I Buy Houses signs in Austin? What are they all about? Are they Real Austin House Buyers?
You have likely seen signs all over Austin, TX and in almost any city you’ve ever been to. Usually in older neighborhoods. Right now we are seeing a lot in 78748 and 78702 in South and East Austin. They are usually on a wire stake and it sort of put up randomly at intersections or stapled onto light posts. They usually say something like “We Buy Houses” or “I Buy Houses Cash” or something along those lines. There are all types of I buy houses signs, usually yellow and black or black and white.
You might be driving by thinking are these guys real Austin House Buyers? If you call that number will you actually get a cash offer from a Real Cash Buyer? The Answer is Yes! These signs are called bandit signs and investors have been using them for many years as a way to find sellers with dumpy homes who want or need to sell fast. At www.TheTexasHouseBuyer.com We are also cash buyers and we can make a cash offer on your house in 24 hours as well! But we do not use these signs …simply due to the overall hassle of putting them out and collecting them and also the fringe legality of the signs in many parts of Austin. But be assured many people using those signs ARE cash Buyers and they will make you an offer. Like in anything else be smart and make sure you ask for at least $2,000 in Earnest Money Deposit when you sign a contract. That will let you know the buyer is serious. I have heard of people using $10 or so as Earnest Money…if someone uses that as Earnest Money that is a RED FLAG! I would not recommend signing a contract to sell your house where all of the buyers is pledging and standing to lose if they don’t close is $10!
Some people think these bandit signs are “scammy” or not from “real” Austin House Buyers. Truth is, I know investors who put out over 500 of these signs every single month! They tell me that the signs cost about $3 the stake s about $.50 cents and they pay $1.50 for labor to pay high school kids to put them out. So total cost to the investor comes to about $5 per sign put out. Now if you do the math this guy is spending ($5×500 signs) $2,500 Per month on this sign marketing! And trust me no one would do that consistently for no reason! People do that so that they can connect with people that have a house that is not suited for the real estate market and buy it from them. These people putting signs out do have money to spend and in most cases are legitimate businesses that are Austin House Buyers.
The main goal for the investor putting out the sign is to make you an offer and get the home under contract at a price that will produce a profit on a rehab/flip.
What type of offer can you expect from Austin House Buyers putting out Bandit Signs?
Usually, in Austin, people use a Formula. Right now people are using anywhere between 70-75% of “After Repair Value” (ARV), is the value of the home if it were in retail sales condition and able to sell to a buyer using a conventional mortgage. So for example, if the house will sell for $100,000 to a buyer with a loan after it’s fixed up but needs $10,000 in repairs. An investor could pay $60-65,000 for that house.
Most investors use this calculation, including the people you find online, on bandit signs, on billboards, or the people sending you a mail about buying your house. They are all using the same basic formula.
I’ll give you an example more in line with what I’ve seen so far. For example, your family has an old house in South Austin that nobody wants anymore. The house has Mold, Leaking Roof, Bad Foundation, and has Junk piled 3ft high throughout (I’ve bought several like this in 78748). It also has some crazy beehives…and a nice Rat Colony… And let’s say the house needs $50,000 of work to get to a good condition. And the house is worth $300,000 in good condition. We bought one JUST like this recently a few blocks from Moontower Saloon off of Slaugher and Manchaca it was actually two blocks from the HEB there.
The offer you would get on that house would be in the range of $160-$165,000.00. This is how an investor would come up with that. 300,000x.7= $210,000 than from there you subtract Repairs -$50,000 and you get $160,000.00. Based on exact condition, location, etc your offer could be a little higher or a little lower but it will be really close to that.
That is sort of the quick version of what an Austin House Buyer would do. There are a few more details but this is the basics. Also, an Austin House Buyer like us will pay all closing costs and that $160,000 would be the NET cash to you and you would come out of pocket $0. (Not all investors work like this but we do at www.TheTexasHouseBuyer.com and I am aware of other investors that pay all costs and make all cash offers as well).
