How to pick your first rental house

The first thing to know is that you want an exit plan.  You want to buy something that will be fairly easy to sell when that time comes.  That is why I usually suggest a single family home in a decent neighborhood.  When you sell it, your buyer pool will be owner-occupant buyers who will happily pay a full retail price.

The second thing to know is that you pick your tenants through them picking your house.  You have a crappy worn out rental, guess what type of tenant is going to be willing to live there?  You make your house one of the nicest ones in it’s price range and you will attract the best qualified tenants out there.  Also, if you have one of the best houses they could ever afford, why would they move?

Here are some things that I think make a house a good pick:

1.  A ranch house.  Who doesn’t like one?  They are suitable for buyers/tenants in all stages of life.  They are easier to paint by yourself since there is no staircase.  You can clean out gutters with a step ladder.  They are just easier to work on period.

2.  A house on a slab.  When the wax ring around the toilet fails and when water gets splashed out of the tub, there is no wood to rot.  Also there is no water to collect under the house and grow mold.

3.  A smaller house.  Fewer people can live in a smaller house.  That means less wear and tear.  While a 2 bedroom house has a little more limited market when you sell, tenants usually don’t care if a house is 2 or 3 bedrooms.

4.  A simple roof line with not much of a pitch.   The fewer ridges and valleys the better.  Not only are they cheaper to replace, there are fewer places to get a leak.

Here are some things I try to avoid:

  1.  Basements.  They all have the potential to leak.
  2.  Sheds.  They are just one more thing to maintain and tenants usually leave you stuff they don’t want when they move out.
  3. Huge yards.  When they get out of control, it takes a lot of time to bring them back.
  4. Big garages.  I’m talking more than a regular two car garage.  Usually tenants who are attracted to a huge garage have a lot of stuff to store or hobbies that need the space.  Either one means you might need a dumpster when they move out.
  5. Fireplaces.  Do you really want somebody starting a fire in your house?

Now a lot of this is based on paying retail.  If you get a great deal on a house with a huge lot or a basement, take it.  A good deal can make up for potential future headaches.

My ideal house would be a smaller ranch on a slab built after 1960.  It would be 2-3 bedroom and have 1-2 baths.  A normal sized, flatter yard for good drainage.  On the lower end, no garage is okay.  If the house is worth more than about $150k, I would want a garage more for resale than to make a tenant happy.

 

 

How real estate really works

Maybe it is because this is the only industry I have been in, but there seems to be a lot of misconceptions about what it takes to get a house sold.

Before I begin, let me tell you how it doesn’t work:

  1.  Open Houses and/or Broker Open Houses.  I will occasionally have sellers ask me about these.  Open houses used to be a non-committal way for the public to see inside a house before the internet.  Today, all you get is neighbors, thieves and buyers so early in their search that they are not yet ready to make any decision….which is why realtors that need work love to do them.  They get to meet unrepresented buyers at your house and hopefully sell them something in the near future.   Broker open houses are for social realtors who want to win a $50 gift card and hang out with their realtor friends at your house.  Same deal as open houses, these worked best before any agent can look online and see if your house is a good fit for their client.
  2. Marketing.  Again, thanks to the internet, exposure is never a problem.  Google your address right now and see how many websites your house is on…even it if isn’t for sale, it will be on tons of sites.  Something like 98% of buyers find their house online.  I guarantee you that those remaining 2% have a realtor who is online looking for them.
  3. Gimmicks.  These are things that agents do to make themselves stand out.  Many years ago it was those QR codes.  That trend didn’t last long.  Today it is the 3-D house.  I mean, most people have a hard time figuring out a 2 dimensional floor plan.   They will soon go away and be replaced with something else.  Companies come up with these things to sell  us realtors to make us feel like we are cutting edge.  There is a house listed in town that has a unicorn and a dinosaur in many of the pictures.  It has been shared many times.  Everybody loves it.  It is a lot of fun.  The house has been on the market for 38 days.  Do you think it is helping to sell the house in a market where houses in it’s price range rarely last 3 days?

There are 3 things to selling a house.  If you do all of them right, your house will sell fast in any market.  How do I know?  I have been doing them for nearly 15 years with great success.  Every day I scroll through the old posts on Facebook I made on the same day over many years.  I was posting about selling houses the first day on the market or getting multiple offers back in 2009 when I joined Facebook.    It was a buyer’s market back then.  Selling fast and for top dollar is common now.  So much so that I don’t even bother to post it when it happens.  Any agent can do it since there are so many more buyers than there are sellers.  It is nothing to brag about these days.

