Wise Property Owners Make Less Money but Keep More
As a real estate investor, it just makes sense to sell your property for the most amount of money you can get. You didn’t put all that time and money into the property just to leave dollars on the table, right? What if we told you that by selling for less you net more? It seems contrary to popular belief, but in the real estate market it's truth. The trick to making less money, but keeping more, is knowing your market.
Names have been changed for anonymity but here’s a real example:
Larry purchased a distressed property for $50,000. It was ugly. Real ugly. He invested $5,000 in getting it cleaned up, but it still needed a ton of work. If the home were in great condition, it would sell for $275,000. I know what you’re thinking. “Holy Cow! That’s a $220,000 profit potential." What if the house would cost Larry $100,000 of repairs to make? Now it’s still a $120,000 profit. But what is the unknown risk? Holding time. Holding time can be a real deal killer.
You see, Larry is a car salesman and even though he’s good at fixing things, he’s no contractor. What if the repairs take 3 months longer? What if the repairs cost twice as much? What if one of his contractors do not perform? He’s not rolling in cash so the holding costs could sink him. What is the smart thing for Larry to do? Actually, it’s to sell it to a professional contractor. In this very case (which is based on a real life example), Larry paid $5000 to gut the house and then sold it stripped for $125,000 to a contractor who was in a better position and had better knowledge to make money on the flip.
Thus, he made $70,000 in 14 days with very little risk.
He sold BELOW market value. Buy low, sell high is a familiar saying. However, even better money is made when you buy lower, sell lower. You make your money when you buy.
Selling below market value is a concept that home sellers have trouble understanding. They typically say, “I want to price high so I can negotiate down." The problem with that is that you end up with no one to negotiate with. You sit on the market for longer and ultimately have to reduce the price anyway. Then you’re out your holding expenses (mortgage, utilities, and maintenance), plus the exhaustion of selling a home. It’s not easy living in a home that looks like the Pope is coming over for dinner at any moment. The facts are that by pricing just below market value you can save a lot of money. Thus, you make less but keep more.
When your home hits the market, it’s a lot like a boxing match. You are immediately being compared to all the other houses in your weight class (or price range). If you decided to compete against other homes that are priced higher, you are in for a long haul. You are better off being the hardest hitter in your weight class. This means price your home so that you stand out, not just fit in. Sometimes the market can throw you a curve ball and the even the best Realtors can overprice a home thinking that the market demand for your home is stronger than it is.
Usually, this is due to a floor plan or curb appeal issue with the property since the numbers show that it should have sold. It’s very difficult for a Realtor to price a home if they like the house personally. The problem is, they are not buying it and neither are you. Overpricing your home means you are the highest bidder on your own property. That won’t get it sold.
Rule of thumb: If you have 8 to 10 showings and no offers you should reduce the price. Or if you have no showings in 2 weeks then you should also consider reducing the price after updating, changing or improving images and descriptions. The longer you sit, the more out of pocket expenses you have.
If you’re investing, flipping, renting or selling it’s important to have a great exit strategy. Make sure you rely on the professionals who do it successfully.
Don’t listen to the naysayer at work who has only horror stories of “someone he knew.” Seek out the experienced, successful and wise council. And if you’re looking to sell your home, talk to a great Realtor. Call us. We happen to know a few.