Why do private sellers sell to investors?
Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
While driving around today, I noticed a few bandit signs that basically had the same message, "Fast Cash, Quick Close!" While I don't doubt there is a seller out there somewhere who needs that service, of the thousands of sellers I have spoken with, not one of them ever said "I need some fast cash. How soon can you close?"
There are dozens of reasons (hundreds?) a private seller with equity will choose to sell at a discount to an investor. Please share some of the reasons sellers have chosen to do business with you over listing their property with an agent.
I recently attended a Bruce Norris event, where he put this topic in perspective for me.
He said investors are the "Car Max" of the real estate industry.
I recently sold a car to Car Max. It was easy, simple, & fast. Did I get the top dollar for my car, NO! and I knew that going into it. What I was able to do is drive in with my car and pink slip, then 30-45 minutes later drive out with a check.
We, as investors, provide that same service for real estate. (usually takes a little longer than 30-45 minutes though!).
Our service is not for everyone, but for those it can help, it is a welcomed service. The majority of homeowners probably don't even know this service is available. It is our job to market our services, so that homeowners become educated about what we can do.
Thanks,
Brian
Ah, bandits signs. The most productive yet most illegal form of advertising! =)
A true "motivated seller" usually has 2 key dynamics:
URGENCY - need to sell quickly; lost job, foreclosure pending, etc.
NEED FOR REPAIRS - something is preventing the home from being sold in the retail market - usually major repairs that the seller cannot afford and that will prevent the house from being purchased with FHA financing.
In addition of course, we look for EQUITY in the property.
If someone is about to be foreclosed on and they cannot sell the property, they will lose their equity. By selling to an investor, they can often sell quickly (avoiding foreclosure) and get SOME cash at closing (at least get a piece of that equity).
There are literally THOUSANDS of sellers in this situation. They contact us every day.
Dev Horn thank you for that, I was wondering too
I talked to a guy today that has a $2M house in LA that is in "excellent condition". He wanted to know what an investor could do (can they buy houses that expensive?) and how it works (how much of a discount do they need?).
In the course of the call, he didn't tell me WHY he was in a hurry, but the guy was clearly under some pressure to do something quickly. I connected him with one of our investors in LA (who is also an Agent) to take it from there.
So, it's not always BOTH conditions (urgency + need for repairs). Urgency alone can cause someone to seek a quick cash offer.
Some common scenarios besides pending foreclosure:
1) Have two house payments and it's killing me! Just need to get RID of the house I no longer live in!
2) Just got a divorce and we need to sell this thing FAST so we can split the proceeds and move on with our lives!
3) Inherited this property from my mom and dad - i don't live in that city, the house needs lots of repairs before I could sell it, and now the taxes are due on the property. Can you take it off my hands?
Aaron Mazzrillo Hi Aaron- I've actually gone to one of your meetings. I wish I lived closer otherwise I would go every month.
I'm no seasoned pro, but the one deal I did recently, the guy didn't want to deal with the hassle of selling retail. I got close on another deal recently but lost it to another investor. This women was in the same situation. Both came across like they weren't in any financial burden, just that they wanted to cash out and be done with it.
The hassle factor of evicting their tenant, rehabbing the place, then listing it was enough for these people to consider taking a hit just to sell it fast to an investor like me.
The problem that I'm facing right now is that its such a hot market, people don't even need to go through that much work and their property still sells in a matter of days. So, I'm in a dry spell. I have barely any good leads coming in with this hot market. How has it been for you?
Great thread... Looking forward to more comments!
Aaron - reminds me of a joke about dogs...and the punchline is: "Because he can!"
Often people sell directly to private investors because:
1. They like them
2. They trust them
3. They took the complication factor away
4. They hate agents
5. They don't want the hear the buyer whine about imperfections
6. The buyer had cash and could act quickly
7. Buyer accepted property subject to liens
8. Buyer was willing to solve a title problem
9. Buyer closed with seller's kid's friend's non-paying trashy tenants
10. Buyer willing to probate the estate, hire the attorney, etc.
11. Buyer had an affinity or high level connection with seller
12. Because the buyer would listen to them when others would not!
This is only a partial list. Watcha' got?
That's a great explanation Dev Horn. I came across this article couple of weeks ago about this topic.
http://homebuying.about.com/od/sellingahouse/qt/122107_PayCash.htm
The writer explains why homeowners should not sell to investors or wholesellers.
The housing market is pretty strong in most markets. If you have a nice house and a DESIRE to move to another area, you would get an Agent, list it on the MLS, and sell it in 30 to 120 days at retail value. Why would a person in this scenario sell to an "investor" or "wholesaler" at a discount? 99% of them wouldn't.
