Rehab or Prehab for Retail Sale

Do you want to put in all the work required to totally renovate a house to resell or would you like to repair only the essentials and make a few cosmetic changes? Whether you choose to rehab or prehab, there’s money to be made when you market your property right.

Several factors must be considered when marketing a rehab or prehab, fixing only critical problems inside and making the property attractive on the outside.

1. Identify your target market.
2. Create your marketing strategy for resale, including positioning the property correctly.
3. Show your distinguishing style on the inside.
4. Make the outside attractive.
5. Double check the details.

IDENTIFY YOUR TARGET MARKET

If you are rehabbing, you are probably targeting the traditional home buyer or investor who wants to buy and rent. Depending on the price, you might specifically target deal hunters.

For a prehab, you could have three markets – deal hunters, flippers, and remodelers.

CREATE YOUR MARKETING STRATEGY FOR RESALE

Price is king and positioning is queen!

Obviously you need to check comps in the area so you can buy and sell at a competitive price. Comps also may provide insight into whether rehabbing or prehabbing makes more sense.

If you are rehabbing, you’ll need to position the house as the best move-in ready option available. Prehabs must be positioned as the best deal on the market for someone who doesn’t mind doing a little remodeling to make the house their own at the best price. This strategy opens the market to real estate investors.

Position with professional pictures! Cell phone cameras simply won’t do your masterpiece justice.

Mention renovation loans in your advertising if you are prehabbing. The projected renovation costs can be factored into the overall loan amount if the prospect qualifies. This can help prospective buyers understand their options more clearly.

Create a resale marketing strategy that fits your style. A Realtor® likely will encourage you to advertise or show the property only after it is 100% complete. Waiting can cut into your profits, however. Every investor wants real estate to sell fast, so some begin the marketing process on the first day the property is acquired – especially when the target buyers want to complete some of the renovation themselves.

Should you incorporate a few upscale popular features? It depends on the neighborhood and what the buyers expect. Rather than focusing 100% on sticking to a  budget when making these kinds of decisions, always consider buyer’s preferences. House renovations that are based solely on a budget can become costly if the house doesn’t sell at the right time! It may take a granite counter top, for example, to catch the eye of the right buyer in your geographic market.

If you’re selling to an investor, verify their funding source before you sign a contract.

SHOW YOUR DISTINGUISHING STYLE ON THE INSIDE

First, have it cleaned by a professional. Clean sells. Clean both inside and outside the windows as well as the window sills so prospects will get a great view rather than being distracted by bugs and dust! Clean out the closets and other storage spaces. Most people want storage space, so make yours look as spacious as possible. Be sure all pet hair and pet odors are gone. (Prospects can smell someone else’s pet when they walk in the door.)

Feature the uniqueness of your house. What makes it stand out from the rest? You may want to add your personal style to distinguish it from all the neutral houses they have seen. (Don’t go crazy! Beware of flashy paint color, for example. I tried to sell a house that featured burgundy walls several years ago and had no takers until I painted the walls a more popular color. Lesson learned.)

A little staging in the living space, kitchen/dining, and master bedroom can go a long way toward helping your potential buyers visualize what it could be like to live in the house. A simple, affordable example is to use attractive bedding. It doesn’t have to be expensive; you may want to purchase a used bedspread, for example. Be sure everything looks tidy. No clutter!

MAKE THE OUTSIDE ATTRACTIVE

Make a good first impression with curb appeal. Follow a landscape plan even if it is a simple one. For example, incorporate a flower bed or a few well-designed flower pots, remove all the weeds, and maintain the lawn. Trim trees if they are obviously overgrown. Place trash and recycle bins out of site. The bottom line is that you want the property to look attractive and clean.

DOUBLE CHECK THE DETAILS

Be very choosy about your contractors and pay them well if you wish to build relationships for future real estate projects. Only accept quality work, regardless of whether you are doing a rehab or prehab.

Double-check ALL the work. It’s not about trust; it’s about your investment. You have the final responsibility for Quality Control.

SUMMARY

There’s more than one way to fix and flip a home. You can choose to completely rehab the house or prehab by repairing only the most essential areas and sprucing it up. Either way you must carefully choose your target market and use strategies to attract them to your property so everyone wins!

Gaylene Rogers Lonergan, Board Certified Commercial and Residential Real Estate Attorney | 214-503-7509 | lonerganlaw.com | Escrow2@lonerganlaw.com

© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2017-19. All rights reserved. This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. The Lonergan Law Firm, PLLC, will represent you only after being retained and that agreement is made in writing.

Residential Closing Process: What to Expect as a Buyer

Whether you are purchasing your first home or investing in residential real estate, the closing process is an exciting time. This process involves a buyer and seller signing the necessary paperwork to make the sale official. To ensure the closing process moves as smoothly as possible, it’s best to be prepared.

