1. Lack of Knowledge about Current Property Values
Don’t make assumptions. Prior to offering the investment real estate property for sale, it is imperative that a seller understands the property’s value. If it is an income-producing property, confer with a real estate investment broker and obtain a broker’s opinion of most probable sales price prior to listing a property for sale. They will probably provide it only if they are promised the listing.
2. Allowing the Property to Be in “Less Than Best Condition”
Ask a person who is an expert at marketing your type of properties to drive by and tell you what they see. Does the landscaping look inviting? Would tenants look forward to moving there? What might cause a tenant to stay away? Does the front entry area look appealing? Is there any visible trash? Junky vehicles are the first sign of poor quality tenants. Do something about it!
3. Being Unaware of Your Tax Consequence
Ask your CPA to calculate your tax bill if you sell at the most probable sales price suggested by a real estate investment broker (that is, if you are not completing a 1031 tax deferred exchange).
4. Neglecting to Have Pertinent Financial Information Ready
A buyer will request the last three years of an owner’s tax returns as well as the December operating statement from the property manager. Be prepared with the documents normally requested in the due diligence process: current rent roll with current rent and deposits, date tenant(s) moved in, date of last rent increase, three years of Schedule E’s or Form 8825’s from your federal tax return, property manager’s year-end report for past three years, and a year-to-date operating statement. Being prepared will eliminate delays.
5. Lack of a Good Marketing Plan
Listing the property on Craigslist may sound like a good idea, but if the property does not sell, it will become shopworn. Buyers will believe something is wrong and shy away from it. There are numerous ways to market real estate. Use a commercial real estate broker that understands the options and has the contacts to get the job done.
6. Neglecting to Pre-shop the Market for the Replacement Property
Buyers often like to look on their own, but you need an experienced real estate investment broker to assist you in buying the upleg or replacement property. Unassisted buyers frequently waste their precious 45-day identification period chasing something that will never sell.
7. Lack of Professional Property Inspection Prior to Marketing
Understand your property’s defects so you can anticipate what will come up in a normal buyer inspection. Fix health and safety issues prior to listing the property. Although you can price a property to reflect the cost to cure known defects, this frequently does not work as anticipated. Buyers often come back and ask for an additional discount on items that come up during their due diligence—even if they were identified up front and given a price adjustment for those items.
8. Not Knowing about the Prepayment Penalty
Most investment property loans have a yield maintenance penalty, or prepayment penalty, built into the loan agreement; this affects how much a seller will net from a property. Find out from your lender whether you have a prepayment penalty and how much it would be. Can it be reduced if the buyer financed through the same lender? That’s an option worth looking into.
9. Failing to Review a Preliminary Title Report
Title defects cause lengthy delays. If you have child support judgements, loans that were paid off but never removed from title, or owner of record issues, it’s critical to obtain a preliminary title report prior to marketing the property. This will provide time to remove the cloud on the title and avoid a delay in closing.
10. An Unrealistic Timeline
You may have heard the adage “Don’t jump at the first offer.” Understand that when you introduce your property to the market, there is usually a pool of pent up buyers ready to go. If they believe your property is consistent with the market, they will jump at it and make an offer quickly. If they make a low-ball offer, you can at least use that as a bumper offer to tell the next prospective buyer that you have an offer in hand and they shouldn’t bother with a low-ball offer.
Call or email me today to discuss how to get your property ready to market. (541) 912-6583 or rene@1031guru.com.
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