real-estate

Good time to buy rental property?

by John Rice

I get asked this quite a bit. Some people want a long term rental and some are interested in airbnb-ing a property.

Here is the one single thing to know when considering any type of rental: There is no good or bad time. The numbers work or they don’t. If the numbers don’t work it, they don’t work even if it is a Buyer’s Market. If the numbers work, then you buy regardless of what the market is like.

What do I mean by this? Long story short, the house has to support itself without you having to throw in your own money every month. That is called cash flow. Positive cash flow means the house supports itself. It covers your mortgage, taxes, property insurance, maintenance and has at least a little left over for a profit. Negative cash flow is when the expenses exceed the rent.

Now, what about Long Term Rental verses Short Term Rental? I personally think Short Term Rentals are risky right now. I know, I know…..Many of you have made good money with your Airbnbs the past couple of years. I do not dispute that. My concern is that this trendy investment option will get oversaturated AND slow down drastically during tougher economic times. It is much more volatile than long term rentals. If you want a shot at huge returns and can stomach volatility, it’s easier to invest in stocks. So what I tell people when they ask me if they should get an Airbnb is to do it only IF they want to invest in real estate in general. If you do, then you can switch between short and long term rental as demand swings. Move your furniture out and you’ve got a long term rental. Best of both worlds for you.

Negotiating 101

by John Rice

“You can lead a horse to water, but you can’t make him drink.”

I think this is good quote for explaining how negotiating works. Some people think negotiating is about getting the other party to do exactly what you want. It isn’t. It would be nice if it worked that way but it doesn’t. The goal of negotiating is to get the other party to bend as much towards your ideal situation as they are willing to go.

In real estate sales, the biggest single item to negotiate is the sale price.

Often a buyer will base their offer amount on the seller’s list price. MISTAKE!

Before you make an offer, you need to first know what the house is worth. That’s where your realtor comes in. Once you know what the house is worth, you make an offer based on its value rather than the seller’s list price. Why? Because if the house was overpriced, you might make an acceptable offer that is still more than what the house is worth.

Here’s a few observations based on my 17 years of experience in every market type ranging from the worst in history to the best in history and everything else in between:

  1. Sellers in our area usually don’t come down a considerable amount from their list price. You are not going to get your offer for 80% of the list price accepted. Even in the worst market ever, this was very rare. Usually if a seller is that motivated, they reflect their motivation in their list price.
  2. If you make a very low offer, most sellers either reject the offer or barely budge from their list price because you have given them a sign that you are going to be difficult to deal with so they leave plenty of room for more negotiating. This basically put you back in the same place you started so it is counter productive.
  3. The most common method of negotiating is the old “Meet you in the middle” routine. I often see a buyer make an offer for say $10k less than list price hoping to get the house for $5k less than the list price. Common also is when you come down to the last round of negotiating and somebody says “Let’s split the difference.” While this is common, it is very uncreative.
  4. You can lose a house while waiting for a seller to respond. I have seen this numerous times where a buyer will make a low offer, drag out negotiating over multiple days, then all the sudden another buyer makes a much better offer and your next communication from the seller’s realtor is that the house is no longer available. You typically want to make an offer that will either be accepted immediately or maybe where the seller counters once and you accept it. If the house is nice enough for you to have picked it among all the competing listings, then odds are another buyer has come to the same conclusion that it is currently the best house on the market in that price range.

So, here is my advise on getting your house and getting it at a favorable price:

  1. Realize that the person who wins the last battle usually thinks they won the whole war. I usually try to reverse engineer a counter offer so the other party can come back with exactly the number I was hoping they would. When they do, they feel like they won the war of negotiating, but I really just let them win the last battle.
  2. Know what it is worth and make an offer either for that amount or slightly less. Remember the goal is get the seller to tell you the least they will take for the house. Before the market got so crazy the past few years, the average list to sale price was about 97-98%. I might make an offer 1-3% less that the house is worth. If they counter for anything less than the full price, guess what, you’re getting the house for less than it is worth. Sometimes the seller just accepts it. If that happens, great, you STILL got the house for less than it is worth.
  3. And speaking of winning, don’t get too caught up in the game. Save that for a trip to Vegas at at blackjack table. Your goal here is to get the one house that you felt was superior to any other house you have seen. If you get it and get it at a fair price, quit trying to make that horse drink more water.

