Episode Transcript

Welcome to Episode Two of Season Five of the Growing Empires show. Today we're going to talk about squeezing out every penny when you sell your investment property and how to make the most profit, so stay tuned.

00:14

Welcome to Growing Empires hosted by real estate entrepreneur and trusted investment advisor Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.

00:34

So now that you've decided to sell your investment property, it's really important that you use these tips to squeeze out every potential penny, and how to make the most profitability. You want to make sure that you plan for the success of your investment property sale. And to do so there's a couple of things that you're going to want to think about, you're going to want to think about — is it time to increase rents? Do you have month to month leases or yearly leases? Are there capital improvements that you should have taken care of? What are the first impressions going to be of your investment property? Do you have problem tenants? Are there any tenants on eviction at this time? Have you ignored some of that deferred maintenance over the years? A couple of things to keep in mind, no investor wants to buy a fully maximized property. So if there's nothing left, and it's fully stabilized, it's not going to be as attractive to an investor because the only way to go at that moment is down. Secondly, no investor really wants to buy a bag of problems. So if you're building gives off the appearance that there is lack of capital being put in, there's extensive deferred maintenance, you're having problems with tenants, you've got some vacancy issues, that is also going to be a deterrent when it comes time to sell. So we're going to jump into some detail on each one here today. And I hope by the end of this episode, I've given you enough information to prepare your property for sale, so that you can truly make the most money and squeeze out every penny.

02:00

Let's first talk about handling some of the deferred maintenance. So I want you to remember that first impressions are everything if you walk up to the building, and the first thing you see is chipped and peeling paint, you see broken windows, you see trash scattered all outside, you see the grass has not been maintained, you see sidewalks that are cracked, you know, those things are going to go a long way to giving your prospective buyer a bad first impression. And in some cases, the investor may not even walk inside to take a look at your property. If they feel like you've done absolutely nothing to maintain the property over the years, they're going to expect that the property is going to be extremely costly, and really take away from their return on investment, and therefore they're not going to give you top dollar because they know that they're going to need to save some of that money for maintenance issues. So that’s why properties are very different than if you're selling a residential home, you're not going to want to stage the property or anything crazy like that. But you're going to want to make sure that the property aesthetically looks good inside and out. It doesn't have to be class A quality. If you're in a B class or a C class area, you want to make sure that it fits. But you want to make sure that some of those deferred maintenance items are actually handled, so that you're not giving a bad first impression. Some of the things to look at, besides the exterior of the building, is the interior of the units. Do you have leaky faucets? Do you have smoke detectors that are beeping, as you walk through the common areas? Are steps broken? Are handrails missing? You know, these are all some of the things that give away the impression that the property has been, you know, that’s had less than stellar maintenance. And then as far as the inside of the units where tenants are, you're going to want to ask your tenants to clean up, right. We don't want to have areas where people can trip over things, toys everywhere, you're going to want to ask the tenant to keep their unit in a reasonable shape while you're showing the property for sale. And part of the way to do that is to remind them that they need to sell themselves to the next investor. If they want to stay in that property long term, if that is their overall goal, if they look like a slob, act like a slob, chances are they are a slob and the next buyer of your property is going to likely want to throw them out. So I always recommend that prior to you selling the property, you have a conversation with the tenants and make sure that they know what the expectations are of how they need to keep their property during the sale, how they need to act when investors come in to view the property and that general cleanliness is going to be expected during this time.

04:46

The episode will continue in just a moment.

04:50

To make the most out of your investment property sale, you will need a team that understands the market fluctuations and how to capitalize on that demand. Knowing the market trends and forecasting economic changes is critical to your success. Having an expert by your side to help you buy low and sell high is the only way to create true wealth. When you need help analyzing your portfolio to maximize your return on investment, there's only one person you need to call and that's me. I will help you analyze your portfolio and increase your profitability year over year and that's my guarantee. Schedule a call with me today at GrowingEmpires.com, that's GrowingEmpires.com, and I'll help you create the life that you desire with passive real estate investing.

05:33

Capital improvements are something you also need to consider. Have you waited forever to replace that roof? And is that roof showing signs of leaking at this time? Have you ignored the fact that the windows need to be replaced? Is there brickwork that is needed on the outside? The worst thing you can do for yourself when selling an investment property is to give somebody the opportunity to figure out what that repair is going to cost. Most buyers will over exaggerate the value of that improvement. So for example, let's say it's going to cost you $20,000 to get that roof done, I assure you that when that buyer looks at the property, they think the roof is $40,000. They always over exaggerate, and guess what that means for your profitability? It means that it goes down. So you're going to want to make sure that you handle those capital improvements prior to the sale of your building. Or you're going to need to price your property appropriately for those capital improvements. Another thing to consider is month to month leases versus yearly leases. And there's a couple of pieces of this to think about. So prior to you selling, you have the opportunity to increase the rents, put tenants on yearly leases, and really maximize the potential cash flow for the next investor. However, not every investor looks at your investment property and thinks I want to keep your tenants. So you really need to take a step back and kind of look at your investment property and think to yourself, well, first of all, are these tenants that somebody who's going to want to even have in their property? Have they paid consistently? Do they keep their unit in great shape? You know, are they a stellar tenant, and where is the rent in relationship to the market value? If it's grossly low — so let's say your market value of your rental unit is $1,000 but you're only asking $700 for your unit. Well, I assure you, you should not have that as a yearly lease, because you don't want to lock a new investor in for a year on rent that is well below market value. In that case, you're going to want to keep that month to month lease. A month to month lease allows a new investor to make any changes that they want with 30 days notice. And that's a really great way for investors to see the value in your property because they have the ability to make changes. So I don't want you to think about rushing to create yearly leases before you go to sell because there's not always value in that if what you're getting for the property is far below market value or if the tenant that is there is a problem tenant. You're going to want to think about is it time to increase rents? Has the tenant had an increase relatively recently, and if not, you're going to want to likely increase those rents. Are there expenses or utilities that the tenants are not paying now that they should be paying in order to maximize cash flow? All of those changes are going to be things that you're going to want to make before you get the property on the market. And then of course, you need to make sure that you are strategically pricing your property in the marketplace. You're going to want to make sure that you are not the most expensive property on the market, you're not the least expensive property in the market. You want to know what your competition is. And you want to know how to get the most amount of people through the door. So you want to price your property competitively, but you don't want to over price your property. We're going to talk a little bit more about that in a future episode about the tricks to pricing your property correctly. But if you take what I've reviewed today about when to consider increasing rents or not, as well as adding on utility expenses to a tenant that they should be paying, the difference between month to month and yearly leases and how a new investor will view those leases, when to consider capital improvements and handling some of that deferred maintenance and how to make the most out of your building by making sure that the first impressions are always the best impressions when selling your investment property. I hope you've got a lot out of today's episode, and I was certain that if you take my advice, you'll be able to squeeze out every penny and make the most out of your investment property sale. Until next time, take care.

09:38

For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio, visit GrowingEmpires.com.