Should You Sell Your House to a Cash Buyer or Use an Agent?
Have you inherited a house and not sure what to do with it? If you don’t want to spend the next 50 weekends swinging a hammer and updating it yourself, you have two primary options: Sell it directly to a cash buyer, or list it with a real estate agent. Both have their advantages and disadvantages.
Selling your house to a cash buyer is easier, but you won’t be sure you are getting the highest amount. Listing with an agent might bring a higher offer, but it will probably take longer and you will pay both the listing agent and buyer’s agent from your proceeds. That being said, should you sell your house to a cash buyer or list with an agent?
What is the house’s condition?
Most inherited houses have deferred maintenance and need to be updated. If, however, the house is in good enough condition that a buyer could get financing and be happy, you should probably list it and let your agent market it to the highest amount of buyers. If it’s in good condition, the additional amount you’ll get on the market will probably exceed the agent commissions. However, if the house needs work, it will be a cash buyer who most likely buys it on the market. It might then make sense to sell to a cash buyer who will add value to the house through a remodel. By selling your house directly to a cash buyer, you can avoid the hassle and costs of listing with an agent.
How Much Time Do You Have to Deal With It?
Selling a house to an investor with cash is pretty easy and fast. They can typically close within a week and you don’t even have to clean anything up. A cash buyer usually does all the cleanout and can even help solve probate issues that might come up. While an agent will handle a lot of the work that comes with listing a house, you’ll still have to deal with negotiating offers, inspections, and the time it takes to go through the process. Many market contracts fall through due to inspections. That can significantly increase the cycle time of selling a house. Don’t forget to count the costs of holding the house for a few months while it goes through the process.
Do You Care What Happens to the House?
For many families who have inherited property, it’s not just a house. It’s the centerpiece of your family’s story. You might care if the buyer is going to invest in the house or simply turn it into a cheap rental property. If it’s in good condition, it will probably become another family’s home where they raise their children.
If it’s in poor condition, it will likely be purchased by a cash buyer who flips homes who will invest in it or a landlord who might rent it with the least amount of work possible. There’s also a chance the market buyer will be a landlord who will put in the least amount possible. By choosing a real estate investor who will invest tens of thousands of dollars into a remodel, you will know the house will be preserved and enjoyed by families for years to come.
Final Decision: Should you sell to a Cash Buyer? Or a dedicated Real Estate Agent?
Inheriting a house can be emotionally and financially stressful. Answer these questions honestly, and then decide whether you should find a quality agent or cash buyer, depending on your particular situation.
The Hidden Costs of Selling Your Home Through a Realtor
The Costs You May Not Know About When You Sell Your Home through a Real Estate Agent
There are real advantages of selling your house through a real estate agent. That’s why the majority of houses are bought and sold on the market. The obvious cost, of course, is the commissions paid by the seller which are typically 6% of the sales price.
But, there are some hidden closing costs you may not know about when you use a realtor. As you consider the choice between selling through an agent or selling to a cash buyer, there are some other less obvious costs to consider when selling through an agent.
Seller Paid Closing Costs
Closing costs are different than agent commissions. Closing costs include the attorney fees, recording fees, state taxes, mortgage fees, appraisals, termite inspections, and document preparation that are a part of most real estate transactions. Oftentimes, market buyers expect sellers to pay the closing costs. These can be as little as $1000 for simple cash closings and can exceed $10,000 for buyers with FHA loans that include high up-front funding fees. If you are listing a house on the market, be sure to budget for some seller paid closing costs as buyers often require the seller to pay some or all of those costs.
Inspection Repair Lists
If you ask an agent what the most difficult part of the process is, he or she will likely tell you it’s negotiating inspection lists. A typical sale includes the following people walking through the property and making lists of things that need to be fixed:
The buyers’ parents and any other family members who are self-proclaimed experts
The buyers themselves
Every one of these people who walk through the house will note items they deem necessary to be fixed prior to close. These lists get complicated and expensive. Can you choose not to do them? You certainly can, but you will risk killing the deal. Buyers won’t be able to get financing unless the appraiser, insurance, and termite lists are completed. If the deal falls apart, as many do, you’ll have to put the house back on the market with additional days on the market. Your agent will also have to explain to future buyer agents why the previous contract fell through. This can be difficult and discourage buyer agents from showing the house.
