Why a trusted home cash buyer is a real estate investor’s best resource
Real estate investors, once they get going, generally build a portfolio. Many in this category focus on single-family (SF) or multifamily (MF) homes in demarcated geographic areas. However, the business of accumulating properties is more complicated than it appears at first, and once acquired, the outcomes can range from severely troublesome to smooth sailing. Indeed, investment models vary considerably; as a result, the risks involved present challenges in all shapes and sizes.
Two typical Investor examples of things going off track.
- Some investors buy houses in foreclosure or similar, seemingly at a discount, and don’t have the opportunity to inspect the residence until after closing. In many cases, it requires bidding at an auction, where the potential buyers enter the arena blind to the asset’s pros and cons.
- Invariably, holding a property investment long-term converges on renting it out. Thus, securing a reliable tenant who looks after the property is desirable, but one never knows. Of course, the protocols of applying due diligence by checking credit scores and reviewing renter backgrounds go a long way, as does insisting on a security deposit (plus first and last rental payments to protect against aberrant behavior.)
Despite real estate operators understanding the workings of the models they prefer, the faster and more significantly a property portfolio grows, the greater the risk of cracks appearing in an otherwise solid framework. In other words, as the portfolio expands, the chances of acquiring a “blind property” only to find it’s in far worse condition than you ever imagined escalates. Similarly, the same odds arise of leasing out to a tenant who is consistently late on payments or careless with the notion of a well-kept home.
The consequences of missteps in a portfolio
Cash flow is king. One can’t afford to own a property that sucks one’s money resources, which both examples above are apt to do. Why? Because developing SF and MF portfolios frequently relies on leveraged funding from banks or hard money lenders (i.e., a double-digit interest option). Many investors are heavily reliant on borrowed funds, content to take up a maximum of 30% equity in the targeted properties and even going as thin as 20%. So, think of it this way. Let’s assume the following:
- Investors buy a property for $200,000 with $140,000 outside funding at 7% pa on the loan.
- They invest another $40,000, renovating it to lease-ready status.
- Legal, management, insurance, collection costs, and property tax come to about 4% of the property value annually = $9,600.
- Realtor fees for finding a tenant = $2400 in year one.
- Interest charges = $9,800 annually (Interest-only at 7% pa).
- The expected rental is $2,400 x 12 = $28,800.
The net profit of the rental program to the investor is $28,000 – $2.400 realtor’s commission – $9,600 holding costs – $9,800 Interest payable = $7,200 in the first year. The latter is the equivalent of three months’ rent in year one- and four-months’ rent in the following years. Suppose the tenant falls behind on the rent due and damages the property beyond what the security deposit covers. Ejecting the delinquent family or individual takes time via the standard legal eviction process; during this time, expenses mount up, and with no rental income emerging, it’s a blot on the portfolio.
In addition, buying an over-damaged house or unit exacerbates the situation described above because it takes more time to repair than visualized and absorbs unexpected money. Time wasted is the archenemy of positive cash flow, and the extra renovation may make the investment unviable.
Liquidating unwanted assets in a portfolio
Lenders look at the entire portfolio, and underperforming assets detract from any presentation requesting new funding. So, arguably the biggest problem with a non-contributing purchase weighing down on a portfolio is that it cuts off investment opportunities in options that pop up while you’re dealing with it. Aside from being frustrating, it boils down to this:
- Defective real estate functions as nothing more than a cash trap, having a toxic effect on an otherwise healthy collection of investment units.
- Indeed, it distracts the operator from concentrating on the productive contributors, creating more errors and sometimes resorting to desperate moves that multiply the negative issues.
- Thus, the best solution with real estate that stands out like a sore thumb is to sell it off and cut losses, break even, or possibly emerge slightly ahead. The question is, how?
Realtors are frequently not geared to liquidating SF and MF properties that can’t compete with immaculate listings on the MLS. Moreover, they are at a loss on how to deal with sticky delinquent tenants. These obstacles aside, as a seller, you’re responsible for all commissions (i.e., around 6% of the final offer price) and dependent on the buyer’s lender approving the offer value through their appraiser. Then, SF and MF owners must repair defects found on a home inspection. Finally, the entire MLS marketing process on average can drag on for two months on average. Putting it all together, we can see that offloading an unwanted asset is massively stressful and a losing proposition that can drain most of one’s equity from the deal.
As a property investor, connect to a trustworthy Home Cash Buyer (HCB).
We believe that a reputable home cash buyer is ideal for addressing the pitfalls described above. Why do we say that? Consider the following:
- Bad tenants seldom deter an HCB. Indeed, the latter are professionals who know how to remove them from the equation quickly.
- Notwithstanding (1) above, HCBs won’t penalize your value because there’s a problematic tenant in the mix.
- Also, you don’t have to worry about curb appeal, decluttering, or staging a home when approaching a home cash buyer. HCBs are likely to reconfigure things anyway after closing.
- HCBs can get a cash offer to you in twenty-four hours and arrange a closing within a week.
- There’s no lender involved to say yes or no to the agreed offer price because it’s a cash deal.
- With an HCB, you cut out 100% of the agent’s commission.
- HCBs are experts at negotiating lien holders on the property down to cents on the dollar.
- The HCB inspects the house before they deliver a cash offer, meaning that once you have it in hand, there are no contingencies to whittle it down.
In other words, reliable home cash buyers in the background to remove the flies from the ointment are worth their weight in gold. In short, they offer you an exit plan that works in a seven-day window and won’t take advantage of the portfolio’s weakness – especially if they know they’re part of your team for future deals.
Real estate investors intent on building exciting portfolios with several properties in the mix should expect disappointment now and then. When it occurs, a swift, decisive reaction is the best medicine, and an HCB partner at your shoulder – one who understands its role – is invaluable investment support. So, if you are acting as a portfolio manager in Birmingham, Al, give Home Buyers Birmingham a ring to discuss your strategies. Even if everything is currently working and in balance, knowing they’re there for you if calamity strikes can make all the difference to your performance.
Home Buyers Birmingham
1821 11th Avenue South Suite #55331
Birmingham, Alabama 35205