What Every Investor Must Know

to Sell Their Property for Top Dollar

In Today's Ever Changing Real Estate Market

Provided by: Monte Davis Realty Group

Most investors know that selling residential investment property is very different from selling non-investment property. But oftentimes, they have difficulty properly preparing, packaging and marketing their property for sale. Especially when they live in one state and their property is in another.

For these investors, finding an experienced REALTOR to list their property who specializes in selling investment property may be the first and biggest hurdle. Another challenge is the considerable amount of time and effort required to put together a cohesive, informative, effective package of information that prospective buyers need to evaluate the property and make an informed offer.

The very first step is to zero in and clearly identify your potential buyer pool. Even though your property is an investment for you, your highest paying customer may be an owner occupant.

If your investment property is a Single Family Residence (SFR) that could be even more of a possibility.

And, if the property is a duplex in a highly desirable area where the price of SFR homes is out of reach for some if not most buyers, the property may very well have the ability to attract an owner occupant buyer who would like to also own investment property.

And, what about selling occupied investment property? In this case, one strategy you may want to consider is timing your leases to expire in the hottest selling months: March through July. If your current lease(s) expire in November you may want to consider renewing it for five (5) months instead of twelve (12) with a month-to-month option for both you and the tenant. This strategy can allow you to decide when to make upgrades, complete any renovations or repairs and even do some staging before the property goes on the market.

If your property is strictly an investment property such as a 4-plex or a duplex in an area where it would be difficult to attract an owner occupant then we are dealing with strictly an investor purchase. Here we have two things to manage.

Tenants: some agents fail to do what is necessary to have favorable tenant relations. We understand that this is your income stream and these relationships are to be handled with kid gloves. Tenants inappropriately handled will become a virtual "Sales Prevention" department, while tenants properly handled are willing to comply with showing requests and inspections. Do not underestimate the importance of your agent's ability to proactively manage the tenant relationship.
Property Condition: We will go into what needs to be done to the property further in this discussion.

Selling an investment property for top dollar takes careful preparation, specialized knowledge and the right tools.

Let's take a look at three main areas:

Pricing: We utilize the three different types of appraisals to find the most appropriate offering price.

The Market approach; the Income Approach; and the Replacement Cost Approach.
Property condition: Strategic improvements and general property repairs.
Marketing: Who is our target market and reaching them quickly and effectively using today's internet marketing strategies.

Determining Price

The price of investment property is based primarily on three (3) things:

Its income or cash flow producing potential.

Its current physical condition.

Current economic and market conditions including current financing options available to potential buyers.

1. Using the Right Approach

Investment property is normally evaluated using the Income Approach. However, it's not uncommon to see investment properties on the market that are priced using the market approach, the approach typically used for noninvestment properties. Usually this happens when a seller lists property with a real estate agent who may have limited knowledge or experience selling investment property.

To help determine the most appropriate asking price, questions to ask relating to the property's income potential include:

What is the monthly rent income?
Is the rent at current market levels?
What type of lease does the property have? (e.g., month-to-month, etc.)
What is the property's rental history?
Have rents been increasing or decreasing over the past 2-5 years?
What are the demographics of the potential tenant base?
What is the payment track record of the current tenants?
If you are selling a duplex is the area desirable for an owner occupant buyer?
If you are selling a house do you want it sold with a lease in place or vacant to attract a owner occupant?

Comparing Apples to Apples When Using the Income Approach:

When it does come time to price your investment property, it's not only critical that your REALTOR creates a comprehensive marketing plan and compelling story to support the final asking price, but also a detailed financial picture as to how your property compares to properties that are in direct competition against it.

Showing how your property, even though it may be priced higher than the competition, will provide a better financial opportunity to another investor can mean all the difference in the world with how much cash you leave the closing table with.

Consider Property A (your property for instance) which, when handled by an investment property specialist, could be priced at or near $250,000, and Property B, currently being offered at $230,000. Both are duplexes; both are in geographic proximity to each other; they have similar rents; and they are similar in square footage.

A less experienced agent might price Property A at or near $230,000 because, due to all the similarities, they are unable to see a way to a) price your property any higher; then b) support and defend the higher asking price; and then c) subsequently negotiate from a position of strength all based on more in-depth and comprehensive data!