When deals fall through and houses sit on the market, holding costs can accumulate quickly. If the house is going to be vacant, those costs increase significantly. Maintenance and insurance for vacant houses can be exceedingly expensive. It will be important to keep the house in excellent shape while it’s on the market and being shown by agents. Be sure and budget for the following while a house goes through the market cycle.
Staging, if required
Vacant house insurance, if required
Cleaning and repair costs
There are benefits to selling your house through an agent as opposed to selling it for cash to an investor. It’s also important to consider the costs that are often associated with selling a house on the market.
With We Buy Houses signs at seemingly every intersection, motivated sellers needing to sell their house fast for cash have many options. The We Buy Houses industry attracts many scams and imposters. Reality shows and free weekend seminars promise quick riches in flipping houses.
Theoretically, investors are trained to buy houses from motivated sellers, add value through a remodel, and sell for a profit. Easy, right? In reality, remodeling is both expensive and difficult. If you’ve ever remodeled anything as simple as a bathroom you know how many moving pieces there are to manage. It’s difficult, and most aspiring flippers fresh out of the weekend seminars find flipping houses is not easy. They need significant capital, an efficient construction network, and excellent systems to flip a house. Even then, the margins aren’t what they are cracked up to be on TV because the quiet costs eat away at slim profit margins.
So why are there so many people claiming to buy houses fast with cash? You might be surprised that most of the people behind the We Buy Houses advertisements don’t actually flip houses. Instead, they flip contracts. They find motivated sellers, tie the house up under contract, and find a real house flipper to pay an assignment fee for the contract. They aren’t actually flipping houses. When you sell to such a middleman or a wholesaler, you are unnecessarily giving up your equity. Find a real estate investor who will actually flip your house, eliminating middlemen wholesalers who pose as real investors.
Here are three ways to avoid being scammed out of your equity:
Ask the Right Questions
On the first call, ask the cash buyer what he plans to do when he buys your house. Don’t settle for vague answers. When he says, “we will flip it”, ask who is “we”? How many houses have you flipped in this town, and what’s the last one you finished? It won’t take long to find out if they are actually adding value to the house or simply selling your contract to an actual real estate investor who will rehab it. If you suspect the buyer is just a wholesaler, keep looking for a business that can buy the house directly from you and put the most money back in your pocket.
Add a No Assignment, No Contingency Clause to the Real Estate Sales Contract
Once you sign a contract with a cash buyer, you give up most control of the transaction. Once the buyer has the house tied up with a contract, he can take the maximum time to conduct inspections and lower the offer based on those inspections. Often, the cash offer was really just a bait and switch to get the contract. In reality, the seller never had any intention of paying that amount. Once the house is under contract, the wholesaler will begin looking for an actual cash buyer to buy the contract. The wholesaler will often use the inspection period to find a buyer. If he doesn’t find a buyer to purchase the contract, what happens? He cancels the contract due to an inspection clause, gets the earnest money back, and you are left holding a useless contract. How does a seller avoid all this lost time and stress? Before signing a contract, add a clause that gives you control of the process and requires the buyer to be fully committed. On the contract, simply state that the contract may not be assigned. Also, you should state that the house is being sold as-is with no contingencies. If the seller has a problem with this, ask him to do his inspections before signing the contract. This way you avoid having the house tied up in a contract. If a buyer signs a no contingency contract that can’t be assigned, you’ll know the buyer is both serious and committed.
Require a Significant Earnest Deposit
Wholesalers are trained to write in an earnest amount into the contract for between $10 – $100. Earnest funds are typically held by a closing agency and are forfeited if the buyers fail to follow through on the terms of the contract. If the earnest amount is insignificant, it allows the buyer to get out of the contract if he can’t find a cash buyer. It effectively removes much of the risk for the buyer and puts it on the seller. Require an earnest deposit of at least $500 (or preferably more) be held by the closing agent. If the buyer is actually a cash buyer, this shouldn’t matter. Understand that an earnest deposit isn’t that useful if there are contingencies such as inspection periods or financing contingencies. A buyer can get the earnest amount back by canceling the contract due to anything found in an inspection. Be a smart seller and require a substantial earnest deposit with no contingencies.
Are all wholesalers running a scam? No. There are very professional wholesalers who add some value by connecting sellers with buyers. Do you need a wholesaler? Probably not. If you’ll spend some time online, you can find local cash buyers who will add real value to the property and sell it for an honest profit.
