3 Mistakes Sellers Should Avoid When Selling an Investment Property

By Emilio DiSpirito, Realtor and Team Leader of DiSpirito Team with HomeSmart Professionals www.DiSpiritoTeam.com

This is PART ONE of a two-part series… Some will agree, investment properties are like boats! Your best two days are the closings when buying and selling!

Some will agree, investment properties are like boats! Your best two days are the closings when buying and selling!

Outside of pricing a property wrong, here are three additional mistakes that we see happen often when property owners are getting ready to sell their investment properties!

It’s our hope that you will learn from their mistakes and correct them before listing your property for sale to avoid very costly concessions that will leave you with 5% to 20% less in your pocket after the sale! (That is a lot of cash!!!)

Misleading tenants. Think about what happens when someone lies to you.. you get defensive, don’t trust them and become armed. It’s a natural thing for humans, so why do so many landlords take the exact opposite approach in the following situations?

a.  Telling tenants that the Realtor conducting a fair market analysis is a city inspector, insurance inspector, etc. Tenants will see this agent often when the property lists!! Immediately they will feel betrayed and retaliate!

b.  How Should you deal with the sale?

• Personally visit, zoom, or call each tenant, one right after another with the best tenant being first and do the following:
  • Hi “tenant name”, I’ve enjoyed owning “property address” for some time and appreciate that this is your home. I have made the decision to list my property for sale and wanted to offer you and the other tenants the ability to purchase it if you would like. In the event that you do not want to purchase the property, I’ve hired a Realtor who specializes in multi-family homes, he and his team will conduct caring and discrete showings, will give you a 48 hour heads up for access to showings, various inspections, etc. as we agreed to on your lease.
  • What to have your Realtor say to tenants with a personal call, face to face or zoom meeting: “Hi “tenant name”, are you interested in purchasing this property? If so, I can connect you with a bank who specializes in first time buyer programs. In the event you do not wish to buy, our goal is to find an investor who will purchase the property and keep happy and cooperative tenants in place! There may be a situation where the buyer may want to live in the property and at that point, we will let you know exactly what is happening and direct you to local property management companies who have other rentals in the area. Have you heard of the $0 down $0 closing cost first time home buyer program?”

c. Imagine yourself as a tenant and imagine being approached with both situations. Which one would you take to best? Remember the Golden Rule! Due onto others as you would want others to do unto you!

Lack of Paperwork Preparation! Picture going to purchase a property, being on a showing, asking the agent questions about leases, mechanicals, property history, etc. and getting zero information! How comfortable and or confident will you be that this is a sound investment? Would you ever invest hundreds of thousands blindly?! If the answer is no, why would anyone else?! Here are the following areas unprepared sellers get kicked in the teeth! Check yourself!

1. No official lease in place! If you had a lease at one point in time and your tenant has completed their lease and they are a tenant at will, no problem! This could be a good thing, as the tenant is now a “month to month” tenant and has to vacate within 30-day notice. You can also refer to that agreement on paper and point out where it discusses the 24, 48-hour time to access the property when selling it, etc.Side note: You must tell tenants to vacate by the first of the month or you must wait until the 1^st of the next!
   1. Not disclosing and or repairing major defects! Let’s face it, many properties here, especially rentals, are much older homes and will need some routine maintenance! When landlords do not disclose all the major issues, two common things happen! Either the buyers ask for large concessions and repairs or they pull out of the agreement! Disclosing the problems up front will allow for a transaction with less red flags and potentially put much more profit in your pocket!
   1. Revoked LLC! Make sure your LLC is intact and up to date on all filings, etc.! When you are not and you go to the closing, expect an easy 30 to 60-day delay in the closing, disgruntled buyers and the potential for concessions to the buyer just to keep them on the hook or the transaction falling apart!
   1. City or town minimum housing violations! Housing violations will come up in title search and will delay the closing until these issues are corrected and the city has inspected and confirmed them satisfactory! Handle these before they handle you!
   1. Not having smoke certificate, water meter and or oil meter reading completed! Your agent should let you know, well a head of time when this is required. We inform our clients several weeks a head of closing and when they can not complete these tasks, we do them for our clients. The smoke certificate is required by lenders and you can’t close without it! The water meter reading not being complete will end up with massive amounts of money held in an escrow account and oil or other utility readings not being done will end up in not being reimbursed for the fuel and loss of several hundreds or more.

Not meeting basic lending requirements! Many buyers are leveraging the first-time buyer programs, FHA and or VA financing for multifamily owner-occupied rental homes! These are government insured loans. In addition, even buyers with conventional financing want to ensure that there are no health and safety items that could be a potential litigation issue and liability for them when they fill it with tenants. Basically, first time buyers, FHA and VA, all require certain health and safety concerns which do not allow for chipping paint on interior, exterior, buildings on lot, electrical, heating and sewage issues in addition to missing handrails, etc. In the event any of these items are identified during the appraisal, the financing will be flagged, and the item(s) will need to be corrected and reinspected before moving forward or the buyer may walk away and collect their deposit back.

 Key takeaways:

• Price your property correctly
• Be honest with tenants
• Disclose all known defects
• Make sure your LLC is intact
• Clean up housing violations
• Get all utility readings done and smoke certificate ordered
• Make sure buyers can obtain financing for your property

It’s always best when dealing with the complications involved with real estate to have a trusted team of advisors from the right real estate agent to attorneys, home inspectors, contractors, etc. to refer to when times get tough!!

Did I talk you out of selling? Ha-ha! It’s ok, jump in, the water is warm, just bring your life vest!!

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If you would have asked me what I wanted to be growing up, little Emilio would have told you “an archeologist” or “an architect” despite the fact that at age 8 I had my first lemonade stand, landscaping business and was recording my first “news show” on my boombox!  Well, I never was much good at trigonometry and did could not see myself traveling for months and possibly years at a time, so becoming an architect or archaeologist clearly did not happen!

Fast forward 26 years later and I’m running a team of the finest residential real estate professionals, own a media company and host my very own radio news show about real estate!

In September of 2017, I married my best friend, Jaclynn, and we have two wonderful children, Destinee and Emilio, V.  We have 3 dogs, one of which is a rescue and live in lovely Rhode Island. Jaclynn owns a high-end hair salon in addition to an on-location hair and makeup business!

For 7 years straight it seemed that I had put in more hours than the day had to give on my real estate business. 7 days a week, 14 to 16 hour days, without a break! Why? My friends and family did not understand the sheer magnitude of moving parts and services we offer to our clients during a transaction! One slip up or one missed call could mean make or break for someone’s dream home or even a lost deposit!

Running a team of like-minded, highly qualified and capable professionals has allowed me to offer a very streamlined, simplified and efficient approach to the sales process for our clients and allowed me to earn personal time again with my family while not missing a beat for my clients!

When I’m not working, I’m with my family, riding my mountain bike, eating at a number of local restaurants, enjoying live entertainment, hiking, skiing or reading!

Contact:  [email protected]