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 the market really works

Let’s say there are 10 houses for sale and 10 buyers, which would be a balanced market.

What happens with the #1 house?  It gets multiple offers and sells immediately.

What happens to the #2 house?  It is now thrust in the #1 position and gets multiple offers and sells.

Why does all this happen?  Because everybody wants the nicest house they can get.

This process continues down the line UNLESS new listings come on the market.  You can have the #1 house sell and the #2 house still be the second best one IF a fantastic new listing hits the market and assumes the #1 spot.

What about that #10 house?  Unless there are far more buyers than sellers, the #10 house will sit there for a longtime.  Every buyer has seen it and decided to wait for a better house to hit the market.  Sometimes this #10 house can become something like a #2 or #3 house with a price reduction.  Price is everything in real estate.

I’ll put this into some real world things you may have seen.

A house you have been following has been on the market for a while.  Every other house in it’s price range sold the first day on the market.  You wonder why it hasn’t sold.  Then all the sudden it gets multiple offers.  That is because the houses that were better have sold and now it is the best available house in its price range.

A house you have been following has sat on the market all summer and fall.  It’s a house nobody wanted.  Much to your surprise, it sells in January.   This happened because there are far fewer new listing that time of year and now this house appears to be one of the best.   If this house doesn’t sell in the winter, it will sit on the market during the spring/summer/fall again because there will always be a new listing that is better.

The market is all relative to what else is available and it changes daily.  As a seller, you want to get your house to be one of the best ones available in it’s price range.

Will T-Rex & Uni get this house sold?

trex

 

We all know this house, right?  It’s been shared all over on social media.  It’s made the news.  Heck, I was even scrolling through the news on my phone and it turned up on a website for San Francisco real estate.

It’s been on the market with the current pictures for 16 days and is still available.

Kudos to this creative seller who is also a realtor.  This was clearly a neat idea.  I think it is going to greatly help her career.   I have looked through the pictures and it is a beautiful house in a very popular neighborhood.

I wish her the best and hope she finds a great buyer soon.

When I first saw this house, it made me think about something I have always said, which is that exposure is never a problem in real estate these days.

There is a common misconception among the public that when a house doesn’t sell, you need to increase the marketing.  This was true before the internet.  Back a long time ago, a realtor had to get the house in front of potential buyers.  There was print advertising like newspapers and those free home books with one tiny black and white picture, there were open houses and really anything to draw attention to the fact that a house was for sale.

Today, everybody goes online to see houses.  All a realtor has to do is list a house and it gets fed to a bazillion websites.  The chances of there being a buyer for a particular house and that buyer not knowing their ideal house is for sale are about the same as winning the Powerball.

This house is still waiting on a buyer after practically breaking the internet.  It just goes to show that all the marketing in the world doesn’t make a house sell.  There are 4 factors that get a house sold:  Price, condition, location and presentation.  Get all 4 aligned and any house will sell.  Get one or more out of whack, and it doesn’t.

 

 

 

 

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.

What did I do for Father’s Day?

Like most days in real estate, I woke up thinking “Wow, I only have a few things to do today!”  Then also like most days, by late morning my day got very busy.  I’ve always thought of being a realtor like being a fireman.  We both rush into houses, only for different reasons.  We also both can have the course of our days changed by a phone call.

My plan was to show 2 houses and then go see my dad.

One of those houses sold, and my client added another one, so there was still two to show.

The second house was a loser.  I didn’t even go upstairs.  I knew it was a loser as soon as I stepped out of my car.  The buyers realized it too as soon as they stepped inside.

The first house I showed them was totally amazing.  Great lot.  Great floor plan.  In good shape.  It was one of those houses that any buyer who sees it will want.

Which happened.

So, now my plan was to write an offer for my people on this house and then go see my dad.

Like most days in real estate, it took a sudden change when the listing agent told me that there was another offer.  I put on my persuasive hat and went to work.

My buyers had a contingency to close on their old house, which is not a great position to be in these days.

The buyers and I spoke about how to make our offer more competitive.  We decided to double the normal amount of earnest money and to waive a home inspection.  The house is 6 years old and the sellers had bought it just 3 years ago.  It also has a brand new roof.  No need to negotiate the minor list of repairs that happen with every house when waiving it makes such a big impact.

The seller was in the Marines and the grandfather of one of my buyers was in a well known Marine picture.  I told the listing agent I would get the seller an autographed picture if he wanted one.  I also told her to pass on to the sellers how my buyers have been wanting to get to this area for several years so they could be closer to aging parents, but a cancer scare prevented them from moving until now.  I also mentioned that one of my buyers was a teacher as well.

The sellers decided they wanted to work with us despite the other offer not only being a higher price, but also that buyer did not have a contingency.

By now it is late in the afternoon.  I broke free to go see my dad.  I always get him a big gift card for Frisch’s.  He has been going to a breakfast there with his BMW motorcycle club since the early 80s.  I used to wake up early when I was a kid and go with him.  I’m way too lazy these days to be anywhere other than in my own bed at 7:AM, but paying for his breakfasts make me feel like I am still a part of it, and makes me remember riding on the back of a green motorcycle, which he still has, to go hang out with him.