Are you thinking of selling your home? Visit our Sell Your Home page for more information.
When planning to sell your house for cash, it’s important to determine a fair offer for your home. You don’t want to price the home too high, but you also don’t want to price it too low. So, what factors can help you determine a fair price for your home? In this video, Sam and Matt discuss how you can determine a fair cash offer for your home.
Determining a Fair Cash Offer
Use the 70% Rule
Selling your house for cash is the easiest way to turn your equity into cash. Selling your home for cash, however, means you’re not going to get the full market value for your home. The point of selling your home for cash is that the investor buying the home will also be investing their time and money into repairing the home. They are not going to give you a full market price offer for your home. Instead, they will likely give you some variation of the “70% rule”. Here is the formula that a real estate investor typically uses:
ESTIMATED SALES PRICE X 70% – REHAB COSTS = MAX OFFER
Typically with this calculation, the real estate investor will gross 30% in additional income. This money will go toward holding costs, insurance, overhead, and other expenses. Their maximum offer will typically yield around an 8-15% profit after all other expenses are taken care of.
Using the formula above, assume you are selling a house that needs $40,000 in rehab to be able to sell it for $100,000. The maximum offer you should expect would be:
100,000 X 70% – 40,000 = $30,000
You would end up receiving a $30,000 cash offer for your home. This may seem low, but the real estate investor needs to have the funds to remodel the home and sell it for a modest profit.
The benefit of this arrangement is that you get cash pretty quickly, but if you have put some time and money into remodeling the home, you may want to get the home valued by a home appraisal service. They can determine the full market value for your home, which is likely higher than what a cash offer would be. From there, you can consider selling your home on the market or selling your home for cash.
Managing your Expectations
It is very common for home sellers to overestimate the value of their home based on their own sentimental attachments to the home. It’s important, however, to keep in mind that location is a big factor that will determine a fair cash offer for your home. If your home is in a good and highly-coveted neighborhood, you’re more likely to receive a higher cash offer for the home. The real estate investor must also take into consideration some other factors, such as the estimated renovation costs, to determine a fair cash offer for your home. Even if you replaced your carpet just a few years ago, that doesn’t mean you’re going to get a better cash offer for your home. Certain systems, such as heat pumps and electrical systems, don’t last forever and need to be replaced every 12-15 years.
The bottom line is that if you’re considering selling your home for cash, location and estimated rehab costs will be the main factors that will determine the cash offer you’ll receive. If you have completed additional renovations and your home is in a coveted location, you will likely receive a higher cash offer for your home.
Typically, one receives an inherited home from a deceased relative. Inherited homes can be a great opportunity for the inheritor, but sometimes the home can also pose a problem. Many inherited homes have not been taken care of and need many upgrades. When money needs to be put back into the home, it is likely that the inheritor will sell the property if they do not have the time, money, or means to renovate the home.
What then should you do with your inherited property? In this video, Sam and Matt break down your options for your inherited home.
1. Rent the home
One thing you can do with an inherited property is rent it. You should approach this option carefully, as it can have many drawbacks. There are many expenses that come with maintaining the property you rent. You have to pay for renovations, vacancies, and property taxes, just to name a few. It’s estimated that about half of the revenue you earn from renting out the house will be put back into the house to cover these costs. For example, if you make $12,000 per year in rent, you will have to pay approximately $6,000 for remodeling, vacancies, and property taxes. While you may make a small profit over time, you will still have to put significant funds into making renovations, and you will need to keep paying property taxes.
Not everyone is cut out to be a landlord. If you’re an experienced landlord, this option may make sense for you. But if you’re a first-time landlord, it’s likely that you won’t be profiting off the home and you’ll only be able to break even on cash flow. If you’re considering renting out an inherited home, think carefully.
2. List it with a real estate agent
Another thing you can do with an inherited property is sell it with a real estate agent’s help. There are a few benefits to selling the home through an agent. They can help you hire home appraisers to determine the value of the home. An agent will also help you stage the home and help you through the closing process. Listing your home with an agent works best if the home you inherited is in good condition and ready to sell.
One drawback of selling through an agent is you will still have to pay commissions and closing costs for the home. These fees take away from the potential profit you could make off of the house. It makes sense to sell an inherited home with an agent if the home has been well cared for, but if the house needs many repairs and renovations, it may be on the market for a long time. It’s also possible to sell the home yourself, by owner. You will still have to pay closing costs, but you won’t have to pay a commission to the real estate agent, increasing your profit.