Having a hard time selling your house?

by John Rice

Now that we have returned to a much more normal market after a brief period of utter craziness, it’s time for a refresher course on what to do if your house didn’t immediately sell.

Real estate has always been about price, location and condition. All three of these must be in balance for a house to sell. Since you can’t change the location of a house, all you can control is the condition and price.

Here is what over 17 years of experience in good, bad, terrible, average, great and crazy markets have taught me:

When you get lots of showing but no offers

This usually means that buyers think the price is realistic based on what they see online so they schedule a showing and come check out your house. If you don’t get any offers, that means their expectation did not match the reality of the house. Sometimes this can be caused by having pictures that make the house appear to be in better condition than it is, bad curb appeal of the surrounding properties, or some negative thing omitted from the listing that buyers won’t discover until they get there. 99% of the time it is just because the house didn’t “Wow” the buyers in person as much as it did online.

An old school rule of thumb is that when you have had 10 showings and no offers, it is time to reduce the price. Sometimes if the feedback from showings is all the same, you can keep your old price and improve whatever negative thing buyers mentioned. I usually prefer a price reduction because often you can spend money correcting that one big negative only to have subsequent buyers find the next big negative. There is nothing more frustrating than spending money solving a problem only to later discover you’ve got another one to solve.

When you are not getting any showings at all

Usually when this happens it is because buyers know the price is way too high and don’t even bother to come see the house. Occasionally buyers can overlook your house if the presentation of the listing was terrible but I don’t see that happen often. Sometimes it can be because you’ve got too much junk all over the house and the pictures, while good, just show a cluttered mess. The thing to do here is reduce the price to be competitive with similar houses buyers may also be considering. Something that is hard for sellers to understand is that buyers are looking at more houses than just their home. To a seller, their home is all they are thinking about. To a buyer, it is just one of several homes they can buy. Buyers have options now. You’ve got to make your house become their first choice if you want to sell.

Over the past 17 years, I have seen sellers refuse to reduce their price or do anything to make their home more appealing to buyers. They usually think the issue is with their realtor…..if only the realtor would do more open houses, if only the realtor would advertise the house, if only the realtor had glossy brochures inside the house for buyers to take home. These sellers usually let the listing expire then pick a new realtor. It is at this time that the new realtor suggest dropping the price. It is also at this time that the seller cooperates. And guess what, with a lower price, the house sells.

Selling a house is not rocket science. All you are trying to do is make your house a buyer’s first choice. Back in 2009-2011 when the market was the worst ever, I would sell houses the first day on the market and have multiple offers. Many people thought I had a magic wand back then. I put the same effort in all my listings. It wasn’t me. It was my sellers. They were realistic and took my advice.

Hey First Time Buyers-Here is how to pick a house

by John Rice

It wasn’t all that long ago that the typical buyer’s choice was between the one house on the market in their price range and no house at all.

We are now back to a much more normal market. Today’s buyer has the luxury of picking the best house among all that are on the market.

This post is mainly aimed at first time buyers, but holds true for any buyer really……its time for a refresher course on how to pick the right house and why!

To most of us, our home is our biggest asset. It’s how we build wealth. It’s where we live. It’s an expression of ourselves.

It can also be a noose around our necks if we need to sell in a tough market.

I got my real estate license in 2005. Many people who had used another realtor to buy their home would call me to sell it for them in the middle of the worst market in history. Back then I wondered why some of them chose the house they did. After seeing the frenzy of having no inventory for the past couple of years, I now see that their choice was the loser home they purchased or no home at all.

Back quickly to why the first time buyer needs to get it right. Most first time buyers are younger. Younger people tend to meet somebody and marry, start a family, climb the corporate ladder, accept a job somewhere else, etc. This means first time buyers typically don’t stay in their homes as long as they will for their subsequent homes. Also, the equity you have when you sell your first home will be used to buy your next home. You want to pick a house that will always be another buyer’s top choice because it will be easy to sell and will net you the most equity to apply towards your next home.

