Guest article provided by: henryhomebuyer.com
There comes a time in everyone’s life where its time to move, maybe for work relocation, upsize or downsize, or it’s time for new adventure, you’re probably looking at your home and wondering, what things should I spruce up. In this blog we will explore numerous options and scenarios.
I’m a real estate broker in 2 states, I’ve sold well over 1000 homes myself, I’m also a real estate investor, I’ve bought, rehabbed and sold many homes. I’ve learned a thing or two along the way. As an investor, when I buy a house, most of the time, my goal is to maximize how much money I can make from the sale. I’ll walk you through my thought process. Ill also walk you through a process that sometimes selling quickly and making less money is a better strategy, it all depends on the circumstances and what’s going on in a Sellers life at the time, I think many will relate. So let’s dive in.
Evaluate your home and the market
If you’re like me, you’ve watched some HGTV and feeling inspired for a total home transformation, then you’ll list your home and sell for tons of profit, it will be fun and profitable just like on the show….maybe and maybe not.
The first thing you want to do is evaluate your home/repairs and market conditions. Is the market appreciating, flattening out or declining?
Have an experienced real estate agent or appraiser come out and determine the value of your home in its As-Is condition (no repairs), you’ll also want an aftermarket repair value (also called ARV), meaning if you fix the home up, how much would it be worth and what repairs should be done, be selective who advises you here, make sure if an agent, appraiser or real estate investor is advising you, they’ve actually done this themselves, there’s a lot of “experts” with no experience other than watching HGTV, you need good advise and data to make good decisions.
Next you’ll evaluate your home repairs, what does it need, light rehab or full blown make over. I recommend when rehabbing, try to keep your home consistent throughout, meaning if you rehab a kitchen to look brand new and modern, you’ll then have to do some updating throughout the house or the new kitchen will make the rest of the home look really bad.
Make a list of repairs. Exterior -landscaping, windows, siding, roof. Interior, kitchen, bathrooms, bedrooms. Do you need to do some design changes, meaning moving walls? Appliances – do they need to be replaced?
At this point you’ve received some data, you have an opinion of what your home is worth now As-IS without any repairs and what your home will be worth if you fix it up.
Write this at the top of your list ***ITS NOT ALWAYS PROFITABLE TO DO REPAIRS*** I know that’s not what the TV fix and flip shows say but its true, there is a lot that goes into successfully maximizing profit in selling your home.
Remember to factor in your local market. Is your market conditions slowing down/declining, flat or growing, this will help make decisions.
Let’s take a few examples:
Example 1. Assuming a market is flat, meaning now going up or down. Your as-is value is $250k, your after-repair value is $300k. To get to the after-repair value we now need to know, what repairs are needed and how much they will cost. Personally….this is just me….if I had a home worth $250k now, As-Is and the after repair value is $300k, my repair budget would need to be below $25k. Here’s why…..almost always something comes up in a rehab you couldn’t have accounted for and cost more money, AND you might not sell your home for what you thought you could get, that could easily eat up 25k right there. So if you’re going to take on the stress of selecting contractors, managing them, there needs to be a decent profit spread. Although $25000 is a lot of money, it can go out the window fast. In todays world, $25000 doesn’t go to far in a rehab.
Example 2. Again, assuming the housing market is flat. You have a home worth 100k and after repair value $110k. I would sell As-Is, it doesn’t make sense to try to rehab with such a little budget to “maybe” get a couple extra thousand, a situation like this could easily change a homes consistency and become a rehabber money loser.
Example 3. Again, assuming your housing market is flat. Your home is worth $800k and after repair value is $1,500,000. This is a major spread, now comes the work part, how do we get to the big pay day.
Here’s some questions to consider:
- Do you have to ability to fund a big rehab?
- Will you live in the home while its being torn apart -are you ok with this?
- Can you handle stress?
- Do you have the skills to design a home, pick the finishings to maximize the buyers wants in your area? If not you’ll want to find a designer. How to find a designer
- Do you have the construction knowledge to be your own General Contractor? If not read this link “how to select a General contractor” insert a link you wrote here about selecting a GC
- If you are hiring a General Contactor and designer, they are the MVP of your project, they will be crucial to your success in staying on budget, with in timelines and finishing with a salable design.
Your designer and general contractor should meet with you and come up with a design concept. Then your general contractor needs to get bids.
