The first half of this article will probably have you thinking that the amount home investors can pay is a bad deal. You would not be wrong, however, you’ll quickly find that not all investors are created equal and that the best price house investment companies can offer selling solutions that will net sellers more than even market price. And without the hassles, headaches, and expenses of a traditional listing. So, read on and let’s go to it.
The maximum price that most house investors can pay is typically 70% of what a home will be worth after it’s been repaired and updated (known as the After Repair Value, or ARV) minus the cost to make those repairs and updates. In terms of a formula, the price you can expect from a home investor equates to:
(ARV) – (Repairs) – (Fixed Overhead Costs [5%-20% of ARV]) – (Investor Profit) = Offer Maximum
However, there are several different types of real estate investors and not all types will pay the same amount. Ultimately, the home investor price that you can expect depends on the type of investor you work with, the current housing market, and your home’s location and its condition.
What’s in it for you
To determine the best price that investors can pay for your house, let’s first supply answers to these 3 questions: what exactly is a home investor? What are the various types of investors who buy houses? And how can I tell the difference?
Home investors are individuals or companies who buy houses at (typically) a discount in order to make a profit by reselling homes or to generate passive income by renting homes long-term. There are 4 different kinds of investors who buy houses: wholesalers, fix and flippers, iBuyers, and buy-and-hold investors. The maximum price that each type will pay can vary significantly, making it critical that you know the kind of investor you’re working with. How can you tell? The answer to this question begins with how investors finance the purchase of investment properties which can include paying all-cash or using some form of creative financing like owner finance, wraparound finance, or subject-to finance.
“Investors” who are home wholesalers can best be defined as pointless intermediaries who sign contracts with sellers to buy their home and who then sell their buying rights to a real home investor for a higher price and ending with the wholesaler pocketing the difference between the 2 contracts. What’s the most amount that wholesalers can pay for a house? Not a lot! Of the 4 types of investors, home wholesalers pay the lowest price because instead of 2 parties looking to profit – seller and buyer – 3 parties are looking for a payday – seller, buyer, and wholesaler. The best price that a wholesaler can pay for houses is like the earlier equation except that you must also add in the wholesaler’s fee:
(ARV) – (Repairs) – (Fixed Overhead Costs) – (Investor Profit) – (Wholesale Fee) = Offer
Unlike the first kind of investor, house flippers are legitimate home buyers who typically buy a property with cash, hold onto it for just long enough to complete repairs and updates, and then sell it (aka the flipping part) for a higher price. How much can house flippers pay sellers? Slightly better than wholesalers but flippers usually buy homes that are in poor condition and because of those poor conditions, a flippers maximum purchase price is often lower than what homeowners could get on the open market. Here’s the formula property flippers use to calculate the best price they can pay:
(ARV) – (Repairs) – (Fixed Overhead Costs) – (Flipper Profit) = Offer
iBuyers, which is short for “instant buyer” (which is a misnomer), are tech and data driven companies that use nonpersonal, automated valuation models (AVMs) to make offers on homes that are often in excellent condition so that they can quickly sell the home for both a profit and a “service fee”. These AVMs rely on reselling homes at a high volume which allows them to often beat the max prices of other types of investors. For instance, the highest price that many iBuyers can pay is 80%-90% (instead of 70%) of the ARV less repairs and updates. While iBuyers can offer sellers more than wholesalers and flippers, they are very selective and only purchase homes that require just minor repairs and updates.
How much do iBuyers pay home sellers? Their AVMs are proprietary and other than iBuyers themselves, no 1 really knows. To give you a general idea nonetheless, according to Forbes, iBuyer sales netted homeowners 11% less than if they’d used a realtor to sell on the MLS.
Investor businesses that buy-and-hold homes can best be described as a long-term investment strategy where a property is bought with the intention of holding onto it for an extended period in order to generate passive rental income and to benefit from tax deductions. Of the 4 types of housing investors, buy-and-hold companies can pay the maximum price because they know that home values over time have historically increased and will offset any initial costs.
Moreover, the price house investors who buy-and-hold can pay is maximized as the result of lower fixed overhead costs (just 5-10%) and they don't perform the pricey repairs and updates that are needed to list homes traditionally. What is the highest and best price buy-and-hold investment companies can pay?
Good Vibes Homebuyers is a buy-and-hold investment company and as of 2024 owns more than 40 rental homes found from San Antonio to Killeen and everywhere in between. That’s good news because buy-and-hold investors will improve your bottom line come home selling time. How? Starting with the least and working our way to the highest price, let’s discuss the 4 ways our investors finance buy-and-hold properties that allow them to pay sellers the maximum amount for their homes.
Our company name (Good Vibes Homebuyers) is for a reason: we put Good Vibes Only into the world, and we make sellers aware of the upside and risk associated with each method that we use to buy and pay for Texas houses. To that end, all investor cash offers, including ours, will be lower than if you sold to an iBuyer or on the open market. Nonetheless:
Good Vibes Homebuyers can pay the highest cash price of any investor, including other all-cash buy-and-hold companies in Texas.
How? We don’t use the standard formula to find our max home purchase price. Unlike an iBuyers complicated AVM model, our system for calculating the highest cash price we can offer for a home is quite simple with it relying on estimated rent:
(Estimated Monthly Rent) x (Rent Factor) – (Repairs) = Maximum All-Cash Price
To estimate monthly rent, we don’t use online estimators, but we do use a rental comps report that is prepared by an outsourced professional property management company. The rent factor is the only variable and is affected by the current housing market and a home’s location. To give a general idea, we have never seen rent factors less than 85 nor have we seen them higher than 200.
