There are several top-level categories affecting the value of your property to a buyer. Basically, it all comes down to TIME and MONEY.
When I was doing my developments, I had a policy of reducing EVERYTHING to time and money. It takes out all the drama and makes the decisions so much easier. The end goal was profits as fast as possible for the investors. If a mistake was made, no matter who made it, if it cost me $500 to fix the problem or I could piss off the contractors and cause a delay of 3 days when my daily interest payment was $375/day – it became very obvious that I should just pay the $500 now and sort it out later because the 3 days would cost me over twice what the cost of the fix was.
Depending on the market, your property value can be dropping thousands of dollars a day. I experienced this on my development projects during the Great Recession. Speed is your friend. Speed is control. Speed is more profits. If the market is rising and you finish early, you can always sit on the property and watch the value rise – being very careful not to get too cocky and assume your crystal ball is 100% correct. Timing a market peak requires impossible coincidence. Getting near the peak is a lot easier. The old adage about horseshoes and hand grenades fits well here.
The overall key to making money in real estate is making sure you possess enough money and control that you can choose when you sell. If you are forced to sell, it can happen at the worst time and you lose big. You can have a hundred things you are juggling and once a ball hits the ground, you abandon that ball. Out of play. But sometimes in the bad markets, kicking the can down the road is the best play and you can preserve your capital.
I had one property out of state where a cracked foundation was deemed not a problem and overlooked in the disclosures and the inspector didn’t catch it. That mistake cost us almost 25% of the purchase price to fix and we held it for 7 years to finally sell at a breakeven. The one saving grace was that the lots were large and we were able to subdivide the land and sell the other parcel separately to make a net profit on the property. It was painful, but I chose when I sold the property and the capital was preserved. It was out of play but it was not lost.
But when you don’t have major repairs, are not doing a flip and the sale is straightforward, five factors drive value:
Rent:
Face it. Rental properties are a business and everyone wants profits. If you have low rents, you won’t get top dollar. I have ways of getting more income out of a property when I manage them.. In Orange County, California, every extra dollar in monthly rent is almost $200 in sales price. That means $100/month in rent is about $20K more in your pocket. Let’s talk about how to do this despite the new 2020 rent control laws.
Renovation:
A property in good condition is worth more. You can give credits for the repairs, but then you are taking time from the buyer and they will discount it for their time to make the repairs. Even if they have their contractor make the repairs, they have to manage the contractor and risk factors come into play. I always recommend you make the repairs to eliminate the time, cost, hassle and risk the buyer would have to otherwise invest in the property.
Renter:
There are renter tracking services out there through reputable organizations like AAOA where you can evaluate your prospective tenants. You can also prepare such a report from My Rental History to provide to the new landlord. When they see that the quality of their prospective tenants is high, they know there is less hassle, less risk and they can get long term tenants for more rent and less vacancy. I have strategies where the tenant will even pay for this and provide it to you.
Contract:
With the California-wide rent control laws in 2020 (see my blog post on this), your contract with your tenant becomes far more valuable to protecting yourself. You can push more costs to your tenants and you can frequent inspections to identify problems early to minimize costs. These problems can be from the tenant or from normal breakdowns such as identifying leaks on the property before they become floods. We can edit your current lease or have an attorney draft one to ensure you are fully protected. Even with rent control, if you have a strong lease, it makes it easier to remove problem tenants and new owners want fewer problems.
Presentation:
One of the greatest failures of people in real estate is making a poor presentation. It can destroy all of the greatest marketing. Even I have made many mistakes in the past with this. I still tend to get too wordy and bury the big points in superfluous details. That is why I have a team to help review writing and presentations to ensure they focus on the most important aspects. If you have ever heard the expression “Put the big rocks in first”, you know what I am talking about. Check out this video. It is a fantastic metaphor for not only presentations but for our personal lives.
The presentation should only concentrate on the big rocks, the most important benefits to the buyer. Keep it simple.
If you can get the buyer interested based on the items here and the listing price, they will discover all of the details that keep making your property look better and better the more they investigate. I will work with your property to help make the best presentation possible with a great marketing program and then you will get what you want out of the sale.
