In general, there are two circumstances in which we introduce sellers to investors.
1. The seller needs a quick sale as in the case of a property which is part of an estate and a quick sale is needed to settle the estate.
2. The home is in such poor condition that it will be difficult for a buyer to get a mortgage even with a renovation loan.
You can expect a low offer from an investor because their purpose in buying the property is to make a profit. For example, a house, once renovated, would sell for $600,000. The estimated cost of renovating the house is $150,000. The renovation could take weeks or even months to complete because of the time required to get permits and then certificates of occupancy in addition to the time for the actual work. The investor needs to be compensated for that time waiting to be able to resell the property and, of course, wants to make a profit. Let's say (for the sake of easy math) they factor in a “profit” of $75,000. Based on these numbers, the investor might offer only $375,000 with the expectation that once renovated the house will sell for $600,000 ($375,000 + $150,000 + $75,000 = $600,000). Sellers should not be offended by such low offers. The investors are simply doing the math and making an offer that will provide a desired return on investment.
You might be approached by someone offering cash to purchase the property who tells you that the property needs so much work you will not get a higher offer if you list it with a real estate agent. But you should never just take the word of someone who is trying to get the property for the lowest price possible. There are always cash buyers who could want the house for themselves and will offer more because they are looking for a home and not a means of making a profit. In the above example, a buyer looking to renovate and live in the house is unlikely to factor in the $75,00 profit and offer $450,000.
Our advice: Make no decision without obtaining a comparative market analysis for the local market where the property is located.
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