What to Do Before the Closing

Before the closing occurs, there are a few steps to take as a buyer: 

• Conduct a walkthrough: You should do a walkthrough of the property to ensure repairs have been made or that the property is ready for new ownership. If any difficulties arise, the closing date can be delayed. Make sure all parties are aware of the situation and can decide on the next best day for closing to take place. 
• Have your payment prepared: Make sure you have an acceptable form of payment prepared such as a cashier’s check. Payment and fees will be paid for the property during closing. 
• Bring proper identification to your closing appointment: Be prepared to bring your identification such as a driver’s license or passport for filing purposes.

What to Expect During Closing

During the closing meeting, you’ll be signing legal documents related to the property. These will differ between buyer and seller. As a buyer, you will sign an agreement between you and the lender (if you are seeking a mortgage). There could be a few parties at the meeting depending on your needs, including a closing agent, the lender and your realtor. We also recommend you have an attorney present to represent you and your interests.

Your closing agent will ensure all necessary paperwork is signed and recorded and all payments will be paid and distributed to the right parties. Once all documents are reviewed and signed, the closing process is complete.

Don’t Go Through the Residential Closing Process Alone

It’s in your best interest to hire an attorney to represent you during the closing process. Your attorney will ensure all paperwork is complete and that any situations that arise before or during the closing are taken care of. To learn more about the residential closing process in Dallas, Texas, reach out to us at the Lonergan Law Firm P.L.L.C.

Finding the Best Real Estate Investment Location for You

Every serious real estate investor is looking for the simplest way to make the greatest profit, which depends highly on finding and selecting the real estate location that is highly desirable for your target customers. This article will guide you through selection considerations, provide key information on financial calculations, and point you to resources for finding the best real estate location for you!

As in any other business, supply and demand are extremely important to a real estate investor. Smart investors focus on securing properties that are in-demand but are in low supply to the target customers. This strategy allows your price points to be high and vacancy rates or time on the market to be low, which delivers the greatest profit.

Investing in the property that is right for you will be more efficient by following these criteria.

SELECTION CONSIDERATIONS

1. Choose your investment strategy, such as flipping single-family homes, renting multi-family real estate, or wholesaling.
2. After determining your general market (Dallas TX Area, for example), narrow your search to the neighborhood that offers properties that match your investment strategy. If you are searching for rental properties, for example, you need to know the cash on cash return, expected income (search com), occupancy rate (check out mashvisor.com) and capitalization rate (typically referred to as “cap rate”).
3. Consider population trends. If the population is on an upward trajectory, find out why. Contributing factors may include job growth, housing affordability amidst the growth, and personal preferences such as topography, weather, nearby shopping options, parks, and walking trails.
4. Research tax rates, including high income taxes and high property taxes (search the local government website).
5. Look for safe neighborhoods. You can see a visual of the safety ratings of any neighborhood at com. I also suggest you consider driving the neighborhood at different times of the day and night, checking with the local police, and speaking with residents.
6. Get information about recorded covenants, conditions, and restrictions (CCRs) from your closing attorney or real estate agent. These rules outline what residents of the community may and may not do, such as allowing or not allowing property owners from renting their property! If the property you are considering is a part of a Home Owners Association (HOA), find out if property owners are required to pay dues and if so, how much the dues are annually.
7. Learn about the local schools. Every family with school age children is looking for the best school possible. There are several websites that offer information under the search term “find the best school in my area.”
8. Do residents in your target neighborhoods typically use public transportation? If so, what means are available and how accessible are they to the neighborhood?
9. Check out local laws such as property taxes, public services (water/sewer access, police and fire station service, trash pick-up, etc.) and any regulations specifically affecting real estate investors.

After selecting your target neighborhood/s, look for the best properties that meet your criteria.

RESOURCES

Here are a few resources that have been helpful to many other investors.

1. Check the Multiple Listing Service (MLS), which lists properties for sale by multiple real estate brokers around the US. A simple way to do this is to search com.
2. Drive the neighborhood to find “For Sale” signs and follow up with the realtor listed or the owner if the property is For Sale By Owner (FSBO).
3. Tell everyone you know that you are searching for a certain type of property. Clearly and concisely describe your desired property to seek referrals and leads. Write a one-liner to share with people who may be able to help you which includes the neighborhood, the price point, and the type of property you wish to purchase. Paint a picture for those who may be able to refer you to properties. “I’m looking for single-family homes that have approximately 1,500 square feet in the Fair Park section of Dallas for $120,000 or less” is one example.
4. Use traditional and updated marketing to bring sellers to you. Checking the classified section of the newspaper is an example of traditional marketing whereas having a blog with a large following is one updated marketing strategy.
5. To simplify the process, hire a real estate agent that works with investors. Typically this would be a realtor who has personal real estate investment experience as well as experience working with real estate investors, is happy to make multiple offers (in the same day, if needed), and is local to the geographic area you have selected. Obviously any realtor you choose to work with needs to have a great reputation with other realtors and is known to be a person of integrity.

