First Time Seller

While my wife and I consider ourselves fairly experienced rental property buyers, we never sold one…until now! Last week we closed on our first sell. While overall a very successful endeavor, like most of our business dealings, there were some things we could have done better.  We learned a lot and will be better prepared the next time.

First, a little background on the subject property. The home is a two bedroom and two bath condo built in the late 1980s. Although the complex is showing a little age, the homes are well laid out and roomy, but most importantly it is in a fantastic location that offers great schools and convenience to local amenities.

We picked up the property at an unbelievable price in 2016 but had to make several renovations to include replacing the HVAC in 2019. Over seven years, we only had two different renters in the property and they treated the home as their own which is very fortunate! When we made the decision to put the property on market, the home was in good shape but still required a few improvements. Which brings me to our first lesson learned, in this case a definite “sustain”.

Prep the home for market. We were under contract for full ask four days after listing the property! We’ve looked at enough properties as buyers to know some folks try to play it cheap and not make improvements. I could not disagree more! We spent $4000 to prep the home, this included everything from refinishing the kitchen cabinets and new countertops to painting the back deck with about a dozen other minor fixes in between. When the home went on market it sparkled and the results show. Additionally, it helped the home breeze through the buyer’s inspection and the appraisal process. Working with our agent, we decided to craft the listing more towards a first-time homebuyer, rather than an investor. Which brings me to my next lesson learned, a definite improve.

Complete market research before listing. Every time we’ve bought a property, we completed exhaustive market analysis. When we made an offer, all risks were known, and the math was complete. Unfortunately, we did not perform detailed market research before listing our property for sell. It’s been almost five years since we purchased a property and needless to say dynamics in the real estate market have changed. We went into the sell with preconceived notions about how buyers would make offers on the property.

Bottom line, our assumptions were just plain wrong. Unlike five years ago, interest rates are now much higher. To entice buyers’ business, lenders in our area are offering low to no money down conventional loans, in this particular case 97% loan to value. Gone are the days of needing 10% or more to put down on a new home! This impacts a lot of aspects of the sell as we soon learned. Additionally, in today’s local real estate market, sellers are paying 3% in buyer’s closing costs! This certainly wasn’t the case just a few years ago.

During underwriting for the buyer’s loan, it was discovered they actually needed to put 10% down in order to complete the purchase due to some Fannie Mae regulations. It took the buyer a little longer to come up with the extra funds and pushed our closing to over 50 days from the contract causing some anxiety for us.

Regardless, the deal went through, and we were happy to be a part of a first-time home buyer embarking on their real estate journey. Which brings me to my final lesson learned, neither a sustain or improve but something to definitely consider.

Consider For Sell By Owner (FSBO). On this particular deal, once commissions, seller paid buyers costs, taxes and improvements are factored, we ended up netting about the same as we would if we had sold the property as-is at a fair cash price to an investor. Let me be clear, our agent who helped us broker this deal from start to finish definitely delivered. He arranged everything from contractors for the improvements, to working with the buyer’s agent when the deal ran into some obstacles.

That being said, we ended up spending $4000 in improvements (not to mention two weeks of time) and 3% of the purchase price towards buyers closing costs. Tack on the commission and we netted about the same as we would have if we had FSBO the property as a cash or as-is sell to an investor. To be clear, I don’t believe we would have netted anymore going the FSBO route, but it could have saved us some time and we all know time is money! We may look at the option next go around.

Overall, we came out great on this deal and are very thankful. We are eager to re allocate the earnings from this sell to other investments. Capital gains and depreciation recapture taxes sucked (as they always do). That aspect of the sell will get its own blog soon! As important as knowing when to buy is knowing when to sell; we got it right this time. Looking forward to applying our lessons learned during a future sell!

Interested in rental property investing? Look for “Collect Rent, Don’t Pay It: A Beginner’s Guide to Rental Property Investing” on Amazon to learn how our family turned rental property investing into a successful side hustle!

Looking for a good how-to on wealth building? Check out my book, Millionaire on a Worker’s Budget: Five Financial Truth’s to Build Wealth on sale now at Amazon!

The commentary provided in this blog is for informational purposes only and is not intended to be a source of financial or investing advice.

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