3. Sell it for cash
You can sell your inherited property for cash and make a fast profit. Not only will you be able to make some money off the inherited house, but you also won’t have to handle the repairs. This is often what many people who have inherited homes do. It’s the fastest and easiest option because many cash buyers can close in less than a week and make the process simple. If the home is seriously in need of repairs and if you don’t have the time, money, or expertise to do it yourself, selling your home for cash is likely the best option. A cash buyer can fix up the house and make it new again.
4. Flip the home yourself
If the home you inherited holds sentimental value to you and you have the time, money, and expertise to remodel it, flipping the home yourself may be a good option. This option will help you make the most dollar for dollar profit, but it’s definitely not an easy process. It takes a lot of time to flip a home and prepare it for selling, but if you have the time and money to do so, it may make sense for you to do this.
The rise of “house flipping” reality shows such as “Flip or Flop” and “Desert Flippers” has led to an increase in house flippers. These shows make the idea of flipping a house seem simple, but in reality, it takes a lot more work. And, not just anyone can flip a house. It takes experience and a large budget. If you want to sell your home for cash, you will likely end up selling it to 3 types of buyers: a Wholesale Buyer, a Lead Generation Company, or a Local Cash Buyer. So, how do you know if the company you’re working with is legitimate? How do you find a cash home buyer that’s legitimate? In this video, Sam and Matt of New Again Houses discuss some tips for finding a reputable and local home cash buyer.
Lead Generation Companies
Lead generation companies are not going to do construction on your house personally. They instead will take the information you provide them and sell it to a local home buyer in your area. They act as a middle man, and they’re not adding any value to the property. Lead generation companies do a ton of advertising, so it’s likely that you’ve seen some of their advertisements online.
Wholesale buyers are similar to lead generation companies, but they are generally just one person and not a whole company. Their process is similar to that of lead generation companies. First, a wholesale buyer will do a walkthrough of your home and negotiate an offer. Then, they will create a contract. However before the sale of the home goes through they will look for another buyer to buy the home and sell your contract for a profit. For wholesale buyers the value of your home lies in the contract. Selling to a wholesale buyer means that they take some of the equity of your home, just like a lead generation company does. That means less money is going in your pocket for your home.
Local Cash Buyers
Local cash buyers are buyers that live in your community and are actually planning to renovate your home. They are not selling your information or trying to negotiate a contract to sell. Instead, they are purchasing the home for cash and remodeling it with their team of general contractorsto bring value to the home.
Wholesale Buyers and Lead Generation Companies make up a large portion of the house flipping market. That doesn’t mean these options are ones you should take advantage of though. Selling your home to a local cash buyer is the best option because more money ends up in your pocket.
So how do you know if a local cash buyer is legitimate?
Ask the buyer you meet with questions about what they are going to do with the home. If they tell you they are going to remodel it themselves, that’s a good sign.
You should also check out their online information. Reputable local cash buyers try to make the selling process as transparent and easy as possible so they’ll be open about their experience with house flipping.
If a local cash buyer has these things on their online presence, they are likely a reputable cash buyer:
-A professional website
-Photos and examples of recent house flipping projects they’ve finished
-A great rating from the Better Business Bureau
-Listings on local online directories or Chamber of Commerce pages
-Information about their previous experience in house flipping
The Ultimate Guide to Sell Your House Fast for Cash
If you are in the market to sell your house fast for cash, this is your ultimate guide to helping you navigate the process and make decisions that are in your best interest. We’ll discuss a few important questions in detail:
How can I find a reputable person who buys houses as is with cash?
What is a fair cash offer for my house?
What are my other options to sell my house?
What is the best process for me to sell my house fast to a cash buyer?
We’ll go in depth on how cash home buyers determine their offers and what you can do to make sure you get a fair offer.
How can I find a reputable person who buys houses as is with cash?
