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Hidden Secrets of We Buy Houses Companies

Hidden Secrets of We Buy Houses Companies

Table of Contents

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When it’s time to sell your home, most people start out by listing their property with a real estate agent, then crossing their fingers that potential buyers will come along. Hopefully, if they’re lucky, someone will give them the price they’re asking for.

Sometimes, the traditional route doesn’t work for a family selling their home. This could be because of life circumstances that prevent the home from being attractive to sellers, or it could be because of a tight timeline needed for the sale. Learning we buy houses companies’ secrets is one possible way to get around the challenges of a traditional real estate sale.

Selling your home to a company

Houses for sale with a real estate agent

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Deciding to sell your home to a company can feel a little odd for home sellers who are unfamiliar with what this process looks like.

On the surface, it can seem like all cash companies are the same, but the secret is that they’re all a little different. While yes, real estate investors commonly want to pay cash for your house with a quick closing, their motivations and needs can be very different.

Knowing how each of these kinds of cash companies approach a home sale can help you make sure that the money paid to you is what you want out of the home.

The business model of different cash companies

Though all of the cash home buyer companies might have the same overall process and the same end goal in mind, the way they operate is very different. This is one of the biggest ‘we buy houses companies secrets’.

Here’s a list of seven different kinds of we buy houses companies and investors that you might encounter when you’re trying to sell your house fast:

  1. House flipping investors
  2. Buy and hold investors
  3. Cash buyer franchisees
  4. Online buyers
  5. Individual investors
  6. Lenders and brokers trying to free up cash
  7. Home trade-in companies

Each of these real estate investors has a slightly different motivation that will give them a slightly different outcome when they’re trying to buy your house fast.

Most of the time, home sellers don’t even know what the company or investor that they’re working with is after – they just want to get out from under their house, and if someone is willing to pay cash for that home, well that’s all the better. In fact, many real estate agents might not even fully understand the different kinds of cash buyers that are out there.

Let’s break down what each of these potential cash buyers is looking for and how you as a homeowner can better understand their place in the real estate industry.

1 – House flipping investors

Homes in a neighborhood for sale

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Would you like some shiplap with that home flip?

If you got that reference, then you surely understand the concept of home flipping real estate investors. These folks are all over HGTV, and there’s no doubt that it’s fun to watch them buy houses, rip out walls, and transform the recently sold property into something that goes for a much higher price.

The key to a house flipper is that a finished home with all of the amenities is worth much more to a home seller than the cost of making repairs. This means that they can turn that house over to the market and make major profits on the deal.

It doesn’t always work out the way it does on TV, or else there would be a lot more house-flipping real estate investors out there. Sometimes, flipping a house is so expensive that it doesn’t make any money at all. A house might sell for a good price, but the repairs cost so much that there’s no profit on it. That kind of business can’t sustain itself.

In order to make any money on the house, no matter what the market, a house flipping business has to get that house fixed and on the market in less than six months. Selling homes slower than that means losing money every single month on a mortgage or on extensive repairs.

Paying cash for a house to flip is better business than doing the flip with a mortgage in tow. However, many house flippers need the cash to put back into the house, so they end up taking a mortgage out after they buy the house, even if they pay cask for the house initially. Sometimes, a house flipper will have other investors behind them to back them up.

2- Buy and hold investors

Buy and hold investors are a less known kind of business for real estate investors to be in. This is kind of a secret, undercover form of real estate investor, but only because you usually know them by another name – landlords.

These real estate investors make their profit by buying homes, usually homes that need some work so that they don’t have to pay top dollar for them. They take those houses and fix them up a little, then they rent them out to tenants.

Every kind of real estate investor has the potential to be a buy and hold investor. Real estate used in this way has the potential to earn consistent, steady income that is enough to pay off both property taxes and other real estate fees.

Online homebuying companies and large franchise cash buyers are potentially buy and hold investors, though in the United States, almost two thirds of rental property is owned by small landlords who only own one to three properties.

An investment company or individual may pay cash for your home, but they’ll often work with back end investors to buy your house with cash, rather than working with a bank for a traditional loan. This could add a little more time to the deal process when you sell your house to this kind of business.

3 – Cash buyer franchisees

House sold through a buy houses company

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Think of cash buyer franchises just like you think of food franchises like Mcdonald’s – because that’s exactly what they are.

These national brands create marketing materials and promotions, home buying processes, and online interactive platforms that are all geared towards buying houses for cash. They then take all of that messaging and knowledge and sell the rights to the name and the materials to local investors who use all of that to make their own money. These people are called franchisees.

Often, franchisees in any industry have to stick to a strict set of rules, regulations, and trade practices in order to maintain their franchise status. They also pay a fee, sometimes a very hefty one, for the benefit of having the franchise name attached to their business.

The names associated with franchise home buying are names you’ll probably recognize. think HomeVestors, We Buy Ugly Houses, I Buy Houses, We Buy Houses . . . you get the idea. Any time you see a lot of slick marketing and a ton of individual investors using a single name, you’re pretty much guaranteed to find a franchise behind it.

What these franchises do with the houses is pretty much the same as what any home buyer does with the houses. They either keep them as rental units or they flip them as fixer uppers.

After the sale is where it all gets really local. A cash buyer with a franchise license owns the property outright through whatever investment structure they’ve created, then they can do whatever they want with it.

To maintain their franchisee status and all of the benefits that go with it, they might pay a regularly scheduled fee, or they might pay a section of their profits to the parent company. The parent company has a vested interest in preserving its brand and keeping their franchisees growing, so they often offer training or support to their smaller investors.