The 3 things that matter are price, condition and presentation.

If the price isn’t right, then no amount of work can make a house sell.  You can post it all over social media, have dedicated websites, have a hot air balloon over the house, have Drake make a video at your house…none of it will matter.  The public thinks exposure will sell an overpriced house.  Trust me, nothing will make an overpriced house sell.  I have tried to do that when I was a newer agent and I see many agents try today.  Usually it doesn’t sell.  The seller thinks it is the realtors fault.  The seller gets a new realtor, who talks the seller into reducing the price a little bit.  It usually sells AFTER the price reduction.

Condition is the next big thing.  Buyers are looking at every house in their price range.  If your house isn’t one of the better ones, it won’t sell.  I often see an average to below average house sit on the market  because there is always a better house for a buyer to pick.  Sometimes these houses sit on the market until late fall or winter when there is no new competition.  I have always said the best time to sell a below average house is in the late fall and winter.  That time of the year is like going to a buffet right before the restaurant closes.  All that is left are the least popular items.  Of course, price trumps everything in real estate.  Often, getting real about the value can make a house sell.  A below average house listed for $200k might be an average house when reduced to $190k, and an above average house at $180k.  You can also improve the condition of your house to make it sell.  I often work with sellers and tell them some small adjustments they can make that will make their house more attractive to buyers.

Presentation is twofold.  The house has to look attractive online to make somebody want to come see it in person, and it has too look as good in person as people imagine it does from what they saw online.  I think the big takeaway here is that the public loses interest quickly.  You want to grab their attention and keep it as they look at all the pictures.  That is why I order the pictures beginning with the most interesting one first.  Whatever the best feature of the house is, that is what I use as the lead picture because I know as soon as people get bored, they stop looking.  You won’t see 14 pictures of the water heater in my listings.  The words in the description are very important too.  I try to use those to tell a buyer what they can’t deduce from the pictures and what isn’t already mentioned in the listing.  If the specs say the house has 4 bedrooms, I see no need to tell the buyer again that it is a 4 bedroom house.  I want to use that space to tell the buyer how the house feels while they are inside.  The goal of the listing is to attract a showing.  You’re not trying to sell the house from the listing, only make somebody want to come see it in person.

So, that is how getting a house sold really works.  Get those 3 things right and it will always sell.  Anything else is just a waste of a seller’s time.

Why THIS sale means so much to me

I just sold this townhouse.  Know why it is significant to me?

1156 Appian 305 - 001

Because it was the very first house I ever sold.

It was late Spring in 2005.  The ink was still drying on my real estate license when some friends of mine were in the market for their first house.  We looked for a few months and they decided on this place.  It was brand new.

I’ve got a few funny memories of this sale and this townhouse.

It was closing day.  I was really stressed out since this was going to be my first closing ever.  It seemed like such a huge deal at the time.

One of the things a Buyer’s agent has to do is get the Buyer’s earnest money check to take to the closing.  I had not thought about the earnest money since I turned in the Buyer’s original check to my office manager.  Here we were hours before the closing and I am in a mad rush to get my office to cut the check.

We get to the closing.  This was the last 15 minutes of a super hot market.  The closing was at 5 on Friday.  The title company probably had 15 closing that day.  Everybody was eager to get home.  I remember the closing attorney and the listing agent talking about the emerging trend of getting granite countertops.

Once the closing was done, I went out to my car and made sure I had all the documents I needed to take back to my office.  I was so relieved to have it done.

Then I realized two things:  That the closing attorney did not ask for my Buyer’s earnest money check AND they did not give me my commission check.  I had to run around the parking lot looking for her.  LOL, yes, I forgot that I was getting a paycheck since I was so focused on getting everything done and doing it correctly.

What did I do with that paycheck?  I bought a couch that we still have in our living room.

A while after my friends moved in, the husband and I were going out on a Friday night with another friend.  I picked up the other friend and we went to this townhouse.  The seller was on his computer watching some silly Star Wars Lego video.  I asked what it was and he said Youtube.  I was like “WHATtube???”  He explained that it was a site where people could upload videos for anybody to watch.  I remember thinking “Why would I want to watch a bunch of homemade movies when I have cable TV?”