As flipping houses has become more and more popular on television, an entire industry has grown around buying houses as is. You’ve seen the We Buy Houses signs around town and online. The advertisers fall into three broad categories:
National lead generation engines
Local cash buyers
Many of these advertising to buy houses aren’t buyers at all. Instead, they are lead generation companies who take your information and sell it to local investors who will contact you. When you call, you’ll likely speak to someone out of state. They take your information and sell it to one of their franchisees, who often wholesale the lead to actual cash buyers. There are other numerous lead generators advertising online. They include www.webuyhouses.com, www.experthomeoffers.com, www.housebuyersofamerica.com, www.expresshomebuyers.com, and others. Rather than contact a middleman who sells your information as a lead, it’s beneficial to search for a local company or individual who has the resources to buy your house with cash. Since the actual cash buyers don’t have to pay a wholesaler, they can pay you more by purchasing your house directly.
There are all types of buyers online and many of them are wholesalers, rather than actual cash buyers. Wholesalers use advanced (and not so advanced) marketing methods to find motivated sellers, lock the seller into a contract, and sell the contract to the actual cash buyer. The wholesalers are middlemen who take a cut that could have gone into the seller’s pocket. So how do you know if you are contacting a national lead generator, a wholesaler, or an actual cash buyer to sell your house? Do your research online. Any legitimate cash buyer should have a website describing what they do and who they are. Wholesaler websites often look similar to one another. They talk about all the houses they buy, but they won’t have detailed information about their current projects, before and after photos, or any Google reviews. They will have testimonials on their site, but anyone can manufacture testimonials on a website. Selling a house is a big decision, so dig deeper than just a website. When you search for their business, how many Google reviews do they have? Are they members of the Better Business Bureau and do they have any reviews there? If not, they might not be legitimate. Wholesalers typically don’t have information about their current projects because they don’t have any projects. They are in the business of marketing, negotiating, and selling contracts. They don’t have a construction company that is going to add value to your house. They are in the business of flipping “we buy houses” leads, not flipping houses.
You will probably sell your house for the best price if you bypass the middlemen wholesalers and go straight to the cash buyers who are going to add legitimate value to your house through a remodel. You find them by searching for people who will buy my house fast, sell my house fast, or we buy houses. Don’t be afraid to go to page two of the search results, because the national lead generators have paid Google to get at the top of page one as a sponsored advertisement. Your best local buyers might be on page two of the search results. Look through the website for the following:
Evidence of being local
Photos of recent construction projects
Links to their Better Business Bureau® page
Legitimate Google reviews
If you are a motivated seller or have inherited a probated property, your information is probably of public record from the recording of the probate at the courthouse. Therefore, you might receive postcards and letters from people wanting to buy your house. Many of these are wholesalers looking to sell the contract they offer you. One of the most common types of letters is called yellow letters. They typically come in a regular handwritten envelope with a short note written on yellow ledger paper. It appears to be an individual wanting to purchase your house, but this is a wholesaler attempting to tie up your property on a contract they will immediately sell to the end buyer. Ignore the yellow letters and find an actual cash buyer with a simple online search. If they don’t have a legitimate website, Google reviews, and a Better Business Bureau® membership, keep looking. If you suspect the individual is a wholesaler, keep looking online until you find an actual cash buyer so you aren’t giving away your equity to a middleman. You don’t want to give up equity and you also don’t want to tie up your property on a contract with a suspect buyer who doesn’t have the cash to close.
When you do find a prospective buyer and call them, ask them what they plan to do when you sell your house to them. If they are vague, press them on whether they will add value through construction, sell your contract, or just use the house as a cheap rental without investing anything into it. It might not matter to you if they are a shady landlord who won’t invest anything in your house. For most sellers, however, the house isn’t just a house. It’s a family home and it’s important that the new owner invests in it so it continues to be a place where families raise their children. If this is important, ask the prospective buyer about their intentions and verify their claims online through their website, Better Business Bureau®, and Google reviews.
What is a Fair Offer?
Choosing whether to sell your house fast as is to an investor depends on several variables. The first is your sense of urgency. If you need cash fast, this is the easiest way to turn your equity into cash. But, you still shouldn’t give it away. Here is the typical formula house flippers use to determine their maximum offer. It’s commonly referred to as the 70% Rule.
Estimated Sales Price x 70% – Rehab Costs = Max Offer
This leaves the rehabber a 30% gross margin when they sell the house. That doesn’t mean they are going to walk away with $30,000. They will pay at least half that margin in holding costs, cost of money, insurance, and transaction costs before paying any overhead. Their maximum offer will typically yield around an 8-15% net profit, which is fair given the risk and work that goes into flipping a house. The problem is if you sell to a wholesaler who will take a 5-10% cut off the top, less will go into your pocket as the seller.
