Selling to an investor: the price and the trade-offs
An investor values your property on its yield, which caps what they can pay. Sometimes that certainty is worth more than the price.
An investor buyer values a property on the income it produces, which is a different calculation from an owner-occupier's and generally produces a lower figure. That is why owner-occupiers usually pay more, and why the conventional advice is to market to them.
There are situations where an investor buyer is the better outcome despite the lower price, and they are worth recognising.
How an investor prices a property
An investor works backwards from the rent: the achievable rent, minus costs, divided by the target yield, gives the maximum price. That ceiling is set by the numbers rather than by what the property is like to live in, which is why an investor will not pay a premium for a beautifully presented property in a market where the rent does not support it.
- The achievable rent, not the asking rent
- The costs of ownership: service charge, ground rent, maintenance, management, voids
- The target net yield, which is set by the local market and by the cost of finance
- The cost of any work needed to make the property lettable
- The price at which the numbers work, which is their maximum
When an investor buyer is the right outcome
There are circumstances where an investor's certain, fast purchase is worth more than an owner-occupier's higher offer.
- The property is one that owner-occupiers do not want: above a shop, in a block with a high service charge, or in a location with weak owner-occupier demand
- You need certainty and speed, and an investor with funds can exchange in days
- The property is tenanted, so the owner-occupier market is largely closed to you
- The property needs work that owner-occupiers will discount heavily for
- The market is weak and an owner-occupier buyer may take months to find
How to market it
Marketing to investors is different from marketing to owner-occupiers. The listing should lead with the rent, the yield and the tenancy rather than with the kitchen and the garden.
- State the achievable rent, and provide evidence from a letting agent
- State the tenancy status, and provide the agreement where there is one
- State the service charge, ground rent and lease length on a leasehold property
- State the EPC rating, which matters to investors because of minimum standards
- State the yield, calculated honestly on the total cost rather than the asking price alone
- Describe the property's condition factually, since investors are buying a business not a home
Common questions
- Do investors pay less than owner-occupiers?
- Usually, because an investor values the property on its yield, which caps what they can pay, while an owner-occupier values it on what it would be like to live there. There are exceptions — where owner-occupier demand is weak, or where a property is tenanted — and in those cases the investor may be the better buyer.
- How do I sell my house to a property investor?
- Market it on the investment fundamentals: the achievable rent evidenced by a letting agent, the tenancy status, the service charge and lease length, the EPC rating, and an honest yield. Investors are buying a business, so the listing should present the numbers rather than the lifestyle.