Let’s put pen to paper and assume that a home is on the northeast side of San Antonio, within a nice neighborhood where homes are less than 15 years old, it requires no repairs, and the estimated monthly rent is $2,100. This might result in a rent factor of 120 meaning that our buy-and-hold house investors can pay a max cash price of:
(($2,100) x (120) – ($0)) = $252,000
What is owner financing? In short, a seller who offers owner financing to a buyer means that the seller extends a non-cash credit to a buyer and the buyer then makes recurring payments to the seller over a pre-agreed period of time. Owner financing is not all that different from traditional bank financing except for 2 key differences:
In nearly all situations, our Texas home investors can pay the highest price to sellers who owner finance a home’s sale (see which situations are not fit for owner finance). How? The fees of closing a traditional mortgage are removed, our max owner financed offer price is increased by adding interest payments to the sale price, and because home values historically increase every year, we can max out our offer by passing a percentage of that increase onto you. What is the formula used by our home investors to calculate the maximum owner financed price?
((Estimated Monthly Rent) x (Rent Factor) – (Repairs)) + (Closing Credit) + (Interest Payments) + (Price Appreciation) = Highest Owner Finance Price
Using the specifics of the previous cash offer example and assuming a 5-year seller finance term with 5% annual home price appreciation, our Texas rental home investors can pay an owner financed maximum amount of:
(($2,100) x (120) – ($0)) = $252,000 + ($2,520) + ($15,145) + ($17,405) = $287,070
Did you know that you can sell a home for a lot more by not paying off its mortgage when it’s sold? This way of maxing out a home’s sale price is colloquially known as a “wraparound” transaction which is best described as a creative form of seller financing where a seller keeps the existing lien in-place (i.e., they don’t pay it off) and creates a new, non-cash loan for the buyer that “wraps around” the existing lien.
Selling for the highest price to home investors via wraparound financing is ideal for properties that are in good condition and for homeowners with at least 50% equity. Wraparound closings, however, can be complex and that complexity is why so few investors offer this way of selling a house for a better price. However, Good Vibes Homebuyers is 1 of the few who do, so, what’s the best price our buy-and-hold investors could offer sellers in a wraparound transaction?
((ARV) x (Appreciation Factor)) – (Repairs) = Best Wraparound Offer
Wraparound transactions are where investors finally consider the ARV, which is calculated from real and recent MLS sales data of similar homes that are within the nearby vicinity (learn how we calculate the ARV). The appreciation factor is the estimated rate of annual home price growth expressed as a percentage and like the rent factor, it’s variable (average range 95%–125%).
Let’s jot down what a wraparound home investor’s highest price would be by using the same assumptions of the cash offer, an ARV of $250,000, and a 105% appreciation factor:
(($250,000) x (1.05)) – ($0) = $262,500
What does it mean when someone sells a home with subject-to financing? The answer is that it’s exactly like wraparound financing except that no new mortgage is created by the seller. Instead, homeowners get paid for their equity and the buyer simply takes over responsibility for paying the mortgage and all other home expenses (our investors refer to this type of home financing structure as “Sell a Home’s Mortgage”). Closing home sales subject-to the existing mortgage has even more similarities with wraparound closings. For instance, buy-and-hold investors again use the ARV to calculate their highest offer and subject-to transactions can be complicated.
How is selling subject-to different? In 1 significant way: homes sold subject-to should not have more than 11% equity. Why? It’s not in a seller’s best financial interest. Why isn’t it? Because the cost of selling a home on the open market averages 10% of the sale price. We’ll get to a real-life example but let’s first note how rental investors calculate their highest and best subject-to offer price:
Step 1: ((ARV) – (Mortgage Balance) – (Repairs)) = *Greatest Subject To Offer Amount
Step 2: Greatest Subject To Offer Amount + Mortgage Balance = Total Sale Price
*The greatest subject-to offer amount is the net payment a seller receives at closing. The buyer, if you recall, is assuming the existing mortgage meaning that the total sale price will equal the greatest subject-to offer amount plus the mortgage balance.
See what is meant by “subject-to transactions can be complicated”? Let’s uncomplicate it with a simple, real-life example:
3 years ago, Seller Stella bought a house for $250,000 with a conventional mortgage at 5.00% interest and she made a 3% downpayment ($7,500). She’s paid the mortgage each month and the balance now equals $231,200.
A family member falls ill, and she needs to move to provide care. Seller Stella contacts a realtor and learns that home prices in her area haven’t increased. Her home is still worth $250,000. Almost as bad, it needs a new roof and is going to cost $10,000. Stella realizes that she’s going to have to pay (i.e., lose) money to sell. She’s in a bind! Seller Stella’s friend tells her about Good Vibes Homebuyers, so she contacts them and within 2 hours she receives our rental home investor’s highest subject-to sales price:
(($250,000) – ($231,200) – ($10,000)) = $8,800 (net to seller)
Total Sale Price: ($8,800) + ($231,200) = $240,000
Selling subject-to allowed Stella to profit nearly $9,000! If she sold on the open market, she would have instead lost $16,200 ($250,000 – $231,200 – $10,000 – $25,000). Comparing Stella’s subject-to sale’s profit to the loss if she had sold traditionally, her net gain was $25,200!
Selling the traditional way is likely to get you a very good price but selling to our Texas home investors can get you the maximum price and the best terms. We offer multiple selling options, and we supply tremendous advantages like a fast and guaranteed closing, no repairs and cleaning, 0 risk, hassles, and banks, and a whole lot of Good Vibes! Call or text us today at 210-688-1692 to discover how much the maximum investor price is for your house!
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