When you know it’s time…
Let’s say you’ve decided it’s time to put one of your properties on the market. Maybe you need the cash to finance a new deal…maybe you need it for a financial emergency…or maybe you’re (God forbid) in the throes of a divorce and own property jointly, and now must place it on the market. Regardless, these times are definitely still a buyer’s market. So how best do you maximize your sales price when attempting to sell? Well, consider this investment property advice before you place your building on the market…
Do your asking price homework
Always remember that setting your intial asking price is everything. Don’t try to dissuade yourself that other variables matter even close to price. They don’t. That’s because all roads lead back to price. Got a great rent roll and low expenses on your property? Great. What’s your “standard” multiplier for rental property in your area? This will lead you back to price. Got a tremendous location near shopping, employment and transportation? Great. That should be reflected in your rent roll. And here we go back to price again. Willing to offer some amount of owner-financing? That’s definitely going to be reflected in your asking price, since you can certainly place a dollar amount on the lost opportunity cost of not receiving all cash for your property. And that too will have a large impact on the price you should be setting.
Obtain price opinions from the pros
With price being such a huge determinant of the success or failure of marketing your investment real estate in anything approaching a timely manner, it makes good sense, and is basic investment property advice, to obtain other informed, professional opinions as to the current market value of your property. Unless you’re already a real estate appraiser, a licensed real estate agent or broker, or someone who has done numerous comparative market analyses before, you should seek out at least three opinions other than yourself as to the market value. It would then be an OK practice to average these value opinions. Also keep in mind, while an appraisal is costly, it is also prepared with the greatest care and attention to detail. Real estate agent comparative market analyses (CMA’s) are good – just not nearly as involved as a full appraisal. However, you can ask several real estate agents for a CMA, and they will usually provide them at no charge in order to obtain your business.
Do not take the highest CMA opinion because it happens to be closest to your valuation. That’s because, with your subjective eye, you can’t help but render a value that will be the highest. Try to stand back a little in order to get a greater view – and a more honest value opinion. Look at all the comparable properties the pros were using to “comp out” your property (also known as the subject property). Look at the comparables that were common between these disparate, individualized properties, and how they related to yours. Note all the major similarities each common comparable property has to yours. Those common properties are the ones that will most help you in ultimately deciding on a realistic asking price for your own investment property.
Remember too, what every good real estate agent is taught: when asked if an owner’s (usually unrealistic) asking price can be gotten, the good agent will always respond, “Of course I can find a buyer for you at that price. In 5 years or so…” Always understand the relationship between obtaining “your” price and the amount of time it will take to find that one particular buyer. The higher the price, the longer the time span. The lower the price, the shorter amount of time required.
Should you sell it yourself?
Ah, the great debate…While I am a real estate broker, I can make a case for doing it yourself. And here ‘tis: there’s simply no way to accurately quantify that real estate agents obtain higher prices than sellers who sell on their own. Agents may say they can, but data they use can’t possibly be accurate, since sales data for FSBO’s (for sale by owner’s) can’t possibly reflect what a seller would have taken for a sales price if they had utilized the services of an agent, and paid out a commission.
On the other hand, the de facto monopoly that real estate agencies have through the use of their local Board of Realtor’s own multiple listing services (whereby individual FSBO’s are precluded from listing their houses) means that in order to be exposed to the majority of the real estate buying public, you must list with an agency. While inroads have been made in recent years with many online FSBO networks, they pale in comparison to the broad reach of exposure that any multiple listing service (MLS) can offer. And the greater the reach, the greater the exposure of your product. And the greater the exposure, the greater the likelihood that more than one buyer might be making an offer on your property at the same time. And when you only have one item to sell, increasing the odds for obtaining multiple offers yields the key to obtaining the greatest price for your property. And an agency’s commission may be only a small cost relative to the realized monetary benefit of the increased exposure leading to competition for buyers. So put that one in the “case for utilizing an agent” column.
Prepping your property for sale
Once you’ve decided to sell your property, and if you’ll be doing the marketing yourself, or hiring an agent to represent you, you’ll still need to prep you investment prior to bringing it to market. Here’s some simple investment property advice: with rental units, you’ll want to brief each of your tenants well in advance of placing the building up for sale. You’ll need to allay any fears they may have about the running of the property during the transition. This would be a good time to remind them that any lease you have with them will remain in effect with any new owner.
In addition, you’ll want to make sure you’re on good terms with each and every tenant before placing your building on the market. Just one bad tenant can easily sabotage and blow a sale for you to any prospective buyer. (Think along the lines of their not allowing easy access to their unit, or worse – their deliberately not maintaining, or even damaging their unit just to get back at you.) You’ll also want to make sure the exterior, common areas and especially the front of the building are all in good repair, look attractive, are well-lit and have been properly maintained. (In the case of a single family house flip situation, you’ll obviously want to make it shine, since you’ll be appealing to a much greater market niche – homebuyers, as opposed to other property investors.)
Prepare a current income statement
You’ll also want to make bring your financials up to date on any rental property you’re about to sell. Good investment property advice dictates that you prepare a simple income statement on the building, complete with current rent roll, itemized expenses, as well as vacancy rate you’ve had with it. Be sure to add this income statement to your marketing flyers and descriptions about the building.
Once you’ve decided who will be doing the actual selling of your property, carefully researched and selected your asking price, made the necessary improvements to make your “product” shine, spoken with your tenants about the situation and all are on board, and you’ve created all your marketing brochures and flyers, then you will finally be ready to bring your building to market to realize the highest and best price you can possibly obtain.
photos courtesy of catalog.flatworldknowledge.com, joelane.com, cordianosells.com, newdenverrealestate.com, activerain.com, lindafurtado.com, mcclurepropertymgmt.com, nathalykolp.com