Hmmmm how do they come up with that Formula? Will they make money buying a house at that price?
Well at the Surface $160,000 looks like a great deal for a $300,000 house that needs only $50,000 in repairs. $160,000+$50,000+ $210,000, so they make $90,000 on one flip? …..NOPE…..Would be great for Austin house Buyers if that was the case. But really an Austin House Buyer will have about 10% sales costs when he sells (6% to pay Realtors/Inspections/Appraisals/Surveys, etc) plus your portion of closing costs when he buys your house. Also, an Austin house buyer will have holding costs paying monthly for the property taxes, insurances, city permits etc…plus he will likely have delays and cost overruns. Some Austin House Buyers that buy a house like the one in this example will lose money and some will make some money, but not $90,000. I would expect to net about $30,000.00 if I did this flip with our company. That’s a decent return for the risk involved on a $300,000 Project. It’s a 10% return which is what we shoot for on all of our projects.
Sometimes Austin House Buyers over-estimate the after repair value and under-estimate the repair costs and time required to complete the project. Or sometimes the market price changes in the 6 months it took them to rehab the house, but at about 70% – Repairs purchase price most Austin house buyers should make money as long as they don’t have any big surprises. Now they will lose money if the market turns…for example, I know Austin House Buyers that bought in late 2006 at this formula of 70% – Repairs and lost a lot of money on their projects when market prices went south.
Why would a seller sell for what seems like such a low price to Austin House Buyers like this? Would it make sense?
Well, I’ll give you an example. Let’s say you live in Orlando, Florida with your family and you just came in for the weekend to check out a property you inherited. The house is dumpy and will not sell on the retail market because it will not qualify for financing. And you don’t have the money or time to fix it…or don’t want to spend the money or time to fix it. Then yes it would make perfect sense. In fact, as Austin House Buyers we buy houses from people in this exact situation all the time.
In this case, you are exactly who the Austin House Buyer that put out the “I buy Houses” sign is looking for. And this should be a Win-Win situation for both you and the Austin house buyer. Well assuming the Austin house buyer makes money on the flip. Also, a new family will get a really nice updated home for them to live. And the neighbors will be glad the neighborhood eyesore will be gone. So nicer neighborhood, you get some cash fast for a house you had no use for, and the Austin house buyer can turn a profit for his work. That is win/win/win all the way around.
Now that is an exception for most sellers. As long as the house is not REALLY beat up. You should be able to fix it up and make it financeable and get a little more than what Austin house buyers will pay from a retail buyer. But keep in mind you will need to pay for repairs and updates and then wait several months for your buyer’s financing to close if you put it on the market. Also keep in mind when making comparisons to a cash offer back out the 6% you will pay realtors plus your repair costs, plus any title fee’ and other escrow costs and holding costs until you sell.
Are these signs only looking for crappy houses?
No Austin house buyers are looking for anyone that needs to sell fast. Because since they pay cash they can close fast and by adding that value to you they can get a discount. In addition to neighborhoods with old homes, you will see these in areas with newer homes. These signs might say “stop foreclosure fast Austin” or ” Avoid foreclosure ” or something along those lines. Sometimes people in these areas need to sell but they don’t have enough equity to pay for the sales costs. For example, if there is not enough equity to cover commissions and costs of a traditional retail sale through MLS, the investor may try to obtain the home through a “mortgage assignment”, which is essentially taking over the payments. So the investor will take over the payments for you, this is also called subject to investing. Here at www.TheTexashouseBuyer.com we also take over payments for people who do not have enough equity to sell.
Usually, when Austin House Buyers are putting out these signs they are looking for sellers for whom a certain issue or “situation” is more important than the sales price. Sometimes sellers care more about a quick easy, cash closing than they do about getting top dollar. As Austin House Buyers we buy houses like this all the time.
If you want to sell your Austin home fast, we are Austin House Buyers! We’d love to make you an offer. Click here now to fill out the 30-second form and know EXACTLY when you can sell and EXACTLY how much you can sell for!
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