3 Types of Professional Investors

During the process of choosing the right investor for your property, it is imperative to understand what type of investor he or she is. Is the investor a “fix and flip” kind? A “buy and hold” kind? Are they planning on being the “end buyer” at all, thus garnering them the label of “wholesaler” kind? You may think this doesn’t matter, but as we will see, it is extremely important to understand what type of investor you are entering a contract with and what it means for you and your property.

The Fix and Flipper: This type of investor typically targets properties with equity, purchases them at a maximum of 70% of the market value, and then undertakes remodeling or necessary repairs within a relatively short timeframe, usually around 4-8 weeks. Once the renovations are complete, the investor sells the property on the open market, aiming to generate a profitable return on their investment.

During the contract period, this type of investor may require an “option period,” “due diligence period,” or “inspection period” to conduct thorough assessments of the property. They may bring in inspectors to evaluate the property’s condition and obtain repair bids. However, seasoned investors often have a solid understanding of repair costs and can quickly calculate the necessary fix-up expenses through a comprehensive walk-through.

In terms of financing, these investors may or may not submit a cash offer. Many rely on a line of credit from a local bank, which functions similarly to cash in terms of transaction efficiency. This approach helps conserve their capital, which can then be allocated towards the necessary renovations.

Closing times can vary depending on the financing method used. A “bank line-of-credit” typically takes around 14-30 days to close, while a cash buyer may be able to close somewhat faster. However, it is important to note that even with a cash offer, there is still a need for the title company to perform a thorough title search, address tax and lien payoffs, and prepare the necessary documentation for closing. These processes require some time.

The Buy and Holder: In this scenario, the investor is focused on purchasing properties with good rental potential and cash flow, even if there is not much equity. Their intention is to hold onto the property for a long period of time as a rental property. It is important to note that when dealing with properties that have little to no equity, the seller may not receive a significant amount of money from the sale.

For this type of investor, the primary consideration is the rental potential of the property. They will be looking for properties that can generate consistent rental income and provide a positive cash flow. This means that the property’s location, market demand, rental rates, and potential for future appreciation will be key factors in their decision-making process.

Furthermore, this type of investor will prefer properties that require minimal financial investment in order to get them ready for renting. They will be looking for properties that may need some cosmetic upgrades or minor repairs but do not require extensive renovations or costly repairs. This allows them to save on upfront expenses and start generating rental income more quickly.

The Wholesaler: This type of investor is the one that could pose the most risk to you, the seller. Wholesalers typically secure a property under contract with a seller at one price, with the intention of finding an end buyer to assign the contract to before the agreed-upon closing date. While this practice is legal and can be mutually beneficial when conducted transparently, there are considerations to keep in mind.

One potential risk is the timeline involved. Wholesalers often include an “option” or “due diligence” period in the contract, which provides them with an opportunity to find an end buyer. However, if they are unable to secure a buyer within the specified timeframe, they can opt to walk away from the contract. This could leave you, the seller, in the same situation you were in initially, with valuable time lost.

For sellers facing time constraints, such as those in imminent danger of foreclosure, this situation can be particularly precarious. The reliance on a wholesaler to find an end buyer within a strict timeframe may not be the most suitable approach for your circumstances.

It is essential to thoroughly assess the terms of the contract and understand the potential risks involved before entering into an agreement with a wholesaler. Consider consulting with a real estate attorney who can carefully review the contract, advise on the potential implications, and help protect your interests in the transaction.

Selling to an investor should be a positive and relatively simple process. After all, selling your house to an investor at a discount should be full of benefits to you and your situation. So, do your homework! Find out what type of investor you are dealing with. Ask questions, and don’t accept vague answers. There are many honest, professional investors out there. Don’t settle until you find the one that’s right for your unique real estate situation.

As always, we recommend that you consult with a real estate attorney to evaluate the potential pros and cons and make an informed decision that suits your specific circumstances.

The post 3 Types of Professional Investors appeared first on Sell My House Arkansas.