The thing that distinguishes a MOTIVATED SELLER is NEED. They have a NEED to sell vs. a DESIRE to sell. The need is usually financial, but could be a range of other things.
With all due respect to the writer of the article, it makes no sense to make a blanket statement that homeowners should not sell to investors or wholesalers. What is their situation? Once you start doing this you will hear a MILLION stories. And some of those people will be much better off to sell to an investor than hang on to a property that is more of a liability than an asset.
Great topic Aaron.
I have had sellers sell to me for every single reason in Rick's list. Only one seller I can think of needed the closing to be asap. In her dreams, cause it was a 4-house out-of-county probate deal. She got some cash up front, some in the middle and most at the end ($200K+). She whined the whole six months. No one else, not even the inheritance lenders she asked, would have given her the $25K she got from me before the probate was complete.
Most of my sellers don't have an immediate, pressing need for the money either. The few that did were owner occupants. They need cash to make the move.
I had one seller sell to me because he said he had already done well for himself and that he hoped I'd be able to do something with the vacant lot. He had bought it for his son, when his son died, he gave it to the son's church. The church couldn't pay the taxes and deeded it back to him. He didn't know he owned it when I contacted him. He said I could have it (!) or maybe throw him some chicken feed after I made some money on it. (His words.) I told I'd feel better if I gave him the chicken feed up front in exchange for the deed.
I had a seller last year who sold for $12.5K when I offered to pay $20K. It was a complicated family situation. Her sister had deeded it to her for safekeeping before she died, so that her sister's children wouldn't lose it to tax sale. In order to keep her hands clean and not profit on it, she sold only for the amount of taxes she paid over the 15 years when it was in her name.
"All cash, quick close" was not the unique selling proposition they needed.
Guess I should chime in as well. I wrote the post on my phone while sitting at the dealership getting the oil changed. I don't much like typing on my phone so I gave up attempting to respond.
My top 5, in no particular order;
1. Condition - code enforcement falls under this as well
2. Tenant - either a bad one, a long term one they don't want to kick out themselves, or a relative... refer back to the first example.
3. Tired of owning it and just want to un-own it
4. Ease of transaction when dealing with an investor over an agent. There's no surprises when dealing with an investor. They usually know exactly what they are going to net.
5. Some other situation involving time and money, but it has never been a 'need money right now' one. Usually, it is within the next 30 days or so. I typically get a nice deal every January from someone who wants to cash out, but keep all the money for a year before paying taxes on the gain. Most often, it is due to a move, job transfer, illness in the family, etc. They want to be somewhere else or are already there and what they intended to do with the property didn't work out such as listing it or being an out of area landlord.
I recently attended a Bruce Norris event, where he put this topic in perspective for me.
He said investors are the "Car Max" of the real estate industry.
I recently sold a car to Car Max. It was easy, simple, & fast. Did I get the top dollar for my car, NO! and I knew that going into it. What I was able to do is drive in with my car and pink slip, then 30-45 minutes later drive out with a check.
We, as investors, provide that same service for real estate. (usually takes a little longer than 30-45 minutes though!).
Our service is not for everyone, but for those it can help, it is a welcomed service. The majority of homeowners probably don't even know this service is available. It is our job to market our services, so that homeowners become educated about what we can do.
Thanks,
Brian
This topic is a few months old, but I'm going to reply anyway. I am in investor (first), but also a Realtor. When I go look at a house, I almost always try to get the listing if it's something that I can't buy (not enough equity, or seller wants too much for it). I think that I'm beginning to learn that most people call me because of the hassle factor. They don't want to clean it, paint it, repair it, or whatever. And for some strange reason, they seem to think that selling it themselves will be easier than using an agent? They don't seem to understand that a house doesn't have to be pristine to list with an agent. I don't understand the thought process of some sellers. They might be willing to sell at a discount (although typically not a large enough discount to entice an investor), but they don't want to pay an agent 6%? And why do they think it will be a hassle to use an agent? I don't get that one. Agent puts a lock-box on the door and the office coordinates the showings and receiving the offers and negotiating. Where's the hassle in this?
And I want to comment about someone else's comment about "bandit signs being the most illegal form of advertising". Don't make blanket statements like that. I place mine outside the city limits. I have one right now that I placed at the base of a highway sign (the type with the curved arrow) on a state numbered highway. The state mows the grass along this roadway, but skips around the sign with the mowing tractors. Then, some guy will come along with a weed-eater and trim around the state sign (and mine). They've not pulled my sign yet (about 6 months or so). Actually, the state recently pulled the curve sign for some reason, and they left my sign standing! Now, why would an "illegal" sign get so much special treatment?