4 – Individual investors

In the world of real estate, these are the little guys.

Individual investors who are seeking to pay the cash value of a home, either to flip it, turn it into a rental property, or just sell it again right after they buy it, are often just getting into the real estate business.

These individuals might not be very experienced in buying and selling in the market, but they do tend to be passionate. Often, the little guy is the one who is willing to work with a homeowner and go out on a limb to make the whole thing work.

These buyers might be on the road to their first purchase with your home, or it might be one of the first few purchases that they’ve made. For this reason, they might offer you a higher price than other cash investors for the simple reason that they’re trying to get some experience.

Everybody has to start somewhere, and individual home investors are a place where many people get their start.

5 – Online buyers

Large home sold through online cash buyers

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Over the last decade or so, online buyers have become the most important and prevalent means of selling homes across the United States and even across the globe. Sometimes known as iBuyers, these companies are almost impossible to ignore any time you get online and do a Google search for anything related to selling a home.

Some of the biggest names in the online homebuyers’ market are national companies like Zillow Offers, Offerpad, RedfinNow, and Opendoor. The big ones are all legitimate companies that are very public, and they all say they want to buy ugly houses.

One of the insider secrets is that these companies are not looking for distressed properties, but rather they’re really interested in homes that need very little work. These are not fixer-upper buyers by any stretch of the imagination.

Because they are looking for homes that are largely repair-free, they tend to make an offer that’s higher than what a cash offer would be from another kind of investor. The tradeoff here is that online buying companies tend to be pretty picky about where they’ll buy and how much work is left to be done on the houses that they buy.

Thanks to a huge cash flow and a major real estate presence, these companies can buy fairly quickly and they also can sell very quickly. In fact, this lightning-fast turnaround is a key part of the business model that these companies employ in real estate.

The sheer size of these companies means that the business model does not require them to make a whole lot of money on each turnover. They can make just a little profit, but they make that little bit of profit on tons of houses, which adds up to millions and more in profit across their business.

Though these companies are huge, the whole housing market is even bigger. Altogether, the big online buyers make up less than one percent of the total home sales in the United States.

6 – Lenders and brokers trying to free up cash

This is probably the least known reason that buy houses companies offer cash to homeowners.

Lenders and brokers sometimes work with home buyers to make a quick cash sale for a house so that the homeowner has the money to make a competitive offer on another home. This kind of deal comes directly through a bank or a mortgage broker, and it’s almost always in the form of some codified program that the lender offers.

In this instance, it’s the bank that then owns the home. They’re in charge of the sale, and they make the whole process work. With this kind of deal the homeowners now have the opportunity to turn over the cash they just got for the home and buy the new house with that cash.

Just as with any other kind of cash home sale, the homeowner now has the advantage of leveraging that cash payment to get a better deal on the home that they’re pursuing. This can be very important in a hot seller’s market.

This kind of deal is good for the homeowner especially if they are working to move to a new place and need to relocate quickly. House deals sometimes have to move fast in this scenario, and this is a solid way to make that kind of fast deal happen.

Nothing comes for free, though. With a lender or broker cash deal, there’s usually a fee for the business offering this service during the selling process. How much that fee is depends on the market and the cost of selling the home.

This kind of real estate transaction is good business for a real estate broker because they’ll earn commission on two transactions – the first home sale and the second home sale. It’s also a good deal for the bank because they’ll get to have the mortgage on the new property.

7 – Home trade in companies

home sold through a trade in company

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This kind of cash buyer is not totally different from the last one, but the major difference is that the business model of the whole company has nothing to do with lending money.

Cash offers from home trade in companies are more about buying time than they are the new owner coming in and actually buying the home. Typically, these companies are confused with online homebuyers, but they’re actually two different concepts.

The focus of this kind of home company is to give the homeowner the ability to buy a new home that’s in line with the value of their current house. With the mortgage now paid off, the homeowner has the time to sell the property on the open market for a higher price, and often a chunk of that price will go to the home trade company.

It’s absolutely critical that you double check that a home trade in a company is not a scam. One secret weapon of home scammers is to perform a “white knight” scheme, where they offer to pay off the mortgage in exchange for a future home sale. The trick is that they require the homeowner to sign over the title in the process. With the mortgage paid off and the title signed over to someone else’s name, the homeowner has no further legal rights to the property. The scammer then evicts them.

This isn’t a real estate scam that you can go to the authorities about because it’s all technically legal.

With that being said, home trade-in companies are typically a solid option for selling a house. If you want a guarantee that you’re not dealing with a home buying scam, talk to a real estate agent or a real estate attorney before you sign any paperwork.

Deciding whether to sell to a cash buyer

Homeownership typically involves the biggest transactions that an individual will ever make. Though this kind of deal is probably a rare occurrence in your life, it’s worthwhile to learn as much as you can about potential buyers before you get involved in a deal.

The secrets of cash buyers might not be relevant to every homebuyer, and cash price real estate sales aren’t for everyone. But you never know – real estate agents aren’t the best fit for all home sellers either.When the property that you’re trying to sell needs to get out of your hands without any repairs, then an as-is home sale to a cash buyer is the top way to go. Whether you decide to work with an individual investor, an online buyer, a trade-in company, or a cash buyer company, the secret to a good home sale is learning all you can about the industry and making a decision that fits your needs.

Brett Riggins

Brett Riggins

Founder of Connect Home Buyers Brett Riggins started his real estate journey after graduating from Western Michigan University in Construction Engineering. After completing his first few residential flips, him and his wife Arin started Connect Home Buyers LLC, and today, they help homeowners sell their property quick and hassle-free.

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