So let’s look at The LEXpert’s Guide to Picking a Home:

  1. NEVER compromise the lot. Things like a very steep driveway, the backyard with the Eiffel Tower looking electrical thing, a backyard that sharply slopes up or down hill, a house that backs to stuff like apartments/commercial/busy roads are big negatives. Try to find a fairly flat lot whose size seems normal or better than average for the neighborhood.
  2. NEVER compromise location. Within every price range, there are preferred choices for neighborhoods. Most of the time the preferences are for things like having shopping/dining/retail/parks close by, school district ratings, crime ratings. Try to pick one of the more desirable neighborhoods.
  3. NEVER buy the house that doesn’t somewhat conform to the other houses in the neighborhood. Buyer’s are usually looking at other houses in your neighborhood and know what is typical. If your house is lacking in something that is considered typical for your neighborhood, it can keep it from selling.

I could go on and on for days but I have found that these top 3 items will eliminate about half the houses on the market.

Why does it matter? Shouldn’t I just pick the house I like best? Because when a buyer has choices, they get pretty picky. If two identical houses are for sale for the same price and one has a steep driveway, which one are you picking? If two identical house are for sale for the same price and one backs up to the interstate, which one are you picking?

I know it is tough to do when your goal is finding a place you love, but think about that day when you need to sell it.

19 0ffers and $40k over list-Fun getting the most for my seller

by John Rice

It’s been an exciting past few days.

This story begins one rainy Friday when I was on my way to a Radwood Car Show in Cleveland with my son. I got a text from a repeat client who I have become friends with. She tells me that her mother is going in assisted living and she wants me to sell her mother’s house.

After a few months, the house was ready to list. Unfortunately the market had really started to cool off since we first discussed the sale.

Full disclosure here…..I don’t think any realtor right now really knows how to price a house unless there are good comparable sales from the past 8 weeks. We usually look back 6 months for comparable sales. Six months ago the market was on fire. That market doesn’t exist today. Gone. Interest rates have nearly doubled. We are all, if we were to be honest with ourselves and the public, shooting from the hip on pricing right now. The market has changed so fast that we lack good data on pricing from this “New” market.

Since the absolute worst thing you can do in any market is to overprice a house, I suggested we put it on at a number I was 100% sure we could get and also expect multiple offers. That number was $185k. I was really hoping we might get multiple offers and I could drive the price up to maybe $200k but I didn’t tell this to my friend.

One investor heard about the upcoming listing and contacted me. I let him and his realtor show it the day before it hit the market. I told them that we wanted to expose the house to the market before deciding. They of course wrote a full price offer and wanted an immediate response. I told my seller that I was sure we could duplicate that offer from anybody since it was nothing special. She agreed.

I put the listing on the market very late Friday night. Immediately it started getting showing requests. By 9:AM the next morning, more than a dozen showings were scheduled. I spent all day Saturday, Sunday and Monday texting and talking to the 72 agents who had scheduled showings on this house. It was overwhelming.

Once the offers started coming it, I went to work on pushing the price up. With every new offer we got, I told the realtor if there was another offer with better terms for price, inspection type, financing type and closing date. The goal is to create the ideal terms for your seller by getting one buyer to change something on their offer so you can use that for leverage to get another buyer to change something.

We ended up with 19 offers. We had two cash ones that were very close (especially after I nudged each one of them to go higher to be competitive.) I think one of them figured out I was using their offer to push the other one up higher, and then come back to push them up again. This agent send me a Confidentiality Agreement. That is where one of the terms of their offer is that you can’t disclose any of their offer terms to anybody else. I won’t violate my integrity. In addition to experience, all I have to offer people is trust. I felt like both would go a little higher. What to do? How could I squeeze a little more money out of them for my elderly seller who needed it to live on? I decided to tell each of those two buyers they had the best offers and to send me their highest and best offer. They had one shot. The seller would pick the best one. This move ended up getting about another $4k for the seller.

In the end, the house sold for $225,750. Just over $40k more than the list price.