From REI Academy
I have been asked a number of times recently to write on the
subject of selling houses. I will discuss how the ease or
difficulty we experience when selling our houses has everything
to do with how and where we buy.
In today's market where houses tend to sell quickly you would
think that this would not be a problem. But for some it is. Why?
When doing my research on this topic I turned inward and took
a hard look at my own market. As most of you know I moved last
April from South Florida to Upstate NY. And no I'm not insane!
My new market was, and to a degree still is foreign to me and
what is most challenging is selling the houses. I can buy them
all day and at amazing prices but selling them is not so simple.
So I must buy with my exit strategy in mind. You must do this in
your market too.
Let me give you an idea of what my market is like. I live in
Steuben County, which is in the Finger Lakes and Wine Country
region of Western NY. My market, within a 45-minute drive,
consists of about 35,000 households. There are a number of towns
and all but 2 are quite small. Within this area we go from one
extreme to the other. On and right around the lake, properties
sell very quickly and for top dollar. But just a few miles away
things move much more slowly and then there also a few towns
that are what I would call "dead" and I won't go near them with
any exit strategy. They are not war zones by any means, there
aren't any here, they're just dead. So you can see that we all
face specific challenges in our respective markets. I know you
have yours too.
While doing deals and before you make the offer you must
always ask yourself. "What is my exit strategy"? Your financial
situation may have lot to do with your decision. If it is to
sell for cash, you need to be sure that it's viable. It will
need to be in an area where houses are selling quickly and to
qualified buyers. A good way to know if houses in a specific
neighborhood are selling to "A" buyers is to look for agency
signs in front yards, call the listing agents and ask. In order
to cash out quickly the house needs to be in pristine condition
yes, but also highly marketable, with no quirky layout,
appearance, location, street, etc. What I mean by quirky is
strange or funky in some way that will later end up a marketing
problem. One of the greatest challenges you and I will face is
cashing out of a quirky house. When you are considering buying a
house you need to ask your self, "is there anything about this
house that, even after making it pretty, will make it hard to
sell?" If there is, then your purchase price needs to reflect
the challenges you are inevitably going to face. Namely in the
form of additional debt service, holding costs, liability etc.
and they can add up fast. So you need to be discounting for
this. Facing reality on the quirkiness of a house is something
we must do. When I was new to the business I used to get "gotta-do-a-deal-itis"
and would sometimes ignore the quirks. Big mistake! "Gotta-do-a-deal-itis"
is a common affliction when we're new to the biz. Especially
when we are not aware of it.
When you are dealing in "B,C, & D" neighborhoods, or in my
case in one of the towns around here where houses can take 2
years or more to sell for cash, then our only exit strategy is
to sell on a Lease Option or Land Contract or some other form of
"Terms". It is critical that we do not get confused here. We
must not buy in B,C & D neighborhoods and expect to cash out. It
won't work and we will only end up switching to plan B (selling
on terms) anyway. And this will cost us. When we plan to sell on
terms in these neighborhoods, prior to making the offer, we must
also ask ourselves. "Is this a house I want to own, and perhaps
for a long time?"
In my business I prefer to sell on terms and for a number of
reasons. Here are a few. First is you make much more money on
the house and with less effort than you ever could retailing it.
Second, you can depreciate it on your taxes. Third, when we own
the property for more than a year (in most cases) the gain is
subject to capital gains as apposed to our earned income rate
and for most of us, that's a boon.
To summarize, know your exit strategy then make your offer
accordingly. And when it comes time to sell, get aggressive
about it and don't procrastinate. It's easy to be so focused on
buying that you end up with inventory that is sitting and
costing you. Stay focused on getting your houses sold because
until you do. there's no paycheck.
