HINTS for Investors Selling Rental Properties
Whether you have one home or 20, whether you have been managing it yourself or having a property management company manage, one word - MAINTAIN and PREPARE! (OK actually, two words).
With long time experience in property management (as well as sales in residential real estate), I'm beginning to have investors approach me to list their properties for sale - especially as the inventory tightens.
Here are some HINTS:
1. Existing Leases
If the property is currently tenant occupied and governed by a lease, both buyer and seller must abide by the terms. Most leases do not prohibit a sale during the lease period, but usually there are specific terms under which the tenant reserves the 'right of quiet enjoyment.' Lest you think that I am attempting to serve as legal counsel, NO, that is why the next hint is:
2. Contact your attorney
Find out what your obligations are with reference to tenant notice, buyer notice, security deposit exchanges, ability to show the property, etc.
3. Contact your property manager
Review your management contract, some management agreements provide that if the property manager is the procuring cause for the sale of your property to a current tenant, they are due a real estate commission. Be sure that you know this and have an agreement in place in case the tenant reaches out to a local Realtor® who will undoubtedly demand a commission and think they are the 'procuring cause.' (More legal terminology I know - so go back to #2)
Ask for a print out of all of the repairs/improvements that have been made since you owned the property. With my current investors, they picked up properties at the foreclosure sale and may have bought a new water heater, repaired the roof, replaced the air-conditiong or parts of it; perhaps there were work orders from the tenants and repairs - though minor- were ordered and accomplished on your behalf by the property management company. All of that information is crucial to the new owner. Don't just check 'no representation' on the property disclosure form because you never lived in the property.
4. Contact the homeowner association or, in our case locally, the regime management company
If there are rules relative to giving out passes, or parking, or you have outstanding charges - or your tenants do - get that taken care of first. In our area, there are charges to transfer ownership from one owner to another; be sure you now those charges and requirements before you meet with your Realtor®. In the cases of gated communities, the regime may require a different key code for your Realtor®, either facilitate that or notify the regime that you give your permission for the Realtor® to have a code.
5. Preview the property
Walk the property. I realize this seems obvious but I have investors that rarely see their properties and then when it comes time to sell, they are surprised that the price they thought they could get is not at that level. If you are one of those investors, and I deal with them all the time, then have the property inspected.
6. Make the repairs - ALL of them
Though contractally some may be minor, in the end, the investment will come back to you many times over.
A brief note, you really should be maintaining the property anyway since it will guarantee a higher quality of tenant anyway and ensure that your investment increases in value. You should have an HVAC maintenance agreement which ensures that filters are changed at every season and the system is properly cleaned. You should have a landscaper continually making sure that the sprinkler heads are maintained, and the timing mechanism is conserving water while maintaining the beauty of the plantings. You should have a plumber periodically checking the function of commodes, showers, sinks, drains, sink stoppers, bath stoppers, etc.
7. Have a thorough analysis of break even points
This seems obvious but as I work with investors who have never had income property before and just took advantage of the foreclosure and short sale market, there is a lack of understanding that not only does the sale price affect the amount of return, but also the depreciation, cash flow, basis, etc. This brings me to the other critical hint:
8. Meet with your acountant or financial advisor
This probably should have been right after #2 but here it is anyway. If there will be a taxable event, you need to understand how your finances will be affected by the gain. You need to understand the state reporting requirements, whether the municipality will take a certain percentage; all those aspects are best raised with someone who knows your overall portfolio.
There are probably at least another 8 - or more - HINTS that I could give you but every investor situation is different - and really I didn't even addres the issues that arise when you are selling a SHORT-TERM rental property which occurs around here quite a bit.
Back to #2 and #8 but then add,
CONTACT ME (or obviously your local Realtor® if you don't own property in my area.)
Take time and back to the beginning of my post, MAINTAIN AND PREPARE - it will be well worth your while.
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