Well, they’re people, just like you and me, in an industry you probably don’t understand a lick, so here I’m just going to explain the big picture, 10,000 foot view so you’ll at least understand who these people are putting out all those ugly signs littering up the neighborhood. (FYI, my company never puts those out).
Cash home buyers are real estate investors who are out to buy houses cheap. Typically this requires some kind of distress on the seller’s part, or some type of distress on the property itself. This is necessary because why would anyone sell a house in perfect condition for 50, 60, or 70 cents on the dollar? No, no one would, and any reputable home buyer should explain to the seller their options and in that case it’s clear that they should probably list their property with a local and qualified realtor!
Okay, so they buy houses cheap, and then do what? Well, that depends. Sometimes they buy, fix up, and sell those houses to retail home buyers, who are going to move their families in and make it a home, and sometimes they buy them, fix them up, and then rent them out and hold them (traditionally referred to as ‘buy and hold’ – what we do). It’s important that we as investors buy houses cheap though, because this enables us to actually run a business on a realistic timeline.
For example, most home buyers are not putting down 25% on a property and then waiting 15 years to recapture their money. That’s way too long! We need it back quick, so that we can repeat this process and find another house to buy! Here’s what wiki has to say about real estate investors: https://en.wikipedia.org/wiki/Real_estate_investing
Now that you know approximately what cash home buyers do, maybe I can explain a little bit about who they are, but it’s a little tough because there are lots of them that probably fall into 3 groups:
- Local home buyers. People like you and me who probably even buy houses where they live.
- National Franchises. These companies are often run locally by ‘boots on the ground,’ but they have big names and big money behind them. They can definitely close, but from what I’ve seen they often write lower offers than their local competitors because they have more overhead.
- Hedge Funds/Equity Groups. These are big outfits that aim solely to grow a real estate portfolio of rental property. Warren Buffet said something several years ago about single family rentals being great investors if it could be done at scale. Well, everyone trusts the oracle, and lots of people have moved towards real estate with this intention.
As far as the people who put out the ‘We Buy Houses’ signs, they bug me too, and I wish they’d stop putting them out in my neighborhood!
I hope that was helpful and stay tuned for the next installment!
Milwaukee Cash Home Buyer 