.
Step 3: Market Analysis
Investors work with a realtor to determine a fair, after-repair-value (ARV) for your home, which is what your home could be sold for if it were completely fixed up. This becomes the basis for their offer calculation.
Step 4: Repair Cost Estimation
They inspect your home and come up with estimated repair costs. Most investors will not hire an actual licensed inspector but have their contractor come through for an estimate.
Step 5: Offer Calculation
Investors typically multiply the ARV by 70%, which is called the 70% Rule for house flippers. Investors want 30% of the ARV to cover their holding costs, realtor commissions, and transaction costs.
Step 6: Closing
One of the biggest perks is that you choose when to close. It could be a week or two months – it’s totally up to you. On closing day, you sign the papers and get your cash.
How Investors Price Your Home
The 70% Rule Explained
The 70% rule is a guideline that suggests a real estate investor should not buy a property for more than 70% of its after-repair value (ARV) minus repair costs. Here’s how it works:
Formula: (ARV × 70%) – Repair Costs = Maximum Purchase Price
Example: If your home has an ARV of $200,000 and needs $30,000 in repairs:
- ($200,000 × 70%) – $30,000 = $110,000 maximum offer
Why Investors Use This Formula
The remaining 30% must cover not only the profit margin but also the inherent expenditures related to acquiring, rehabbing, and transacting the real estate. This includes:
- Holding costs (utilities, insurance, property taxes)
- Financing costs
- Closing costs when they buy
- Realtor commissions when they sell
- Unexpected repair expenses
- Profit margin
Benefits of Selling to Investors
Speed and Convenience
Since investors don’t rely on loan approvals, the deal can close in days, not weeks or months. That’s a big win if you’re in a rush.
No Repairs Needed
Property investment companies buy homes as-is, which means they’ll purchase homes in whatever condition they’re in—even if they’re falling apart.
No Agent Fees
When you sell to an investor, you often skip the agent fees. Plus, some investors even cover part, or all, of the closing costs.
Certainty of Sale
Cash offers significantly reduce the chances that a deal will fall through due to a lack of funds. There’s no risk of financing falling through at the last minute.
Flexible Closing
Investors can usually work around your schedule. Need a few extra days after closing to move out? Just ask. Many will say yes.
Drawbacks and Risks
Below-Market Pricing
Real estate investors are looking for a bargain. They expect a discounted rate in return for purchasing homes as-is and investing in home repairs.
According toATTOM Data Solutions, typical flipping profits dropped to $70,000 in Q3 2024, with profit margins declining to 28.7%. This means investors are offering less to account for rising renovation costs and financing challenges.
For example, a home worth $500,000 that requires $50,000 in repairs might only sell for $300,000 to an investor.
Limited Negotiating Power
Selling your home to an investor is the fastest way to sell a house. Just realize that you will be accepting a steep discount to the price.
Uncertainty About Buyer Identity
Investors aren’t legally required to tell you who or what is actually purchasing your home, so it could be a landlord known for shady renting practices or a developer who wants to tear down your house.
Red Flags and Scams to Avoid
Unsolicited Offers
If you receive an unsolicited offer for your property, be wary of a potential scam. Legitimate cash homebuyers will typically advertise their services or allow you to contact them directly.
High-Pressure Tactics
If someone who will buy houses for cash is putting pressure on you to sign a contract or accept a deposit quickly, this is a red flag. Reputable buyers will give you time to consider the offer.
Requests for Upfront Fees
Legitimate cash homebuyers won’t ask for any upfront fees or commissions. If a company is asking for money upfront, it’s a red flag. TheFederal Trade Commission warns that legitimate real estate businesses either aren’t legally allowed to charge upfront fees or don’t need to do so because of how the system is set up.
Lack of Proof of Funds
A legitimate cash buyer won’t hesitate to prove they have the money to buy your house. Always ask for proof of funds, and do not accept a letter of credit from a lender.
Poor Communication
If a cash home buyer doesn’t return your calls within 24 hours, their communication skills may cause problems throughout the transaction.
