Be Prepared!

The current real estate market is producing an abundance of financially lucrative opportunities for real estate investors throughout the country right now — and luckily for us, the Lehigh Valley is no different! With a growing demand for affordable single family homes, small multi units and the desire to generate passive income, the current market is a seller’s dream. With so many properties selling at rapid rates, well above asking price, you might be wondering what steps you should take to sell your property now and how to get the best price. Here’s the good news — you have come to the right place and I have the answers!

Documentation Matters

The first thing that you need to do is gather all the pertinent documentation. Nothing is more frustrating to a potential investor than to see a property listed on the open market without the state required disclosures and proper supporting financial documents. Financials are, obviously, one of the biggest factors in whether or not a buyer will be interested in the property you are selling.

You will need a rent roll, offering memorandum, T12, security deposit detail report, the required state seller’s disclosure and lead paint addendum as well as any other environmental documentation that you might have. In addition you will want to document any recent improvements to the property including capital improvements. Here is a more thorough description of what each of these are:

• Rent Roll — A rent roll is an itemization of each tenant’s current rent, the lease beginning and ending term, bedroom/bathroom count, late count and total outstanding debt (if any) due to you currently.

• Security Deposit Detail Report — This is a list of all security deposits being held in escrow for each lease including any pet fees or associated charges. This amount will be turned over to the new landlord once you sell unless you have proper documentation stating otherwise. Keep in mind, it is illegal in PA to use the security deposit for anything during the term of the lease and you are required to keep the security in an escrow account separate from all other funds (personal or property related).

• T12 — This stands for trailing 12 months of history for your investment property. This details all income and expenses on the property for the last year and helps show the property stability or lack of stability.

• Operating Memorandum (OM) — The OM is approximately 15 to 20 pages of information — it serves as a detailed analysis combining all of the information and can essentially be described as a marketing piece. This showpiece will have professionally shot photos and give information about the demographic area including the population, density, and median income levels. The OM will likely include a proposed financing arrangement, rent roll, unit counts and occupancy status. Additionally included information may include proforma rents and expenses if the property is not fully stabilized.

• Capital Improvements — Prepare a list of any recent capital improvements that you’ve made to the property. If any of your capital improvements come with a warranty, you will want to make sure that you provide that information. If you just replaced the roof or a heating system, you likely have a warranty in place. These warranties can be transferred over to the new buyer so don’t forget to include this information.

Lastly, make sure you show the value add! Typically investors want to add something of value in hopes of appreciating the property further. They usually are attracted to something that can be improved. Showing the differences between where you are and what it can be, will be beneficial because it gives them a reason to want to buy the property!

Property Disclosures

There are two different types of disclosures that are used.

• Seller’s Property Disclosure — This is typically used for one to four units. This disclosure is going to identify all of the material defects in a property that could potentially cause an investor to decide to buy or not buy your property. For example:

  • Type of plumbing in the property – (PVC, PEX, Copper, Lead)

  • What type of water heaters do you have and the age of each

  • What type of heat is in the property

  • What is the age of the roof — And any repairs or maintenance to the roof over the last couple of years

  • Do you know of any leaks on the property, causes of dampness, or have had any recent flooding to the property

  • Recent fire damage or storm damage

  • Included in the property are — appliances, smoke detectors, keyless entry systems and alarm systems

  • Radon testing or lead based paint testing on the property

• Commercial Property Information Sheet — This is used primarily for commercial investment properties, or anything that’s above five units. The sale of land, a business, offices, or any property over 5 units must use this form. This sheet will ask you similar seller’s disclosure information, but also will prompt you to answer questions such as:

  • Are there any environmental concerns/soil conditions that should be noted

  • Did you have a Phase 1, Phase 2 or recent environmental survey?

  • In the case of a business sale, is the equipment being sold with a property

  • Are there site improvements to the land

These examples only skim the surface of what information is required to be disclosed. Property disclosures are all about the history of the property and it is important that you give as much detail as you have factual knowledge of. Never leave anything out. The risk would be far greater than the reward in this particular case. Finally- licensing and occupancy permits. Here is a list of things to note when looking to sell a property.

Licenses/certificates of occupancy

• Are there any licenses that you have to apply for every year — business licenses, rental licenses?

• Are you in a condo association or HOA? What are the capital contributions?

• Do you need a fire inspection? most commercial properties do!

• Is there a requirement for a rental inspection or pre sale inspection?

  • Most contracts give the opportunity, no matter what state you’re in, for negotiation on this topic. But as the seller, waiting to order the pre-sale inspection until the property goes under contract might not be the best course of action. You don’t have to correct any violations, but it would be very beneficial for you to have the report ready, prior to an offer so you can negotiate this at time of contract.

Gathering these various documents can help get to closing faster, which can save you money, time, and even frustration. Take the time to get this information to your agent and be knowledgeable about the property you’re selling — your buyer and bank account will thank you!

This information may not be used as a substitute for legal advice and you should consult your attorney for legal advice if you have any questions relating to this advisor guide.