THE BLOG
01/23/2015 11:12 am ET Updated Mar 25, 2015

Could Your Home Sell to an Investor?

If you've been thinking of selling your home, or if you need to sell, there aren't many markets out there crawling with buyers. The first time homebuyer market is still in the cellar. The Millennial Generation are still at home with parents for the most part. They're not buying for multiple reasons, from sketchy graduate employment prospects to high student debt.

Existing home sale prices are improving. The FHFA (Federal Housing Finance Agency) report of home prices for November 2014 shows an increase nationally of 0.8% on a seasonally adjusted basis. However, sellers as a general rule across all markets are not enjoying high demand. The NAR (National Association of Realtors) report of existing home sales for the same period provides these data points:

• November's sales declined by 6.1% from October, only slightly higher by 2.1% from the previous November.
• All regions tracked showed a decrease in the number of sales, though prices were up slightly.
• It takes approximately 65 days on average for a home to go from listing to contract, slower than the 56 days from the year before.

That's kind of a mixed bag, and as far as DOM (Days on Market) an average number includes all of those "hot" markets with buyers competing and writing contracts in hours to a few days. There are a whole lot of sellers out there sitting on listed homes far longer than the average. Some markets are always slower, with DOM figures approaching six months or longer. So, if you need to sell your home, or want to and aren't getting the job done, is it a candidate for a rental property investor?

No Discount -- No Purchase

Don't even think about it unless you can sell at a price at least 10% or more below its true market value. If you owe too much on it to do that, or you just don't want to settle that low, then keep working the retail market. Savvy investors want to lock in some profit at the closing table.

The good news is that if you can do this, you could be selling very quickly. Investors are constantly monitoring their markets and looking for deals. Many of them pay others to deliver good deals. If the numbers work, they can often offer cash and a closing within 30 days. But, the numbers have to work.

The Numbers

Let's do an overview of the things rental investors want in a property:
Rental demand -- First and most important, the home should be one in an area renters want to live. It must also have some or all of the features they want, and they want pretty much the same thing as home buyers. So, if your home has a non-functional floor plan or antiquated appliances and other features, it's a tough sell.
Cash flow -- Most rental property investors use leverage. They will be using a mortgage, and they must be able to rent the home out for a positive profitable cash flow over their mortgage and expenses. Here is where you need to do some research. Check out the rentals in your market with similar features. Call like a renter, get real rent numbers. Then use a mortgage calculator at current rates and the discounted price at which you'll sell to see if, taxes and insurance included (20% down), the home can rent out for at least a double-digit positive cash flow to cover other expenses with a profit.
Appreciation potential -- Like any other homebuyer, a rental investor wants the asset to grow in value over time. Of course, you can't predict the future, but you can see how your neighborhood has performed over time. If the area at least keeps up with the national average appreciation or exceeds it, you need to verify that with data.

None of these three research items require much time or effort. You can get data for recent property sales from a real estate agent to determine if you can sell at a discount to value. If your home meets the criteria, you could be a target for an investor. But, they need to know you're out there. First, pull together your research so you can present it. No sales pitch is necessary, just reliable data they can verify.

Go to Market

This can be as simple as going on Craigslist and placing a free for sale ad targeting investor buyers. It's different than a regular for sale ad. You want to put your research into a concise ad that will attract their attention with keywords like 'rental home for sale, great cash flow property, discounted rental property, cash flow home at a discount," etc.

Then just summarize your data, something like: "Great cash flow rental home for sale in high demand neighborhood with great value appreciation history. Buy at double-digit discount to value, with rental income potential that will generate approx. 20% return."

The 20% number came from an example home that would rent out for a monthly payment around 24% higher than the mortgage, taxes and insurance, allowing for other expenses. If the numbers work, look for a call within hours to days, as investors or their birddogs are out there looking.