Using the formula above, assume you are selling a house that needs $40,000 in rehab to be able to sell it for $100,000. The maximum offer you should expect would be:
100,000 x 70% – 40,000 = $30,000
If the buyer purchases for $30,000 and adds value through efficient construction, he will likely make a $10,000 – 15,000 profit after paying for all the costs associated with flipping a house. $30,000 might seem like a low offer, but this is probably a fair return given the risks and work.
The location of your property is obviously important and you need to be honest about it. Because you grew up in a home and have a sentimental attachment, you might be biased about the location and the value. Identify the average neighborhood in your town or city. If your house is in a better location than that, you should get more than 70% (or the $30,000). Conversely, if the house is in a less favorable location, the buyer will expect a lower sales price to offset the increased risk of buying a below average location. Be honest and don’t take a buyer’s assessment personally. For them, it’s ultimately about the numbers and risk level of buying the house. They have to be honest about its potential sales price and you should as well.
A buyer also has to be honest about the construction costs required to sell your house again or rent it to a quality tenant. The most common mistake sellers make is underestimating the cost of construction. Most municipalities require permits for most everything now, so a rehab requires licensed contractors who are professionals. If you’ve ever tried to hire a “handyman” on the cheap for even small projects, you probably understand the problems with such a person managing a full rehab budget of $40,000 or more. Hiring reliable people who can execute a quality rehab costs money and that needs to be accounted for in the construction budget. As a rule, homeowners tend to spend far more on remodeling projects than they originally budgeted. So it’s safe to assume the actual construction budget for your house will be significantly more than what you expect. Here’s a great article from Angie’s List on the difference between perception and reality when it comes to remodeling costs and how popular televisions shows on HGTV have widened the gap.
A legitimate cash buyer is going to be objective about the estimated sales price and construction budget when formulating an offer. If you truly want to sell your house fast to a cash buyer, you’ll need to be as objective, as well. Otherwise, you risk overvaluing your house and spending more than you should on holding costs.
What are My Other Options?
When you choose to sell your house directly to an investor, you choose to accept a lesser sales price in return for selling your house fast as is for cash. If you have time or money to invest into the house itself, selling to a cash buyer might not be your best option. Let’s look at your options.
List it with an agent. If your house is in move-in condition, you should certainly list with an agent. It makes little sense for you to sell a house in move-in condition to an investor. It’s probably not in move in condition, however. If you are interested in being able to sell your house for cash, the house probably needs both cosmetic and functional work. More than likely, it’s not only dated, but it also has peeling paint on the exterior, an older roof, an older heat pump, and the plumbing and electric haven’t been updated recently. That means you will need to find a buyer on the market who has the cash to put into their house AND not many entry-level home buyers have that kind of cash sitting around. More importantly, the house probably can’t get financing because it wouldn’t pass the FHA appraisal process. Therefore, you are going to have to sell your house to a cash buyer since the house can’t be financed. Cash buyers are the same investors who would be buying directly from you or a wholesaler. They are using the same formula above. You might get a little more since you are listing it, but you will pay a real estate agent 6% plus any additional holding costs for the time it takes to go through that process. The offer might be contingent on an inspection or financing, either of which could go wrong and delay your sell. In order to net more than the $30,000 directly from a cash buyer, you would have to sell your house for $35,000 and pay an agent and possibly additional fees. If you use an agent to sell your house, don’t use friends and family. For every quality agent, there are twenty who do it on the side and not very well. Hire a good agent, making sure they take professional photos and put some time into the listing.
2. Fix up the house yourself, declutter it, make it presentable, and then sell it. This is probably how you would net the most money, but it might not be as large a difference as you think. Consider construction costs. In most cities, you will need to pull a permit and hire someone to do the work. Finding, managing, and paying such a person can be time consuming and exhausting. You will probably underestimate the construction budget. As a rule of thumb, you can estimate between $25 – 40 per square foot to remodel a house. $25 would be light cosmetic improvements and perhaps, a roof or heat pump. If you need to replace the windows, roof, and heat pump you should expect to spend around $35 per square foot. Run into plumbing and electrical issues and that number increases to $40+ per square foot in an average market. So here’s what your numbers might look like on that theoretical $100,000 house:
– 6% agent commission– 6,000
– seller paid closing costs – 3,000
– construction costs– 40,000
– insurance for 4 months– 600
– utilities for 4 months– 600
– property taxes– 500
Net Proceeds $49,300
That’s $19,300 more than the initial offer, but then you’ll pay taxes unless it’s been your primary residence. That also assumes you have the $40,000 for the rehab, time, and energy to execute the remodel. This might make sense. If you consider this option, first place a value on your time. If your time is worth $10/hr, this option makes sense. If your time is worth $30/hr, it might make sense to sell your house to an investor who has experience managing a remodel.