Once you have all the bids, design concept, market value, market conditions, you have all the data to make a good financial decision, does the numbers work.
Math time:
$800,000 as is value
$300,000 – example rehab budget including designer and General contractor fees
$90,000 6% Real estate agent fees
$5000 title closing fees, could be higher or lower
$1,195,000 Total cost
$1,500,000 ARV
If you rehab this home you stand to make $305,000.
If it were me, I would make this decision to do this project. However if the market was declining and my project timeline was a while, I would really think twice and might not do this project. Once you commit to a rehab, you have to finish and in a declining market it can feel like being trapped in a money losing quicksand. In an appreciating market, this is a no brainer, I’d do this all day without hesitation.
The thought of taking on a rehab is way too much for me
Many home Sellers feel they are in way over their head and don’t want to take on a big rehab or any repairs, and that’s ok. Some realtors push hard for repairs, to me, I don’t, its up to each Seller. I go through the pros and cons. Sometimes the gain of extra money at the expense of adding stress in your life just isn’t worth it. Find an agent that sells homes As-Is and an expert in your local area. I’ve sold a lot of foreclosures for banks, they sell As-Is all the time without any repairs, sometimes they don’t even clean them out. You price them accordingly and they will sell. You don’t need to do repairs to sell your home.
Selling my home to a Cash Home Buyer
The easiest way to sell your home hands down is to a Cash Home buyer but….you will trade equity for convenience. This is usually, almost always, the least profitable way to sell your home. A general rule of thumb, an owner occupant buyer, someone who wants to live in your home will pay the most money for it. Cash home buyers need to make a profit, so they buy your home with a profit margin. In some markets where home prices are low (Ohio) and rents are high, sometimes investors will pay full market value and it’s better to sell to a cash home buyer, you get an easy transaction without paying real estate agent commissions. However in markets where home prices are high and rents compared to home prices are low, a cash home buyer can only flip the home, in those markets a cash home buyer will most likely yield the lowest offers.
The pros:
Super easy, when we buy a house, we can close in a few days or take time. Sometimes we close, the homeowner will live in the house for a month or two and have their money to buy a different home. You can make the transaction tailored to the Seller.
We don’t do inspection unless a city has mandatory requirements; some cities do. Most Cash Home Buyers have inspections. I don’t like the tactic of making an offer to secure a property, with the intention of coming in with an inspector to try to negotiate the price way down. Its just not my style. I like being upfront, make on offer and no inspection or renegotiation unless there’s a city requirement.
No appraisals, no showings.
You can leave anything in the home you don’t want to move. Sometimes homes are left completely full, it makes it so easy to move.
The cons:
Money – for this service, you will get much less money. Its similar to trading in a car and buying a new one. It’s not financially the best way to go but it sure is easy and that’s why people do it.
Not all Cash home buyers are the same. Most don’t have any cash…..yes you read that correct, most cash home buyers don’t have any cash. If you ask them for proof of funds in their name, almost none can show it. They do what’s called Real-Estate Wholesaling. I don’t have a problem with wholesaling if its done honestly and many of the times its not. A Cash Home Buyer will find a seller and tell them they are a cash home buyer and will make an all-cash offer, then get the home under contract. They rarely provide proof of fund, most wholesalers never intent to personally buy the home, most couldn’t because they don’t have enough money. They hope to assign the contract to an actual cash home buyer who can close and make a profit. If the wholesalers is open about the process, then it’s fine but in cases where they don’t disclosure and then cant find a real cash home buyer to sell the contract too, they bail on the Seller sometimes leaving the Seller in a really bad spot. These type of practices have causes some states to outlaw wholesaling or require it only be done by licensed real estate agents. The right way to wholesale is disclose what you’re doing, sometimes its beneficial to a Seller to have a Cash Home Buyer come in, get the home under contract, then hold an open house and the wholesaler will invite all their cash home buyer clients and see who will pay the most and make a better deal for the seller. As long as its all done with open disclosure its great.
If you sell your home to a Cash Home Buyer, make sure they can provide proof of funds in their name. Make sure they give you a cashiers check nonrefundable earnest money. If you don’t want to allow wholesaling in your sale, make sure the contact isn’t assignable.
When you select a Cash Home Buyer, look at their reviews online. Ive even let Sellers tour some of my projects. Selling your home is about trust, the more transparent the process the smoother it goes.
Thanks for Reading
Troy Molde
