The quarantine has thrown quite a curve-ball to most landlords. If you’ve recently found yourself contemplating cashing out in this market and pivoting to a “safer” asset class… Let’s unpack what that could look like and talk about some of the common bear traps you might run into. Also, how do you even start this analysis‽
My name is Jennie King, and I’m the Owner and Principal Broker of Block Property Management Solutions. I am a real estate agent. However, if I’m not your agent, please seek legal advice before taking any action with your investments.
Step 1. Analyze the situation “Do we have a deal?” – What are we working with here? We need to sort out the details of your investment and figure out if it’s a “deal.” Do you currently have a property manager with books and records? Do you have a proper rent roll and security deposit with a condition report? Are you collecting rent in full and on time? A deal has cash-flow or equity potential. Just because your home is a rental, it doesn’t make it a “deal.” There’s a striking difference between investment loans and owner financing loans. If the home isn’t a property that you can sell to a home owner with 3.5% or 5% down minimum you are most likely looking for an investor to purchase. Those financing requirements start at a much larger down payment 20 -25% so the pool of buyers will be smaller. I find most landlords assume they have a “deal” that an investor would want to buy…. only to find that without proper books and records it’s just a rented home with a tenant.
Step 2. “But, Zillow says” – Trap… Pricing is a function of condition- end of story. What’s the condition of your books, records, and what’s the condition of the house? One of the most shocking things most investors have to come to terms with is the condition of their documents. It’s easy to buy a property- it can be much harder to get out of one if your paperwork isn’t legally sound. Did you use a random lease- do you know what the landlord tenant laws are for your City/County/State? Do you stay up to date on changes to policies. Do you have the correct addendums, notices, and forms? Most owners are unaware that a deposit is only leveraged if you have a proper before/after documentation and photos. An investor isn’t going to be interested in a disaster and overpaying to get you out of a mess. Needless to say, if you’re unable to collect rent from a difficult tenant- you’ll have a tough time selling for a top price. What projects and deferred maintenance will be addressed? What’s the cost of getting the property back to functional or optimal condition?
Step 3. Timing. “You can get your price… eventually.” What kind of notice you need to serve a tenant is going to be outlined in the lease and current landlord tenant laws. Since the terms of the initial agreement bind the landlord and anyone who buys the rental property- you will need to know when the lease ends. Is the buyer taking on a tenant and a solid lease with terms and conditions that are legal? Is the deposit transferable? Is the tenant current on rent? If you can’t raise the rent or evict a tenant- timing is going to be a trickier line item. How long are you bound to the home? Are you going to be able to sell this year or next? Is there going to be a legal battle? As they say, time is money- so get well acquainted with your options here.
Step 4. Don’t take this personally- You might have made a mistake in some part of the investor process. You might have been priced so high that you HAD to take the next friendly applicant that came along. You might have skimped on the tenant screening or forgotten to get the required information you need for a legal dispute. You may not have known that you have a lease that is invalid… (Not notarizing a lease for 12+ months.) Eek! Every investor starts somewhere and has a learning curve. This is the time where you pick apart your lease and find out- where is a buyer going to be able to see a weakness? If there aren’t any- congratulations! However, with job losses, laws restricting late fees, and tenants not complying with showings… those things are going to be tough to overcome without knocking into price.
Think of it this way. We used to work from home and now people, “live at work”. Our homes are an online zoom-school, a place to take meetings for work, a gym, and a place to cook and entertain… There’s a lot more hanging on this “investment that you can hang your hat on.” You can’t live in a Tesla stock certificate. Lol. Reach out to professionals, do your homework and come up with a game plan. Don’t let this pandemic take you out of the real estate game- take it as a time to reset your plan and learn.
My team will walk you through the benefits of full-service rental management, and we offer a free, no-obligation rental home analysis!
Jennie King Designated Broker and Property Manager Block Property Management Solutions Direct- (206)-229-5224 email@example.com