We Buy Houses provides a quick solution for many homeowners facing foreclosure. They buy homes “as is,” with no repairs or preparation, and often pay in cash, eliminating sellers from the negotiating table. In the vast majority of cases, they pay cash and close at a profit. They also have financing options available through banks and credit unions and can often finance through the real estate agent or directly.
One disadvantage of real estate investors buying from these sources is the repair value. Although most do not require any work, many have some. Some will perform all the needed work themselves, sometimes with little cost, while others will have excess work to perform. Their goal is to make a profit, and they are after your home. Their payment will be dependent on the difference in the new total cost of the house and the original price paid for it.
Buyers should be wary of anyone who tells them that they can give them a better deal. For instance, many real estate investors will offer to buy properties at “market value” or below it. This is known as a “fixer-upper” deal. It is an unfair trade for the average person. These houses should never be sold at what would be considered fair market value.
Another disadvantage is that these deals often involve short sales. If a lender agrees to take less than is owed on a loan, this is called a short sale. It is not uncommon for real estate investors to take even more than is actually owed to avoid making a loss on the property and make a profit on the flip. Short sales should never be allowed to happen when there are repairs needed.
What about the other common real estate investors practice known as “flipping”? Some will buy houses, fix them up somewhat, sell them at a profit and then either keep the property or put it back on the market again. In other words, they will try to repair them and then relist them at a higher price to have more buyers purchase homes from them. Although this may seem like a good way to invest, if it involves too much work, it can end up costing you money instead of helping you make more money.
The problem with this investment is that homeowners who need repairs are usually non-paying tenants. Consequently, they are not able to negotiate properly with their homeowners, so the repairs end up costing more money. Even worse, the only people who stand to benefit from this type of transaction are the real estate experts who bought the house at the right asking price and made sure that the repairs were done correctly. This is known as flipping the property, where the real estate experts merely look at it and make a profit instead of making repairs. Most real estate investors avoid this type of property and instead choose to buy houses from the homeowners who actually need repairs.
Another way you can make a profit when you buy houses under contract is through a cash offer. When you enter into a cash offer with a real estate investor to buy houses, you agree to buy the property at an agreed price in full, with all liens and interests attached to the property. This deal is more difficult to accomplish because the investor must have enough real estate capital to cover the full purchase price (cash offer) while still providing a comfortable margin to accommodate any potential losses. If the real estate investor were to have any problems securing enough cash offer, it could result in the entire purchase being voided. The investors also bear responsibility for paying off any property debts completely before they walk away from the deal. If a cash offer cannot be secured, investors may need to seek a mortgage lender to fund the deal.
Whether you decide to purchase real estate using a cash offer or a purchase-and-sale option, you need to realize that investing in this manner is significantly riskier than investing in traditional real estate. While it is true that the opportunity to take advantage of a falling market value is greater with cash buyers than it is with traditional buyers, it is important to remember that you do not own your home in a market that has fallen out of love with real estate. For this reason, real estate investors need to be very careful about how they enter this type of deal. It would be far better to wait until the market has fully recovered before taking on this level of risk.