Some investors, especially new ones, don't have the experience to ask the right questions. They then end up with less experienced agents, and everyone pays the price.

2. Improving the Property's Condition

Simply put, the better the condition of the property, the higher its perceived value will be to potential buyers, and the greater its income producing potential will be by way of attracting renters that are willing to pay higher monthly rents.

To sell for top dollar, the property needs to be in the absolutely best possible condition that your budget will allow. Determine the condition of items that have obvious upside value, or that could be potential areas of concern to buyers, such as the roof, HVAC system, appliances, flooring, and landscaping, and then improve on them where you and your REALTOR determine that it makes good financial sense.

When any of these items DO need to be improved or upgraded, work with your REALTOR to find ways that will give you the maximum return on investment. NOT doing strategic improvements properly, or not doing them at all just to save money, can lead to large reductions in net sales proceeds than the improvement(s) may have cost, or a significantly longer time that the property stays on the market.

An example of this would be upgrading an electric stove to gas (where available) when all of the comparables have gas. Investing $650 in new gas stove can very easily add $1,000 to $1,500 to the sales price, or, again, help your REALTOR negotiate from a position of strength.

It's estimated that each dollar spent on strategic improvements can add three dollars in added value.

3. Considering Market Conditions

In addition to determining the property's value based on its income potential and physical condition, your REALTOR will want to factor in current market conditions when determining the most appropriate offering price. What have comparable investment properties in the area sold for? How does our property stack up against them? These are very important factors to take into consideration.

It's important to understand the limitations of the traditional Comparative Market Analysis ( CMA). A CMA is generally speaking a "backwards looking" document and typically covers sales going back six (6) to twelve (12) months. And while they are extremely useful I am more concerned about what is going to happen in the future.

We will be competing on a sales basis with other properties that are currently on the market. So I use what we refer to as a "Maximum Market Analysis" in conjunction with a traditional CMA. This is an analysis that compares not only the price, but also the condition of your property relative to other properties currently on the market.

With investment property your competition is not just down the street. It is all duplexes in a similar class and geographic area to the duplex being offered for sale. It is also very important to know in which direction prices are trending. The current lending environment plays a very large role here as well. If lenders continue to tighten their criteria less buyers will be able to enter the marketplace. It's critical that your REALTOR understand these issues in today's highly complex and volatile market.

Marketing the property

Marketing a property for top dollar requires understanding the entire pricing picture; providing a highly compelling picture of the property via the marketing package; presenting the property in its absolutely best light with the available financial resources; and finding and attracting the highest qualified buyers.

An experienced and highly-qualified REALTOR that truly specializes in buying and selling investment real estate will make this job much easier. Here is what you need to market a property for maximum return in both time and money.

Ways to quickly reach the right buyers, such as listing with an experienced REALTOR that has access to and is continually capturing a steady stream of highly qualified buyers.
Professional photography of the property to use on the Web and in printed materials.
Extensive use of internet marketing channels.
Professional staging when possible.
Proper tenant preparation - keep the tenants on your side. Gift the tenant. Be courteous and respectful.
A complete package with all the information necessary for potential buyers to make a decision, including income statements, rental histories, complete lists of upgrades and improvements, maintenance history, cash-flow analysis and profit and loss statements. And all of these should be available online. We make that happen.

Buyers are looking for transparency of information in order to make a sound business decision. "Where can I get the maximum ROI." "Do I buy your property or another one?"

And That's a Wrap

So there you have it. Using the right pricing approach, getting your property in the best condition possible at minimum expense, and smart, effective marketing. These are the keys to selling your investment property for top dollar.

As you can see, it takes considerable effort and expertise to prepare and package your property for sale. The right people assisting you can make the process much easier. Don't make the mistake of turning the job over to just any agent. You need a REALTOR experienced in selling investment real estate at maximum return for their clients. Both the buyer and seller should be happy with the result when they leave the closing table.

About the Author:

Monte Davis is a licensed REALTOR in Austin, Texas, with more than 35 years experience in buying and selling investment real estate. He is the Broker and owner of Monte Davis Realty Group, a top destination for serious buyers and sellers of Austin real estate. His # 1 priority to help buyers and sellers of investment property get maximum results.

Monte can be contacted at (512) 686-3418, or at Monte@InvestInAustin.com