I’ve remained friends with these sellers and this will be their 4th time using me.

I’ve probably never said it this directly, but I am incredibly thankful that they decided to put their faith in a guy with zero experience.  Getting started in real estate is very tough…or at least it was in 2005.  And now 14 years later, almost to the exact date, they have trusted me again.

(NOTE:  While that red BMW in the picture does look nice, I wanted to disclose it is not one of mine.)

 

 

 

Zillow, PLEASE stop doing this

Okay Zillow.  I can deal with you saying every house has a carport.  I can deal with your inaccurate Zestimates.  I can deal with you often messing up school districts.

What I can’t deal with though are the Pre-Foreclosure listings.

Why?  Because they ARE NOT FOR SALE!

Zillow, people see a house on your site and think it is for sale.  Why do you confuse the public and leave it to us agents to explain to our clients that the house you just posted is not for sale?

Here is what is going on with those Pre-Foreclosure listings.  The person who owns the house is far enough behind on their mortgage payments that the lender has filed a lawsuit.  As soon as that happens, Zillow posts it as a Pre-Foreclosure.  Since the person who owns the house is not the bank, you cannot go see it since it has not been foreclosed yet.

If the lawsuit goes the way the lender wants, the house will eventually be sold at the Master Commissioner’s sale.  The Master Commissioner is who is appointed by the court to sell the house.  Anybody with 10% down and proof of the remaining funds can go bid on the house.  You have to have the funds available.  You can’t go down there with 10% down and a preapproval letter for a mortgage.  You have to show proof that you have the balance of the money available.  You also can’t see the house.  You have to buy it without any type of inspection contingency.

There are two types of buyers at the Master Commissioner sale:  Investors and the Lender for the house.  Sometimes investors get the house.  Most of the time the lender buys the house.  Well, we call it a sale but in all reality what is happening is the money the lender pays for the house goes to settle the debt the seller owed them so they are getting it right back.  Picture a dollar getting pulled out of your left pocket and going into your right pocket.

If an investor buys it, most of them either flip it or rent it.  If the lender buys it, it eventually goes on the market for sale.  This time when you see it on Zillow, it will really be for sale….and it will probably say it has a carport.  And the Zestimate will be inaccurate.

Masterson Station: A legit part of Lexington

I’ve got a long history with Masterson Station.

Long before I was The LEXpert, I was a one man lawn care operation.  I had a few customers out there in the mid 90s.  Masterson Station ended one house past Gateway Park.  My wife and I would go see the new model homes by builders such as PSC and Barlow Homes.  We would marvel at the trendy finishes like green counter tops and pickled cabinets that were sort of a pinkish white.

Back then, Masterson Station seemed so far out that you felt like you were half way to Frankfort.  I remember thinking “Who would want to live this far out of town?”  I said the same thing about Hartland back in the mid 80s.  I had always lived inside New Circle back then, so I was one of those people who thought the “Real” Lexington was just inside New Circle Road and anything outside the circle didn’t count.

Since then, Masterson Station has grown and grown and keeps growing.  It is Lexington’s largest neighborhood and has had non stop construction for about 25 years.

At lot has changed.  To begin with,  nobody calls it Masterson Station any more.  It’s just Masterson now.   I’ve changed a lot too.  Instead of pulling a trailer full of lawn equipment, I am working inside the houses now and own a house in the neighborhood.  I just got an accepted offer on the 41st house I have sold in this area.

It used to be that you picked Masterson because you could get the same house for cheaper than anywhere else in town.  It was a good value.  As it grew and people didn’t view it as some random neighborhood hung out of the west end of Fayette County, the price difference became less and less.  Today the same 1300 square foot home in Masterson sells for maybe $10k less than an identical house in one of the top neighborhoods on the south end of town.

As it grew, a new elementary school was built in the neighborhood.  Then Citation Road was built, which was really great.  The new road helped with traffic flow and all the sudden, made sense of the way the neighborhood developed over the past couple of decades.

I have always said that all the whole Masterson area  needs is some commercial development and it would become a part of town people pick because they like it, not just because its a good value.  I drove through the area last night and the gas station/convenience store on Leestown Road is now open.  Meijer owns a big corner on Citation.  I am starting to see more development along Citation too.

Congrats Masterson.  You’re all grown up and we’re glad you’re a legit part of Lexington.