3. Rent it. This option requires some thought and some honest introspection. Do you want to be a landlord? Landlording is hard work. You will need to screen tenants, say “no” to many sad stories, evict the inevitable bad tenant, and respond to regular maintenance calls on nights and weekends, because of toilets only flood on Saturday evenings. Seriously, landlording is a commitment and the profits aren’t lucrative. Use the house above as an example again. If you update the essential electrical and plumbing systems with minor cosmetic improvements, you’ll probably invest at least $20,000 into the house in order to attract tenants who aren’t desperate. Assuming the house is around 1000 square feet, you’ll be able to rent it for around $750/month. Professional landlords budget close to 50% of their rental income to the following:
A vacancy rate of 5-10%
Capital Expenditures (roofing, heat pumps, systems, etc)
Management and accounting
The pros who manage hundreds of rentals know they are eventually going to pay close to 50% of every rental dollar in expenses before paying any mortgage payments. So, let’s assume you have the $20,000 in cash and don’t need to take out a mortgage. You should expect to net $375/month before taxes. That’s $4,500 per year before tax as long as you can keep quality tenants. Choose one bad tenant and they can game the courts to live free for months and cost you hundreds in legal costs. Landlording makes sense for some people, but don’t forget to count all the costs when you consider this option. You should also consider hiring a professional property manager to effectively manage the rental and tenants. That can be easier said than done as quality property managers are difficult to find in many markets.
What is the best process for selling to a cash buyer?
If, after analyzing your situation, you choose to sell your house directly to a cash buyer, use the following process to ensure you protect your interests.
Research websites, the Better Business Bureau®, and Google reviews to find a local reputable cash buyer who can buy your house fast as is. Make sure they aren’t a wholesaler or national lead generator who will act as a middleman with no intention of adding value to the property. Sell your house directly to a local investor who can give you the best price.
Have a conversation with the person and company about their plans for the house.
Have the seller come and evaluate the property to make an offer. Don’t be afraid to talk to them about their intentions and recent projects they’re working on or completed. This will help you determine if they are a legitimate buyer.
Ask the buyer about their numbers, including the construction budget and their projected sales price. Then apply those numbers to the generic formula: Sales Price x 70% – Construction Budget = Max Offer to see if it’s a fair offer.
The buyer should present a contract offer. Make sure it doesn’t require a long inspection period. It should be a cash offer with no financing contingency. The buyer should pay your closing costs. And, lastly, if they’ve presented themselves as the end buyer, ask them to write in a phrase stating, “Assignment of the contract is not permitted.” This will force them to disclose any intentions of wholesaling the contract to an end buyer. Be sure you are clear regarding any responsibilities you have to clean up the property in any way and if the contract includes any personal property at the house.
Insist on using an actual real estate attorney to close the transaction, as opposed to a less expensive title company. If any probate or deed issues arise during the title search, an attorney can usually solve those problems for you. If you don’t use an attorney to close, you may have to hire an attorney to work through any probate or deed issues on your behalf in order to sell the property.
Schedule the closing at your convenience. You do not need to bring the original deed or any paperwork. Make sure the settlement statement is correct. If you’ve acquired the property through probate or inheritance, be sure and contact the closing attorney as early in the process as possible. Oftentimes, probate attorneys neglect to file certain paperwork which causes delays in selling an inherited property.
Consult a CPA for advice on minimizing your tax liability on the sale. A good CPA might be able to find ways to save you quite a bit of tax savings.
Choosing to sell your house fast to a cash buyer in as is condition has benefits and disadvantages. You will likely give up some equity in return for speed, simplicity, and minimal contingencies. It’s not always the best option, but it is the best option for many sellers. Use the information above to make the best decision for your particular situation. If you do decide to sell your house fast for cash, invest some time in finding a credible buyer.