Once you have located several prospective homes, you need to know which one to buy.

FINANCIAL CALCULATIONS

Analyze and compare your prospective investment properties to determine income potential for the different properties you located by using these calculations.

1. Net operating income – Net operating income (NOI) is a calculation used to analyze real estate investments that generate income. Net operating incomeequals all revenue from the property minus all reasonably necessary operating expenses. NOI is a before-tax figure that excludes principal and interest payments on loans, capital expenditures, depreciation and amortization.¹
2. Cash flow – income minus expenses (as described above) including loan costs (usually a mortgage)
3. Depreciation – income tax deduction allowing recovery of the cost of purchased property or assets used in the business
4. Rent/Price Ratio – median price of homes in your desired neighborhood divided by the median annual rent. A lower price to rent ratio is preferred.

CONCLUSION

Business investment is about profitability. Real estate investing requires you to be extremely careful about selecting the type of investment and its location then actually finding options that meet your criteria. After running the numbers on multiple properties, you can make a good business decision as to which real estate property is worthy of your investment dollars!

Gaylene Rogers Lonergan | Board Certified Residential and Commercial Real Estate Attorney | The Lonergan Law Firm | escrow2@lonerganlaw.com | 214-503-7509

Call 214-503-7509 and ask for Moe to schedule a consultation.

Resources

¹Investopedia: “Net Operating Income”, (2018, Dec. 12). Reviewed by Will Kenton.. https://www.investopedia.com/terms/n/noi.asp

Retrieved 12/26/18

© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2017-18. All rights reserved. This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. The Lonergan Law Firm, PLLC, will represent you only after being retained and that agreement is made in writing.

Understanding Owner-Financed Real Estate Transactions

Owner-financed and “seller-financed” generally mean the same thing. Owner or seller financing is a substitute for obtaining a traditional mortgage from a lender to buy a property. Instead of a bank or mortgage company financing your purchase, the seller—the person from whom you are buying the property—will act as the bank or the lender.
You will sign a legally-binding contract with the seller to make the payments on the property. The lender will record the contract with the local property recording agency, as the bank would do for a mortgage.

Why Would a Buyer Want to Finance a Purchase This Way?

The most common reason a buyer would benefit from financing a real estate purchase this way is because the buyer is not able to qualify for traditional mortgage financing. Buyers can have difficulty when:

• Their credit score is not high enough or they can’t make a large enough down payment for a traditional lender.
• They have had a bankruptcy or foreclosure in the past and need to wait a few years to qualify for regular financing.
• They or their spouse are temporarily unemployed or have a pending job offer.

Also, depending upon whether the current market is a sellers’ or buyers’ market, buyers may be able to get a lower interest rate than they could with a traditional bank.

Why Would a Seller Offer to Finance Your Purchase?

Sometimes, in markets where interest rates are high, or there is too much housing inventory on the market, sellers find it difficult to sell their homes. Rather than continue to wait for markets to adjust or the perfect buyer to come along, sellers will offer to finance the sale for a certain time period. The seller benefits because:

• The seller can get the house sold sooner
• Sellers benefit because they collect the interest on the loan they make to the buyer
• The seller may be able to sell at a higher price and require a higher-than-market interest rate, knowing that you can’t obtain traditional financing

What Are the Risks?

Buyers take on more risk if they buy this way, rather than use a traditional mortgage to finance the purchase:

• If the buyer misses a payment or is late, you don’t have the same foreclosure protections that you’d have with bank mortgages.
• The seller can immediately call the loan due for breach of contract without going through traditional foreclosure proceedings
• Your landlord could evict you immediately
• If you have made any improvements to the property, you could lose any money you spent to make the improvements if you violate the terms of the loan
• In most situations, the seller can legally keep the entire amount of your down payment AND take back the house
• If the seller is paying a mortgage on the house, fails to pay it even after you make your payment, then you could lose the house for the seller’s default
• Title insurance will not cover every title or fraud issue
• You will likely be paying a higher price for the house in the long-run, a higher interest rate and make large monthly payments

Get Answers From a Knowledgeable Attorney

Before getting into any kind of seller-financed or “contract for deed” buying arrangement, please consult with us. It’s extremely important to us that no one takes advantage of you. It’s best if we can review your transaction before you sign anything. Contact us online for more information.