The discount to market value that investors are looking for is dependent on an investor to investor basis. Some institutional investors may only need a small discount to market values because they are buying it in a big volume.
It’s not just what the property is worth with the discount to it. Investors will also look at what is the discount after the repair value because the market value of a property in its current condition could be different after it’s been repaired.
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Hi, this is Steven with Effortless Home Buyers. One of the most common questions that we get from clients that we work with is what discount to market value do investors buy at? It's a great question because often people think that if I sell to an investor, I'm going to have to sell at a discount. And while that's not always the case, investors do try to buy where they can introduce value to the property in order for it to become a solid investment. So the discounts of market value that investors are typically looking for is dependent on an investor to investor basis. Now, some institutional investors may only need a very small discount to market value because they're buying at such volume and their company structure is such that they don't necessarily need the same sort of discount that a smaller mom and pop one or two deals a year type investor needs.
Now, with typical Fix and Flip that's often what people think of an investor for real estate. When it comes to residential real estate, they're typically going to be looking for a range of anywhere from 15% to a 30% as what a normal range for a discount to market value is. Now with that discount to market value, it is important that we mentioned that it's not just what the property is worth with a discount to it, because also investors have to take in mind what is going to get the property to its potential market value. So with that in mind, there's expenses, there's the expenses of rehabbing the property, holding costs and closing costs. Just to name a few, with those expenses, they're going to take a look at what is the discount to market value they need the property at, minus those costs because the discount to market value is where an investor makes their money. And actually it's important to say that a discount to market value isn't typically what an investor will only look at. They're going to look at what is the discount to After Repaired Value because the market value of a property in its current condition could be different to its market value after it's been repaired. So the ARV After Repair Value is the market value that they're going to be looking at when they start calculating what sort of discount they need.
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