Inconsistent Information
If you speak to different people and their answers don’t line up, it’s a warning sign that they might be a scam.
Common Investor Scams
According to theFBI’s Internet Crime Complaint Center, more than 9,300 people were victims of real estate fraud in 2023, totaling over $170 million in reported losses. Here are the most common scams to watch for:
Foreign Buyer Scam
You get an email from a foreigner who wants to relocate to the United States and wants to buy your property sight unseen for cash, then offers to send you a cashier’s check.
Overpayment Scam
Later in the selling process, a huge red flag is if the buyer sends you money by check but asks for a refund because they claim they accidentally overpaid you.
Wholesaling Scams
The ‘investor’ puts your house under contract with hidden ‘out clauses’ that let them walk away at any time, while the homeowner can’t get out of the contract.
How to Protect Yourself
Do Your Research
Before working with a cash homebuyer, make sure to research the company. Look for reviews, check their Better Business Bureau rating, and verify their business registration.
Verify Proof of Funds
Always ask for proof of funds, and do not accept a letter of credit from a lender. You need to see a recent bank statement with the buyer’s name on it.
Get Multiple Offers
Don’t accept the first offer you receive. Get quotes from several investors to compare prices and terms.
Read Contracts Carefully
Before signing any contracts, make sure to read them carefully and ask questions about anything you don’t understand. Having a lawyer review the contract before signing is always a good idea.
Check References
Ask for a list of properties the buyer has purchased and check courthouse records to see that they actually purchased the property.
Legal Considerations in Colorado
Disclosure Requirements
Even when selling to investors, Colorado law requires you to disclose known material defects. According toColorado Revised Statutes § 38-35.7, Colorado requires sellers to disclose any adverse material defects, even if that particular defect isn’t on the disclosure form.
Professional Representation
In a traditional sale, your real estate agent guides you through the property disclosure process and helps you avoid legal risks. If you’re selling without a realtor in Colorado, theColorado Department of Regulatory Agencies recommends seeking the counsel of a real estate professional or attorney.
When Selling to Investors Makes Sense
Financial Distress
If you’re facingforeclosure or need to sell quickly due to financial problems, investors can provide a fast solution.
Property Condition Issues
Homes that needmajor repairs are perfect for investors who specialize in fixing up properties.
Life Changes
Major life events likedivorce,inheritance, orrelocation often require quick sales.
Landlord Fatigue
If you’re atired landlord who wants to get out of the rental business quickly, investors can help.
Alternatives to Consider
Traditional Sale with Agent
Working with a real estate agent typically gets you a higher sale price, even after paying commissions.
For Sale by Owner
Selling yourself can save on agent fees while still getting market value.
iBuyer Services
These companies offer a middle ground between traditional sales and investor purchases.
Questions to Ask Potential Investors
- Can you provide proof of funds?
- What is your estimated timeline for closing?
- Will you cover closing costs?
- Can you provide references from recent sellers?
- What is your company’s history and track record?
- Are there any hidden fees or costs?
- What happens if you can’t close on time?
Mitigating Risks When Selling to InvestorsFinal Thoughts
Selling your house to an investor can be a smart choice if you need to sell quickly, have a property that needs work, or want to avoid the traditional selling process. The key is understanding that you’ll likely receive less money than a traditional sale, but you’ll gain speed and convenience.
Remember to research any investor thoroughly, get multiple offers, and don’t rush into a decision. Watch for red flags like high-pressure tactics, requests for upfront fees, or reluctance to provide proof of funds.
If you’re in Colorado and considering selling to an investor,contact us to learn more abouthow it works and get a fair, no-obligation offer for your home. We buy houses in any condition and can close on your timeline, making the process as smooth as possible.
Whether you’re dealing with foreclosure, inherited property, divorce, or simply need to move quickly, selling to a reputable investor can provide the solution you need. Just make sure to do your homework first and choose a trustworthy buyer who will treat you fairly throughout the process.