In what is arguably one of the most bizarre real estate markets in history, finding good deals is like finding toilet paper and sanitizer during a pandemic. The good news is, if you actually land a good deal, there has never been a time in history when it has been easier to sell.
“If all you have is a hammer, everything looks like a nail.” This statement by Abraham Maslow pretty much sums up how most newer investors look at flipping houses. HGTV has made aspiring real estate moguls think that every house must be given the Chip & Joanna treatment in order to have a successful buy/sell transaction.
Well, I hate to burst your bubble, but if you actually find and close on a good deal that needs some work, the more money you put into it, the less profit you are likely to make. This is especially true if you are a newer investor without much experience in managing a rehab. Unless you are simply doing carpet, paint and fixtures, you will likely make more profit by simply cleaning out, cleaning up and listing a property for sale, as-is. This is called wholetailing.
A wholetail is the perfect way to disposition a property in an extreme sellers’ market. Period. Less work, less holding time, less risk, and still good margins. Cosmetically distressed starter homes in good areas are the holy grail of real estate deals during housing shortages like the one we are in now. They can be sold to both investors and DIY homeowners who really want to be in a certain part of town or a specific school district. At Red Ladder Property Solutions, these types of properties are ones that we prefer over all others.
Instead of giving yourself brain damage by figuring out what wall you can move or whether you should go with quartz or granite, grab some cleaning supplies and gas up the lawn mower. That’s almost all you are going to need in order to make a good profit.
Check back with me when we fall into a recession, and I will go over how superior rehabbing is…
In the business of real estate investing, there are negotiations happening every day. Not just with buyers and sellers, but also with vendors, contractors, suppliers and even tenants. I have put together a list of some tips on negotiating with that I have used over the years in my real estate investing business.
1.“Is that the best you can do on price?” I always ask, “Is that the best you can do on price (or terms, or whatever you are trying to get)?”, and then be quiet. I have made this one a habit, not just in real estate, but in life in general and it is very powerful. It puts the other person in a situation where they are, in essence, negotiating against themselves. More often than not, it results in a better price or terms. Seriously, it works really well – both when buying and selling. It has the added side effect/benefit of making your significant other squirm from being uncomfortable while you negotiate the price of popcorn at the movie theater.
2. “What do you think it’s worth?” When dealing directly with a home seller, it can sometimes be difficult to find out what would be the lowest price they would accept for an offer. I like to use a process that involves 2 questions. I always ask, “What do you think the house is worth?” first. This helps to gauge the number they would be happy with, but do not necessarily expect to get. It is a non-threatening question, and can lead to them telling you a lot more details about their opinion of value based on their motivation. It will also tell you how realistic they are about the condition of the house vs. comps, whether or not a friend/family member/Realtor has an influence on them, etc.
“What would you take for it?” Follow up this question with, “What would you take for it?”. These questions seem like they should have exactly the same answer, but they almost never do. However they end up answering this question, you are now much closer to the real number that they would actually accept.
3. Explaining Options Always talk about the seller’s different options to get the house sold, and the pros and cons of each. Depending on how the conversation is going, I normally begin by asking them if they have considered listing the house with an agent, letting them know that it is still a sellers market, etc.
In general, I try to steer them away from doing business with me, because if they are really motivated, they will sell me on why they want me to buy it instead of the other way around. “I don’t have time to wait for the house to sit on the market”. “I don’t like Realtors”. “I can’t afford to pay commissions and closing costs”. “I guess I thought that with the condition of the house, I couldn’t sell through a Realtor”. “I don’t want my nosy neighbors going through my house”.
Any of these responses are helpful to determine the best approach to help them, and their motivation level. Don’t make the mistake of making it seem like your offer is their only option, because it usually isn’t and people will see through that.
4. Selling as-is through a Realtor Make sure to explain to them that there is always the option to list the property “as-is” on the MLS, with “no repairs or reports to seller”. It amazes me how many people don’t realize this. They think that in order to list their house for sale, it has to be in updated condition with all the needed repairs completed because that’s what their friend/dad/neighbor told them.
Adding the phrase, “No repairs or reports to seller” is key verbiage to add to a listing. It helps to protect the value of the home if something is uncovered during a home inspection that the seller was not previously aware of.
Explaining this is huge in establishing credibility and trust. They may or may not end up doing business with you, but you are going to establish yourself as someone who cares about their situation and this is huge for your reputation and referral flow. At the very least, you may get a referral fee for sending business to your agent.
5. Read “Never Split the Difference” by Chris Voss This is one of the best books on negotiating ever written. Voss is a former lead hostage negotiator for the FBI, and is a world renowned business consultant on negotiations. So many golden nuggets in this book – I try to read it at least once a year as a refresher.
These are some that I use regularly, what are some of your best negotiating quick tips?
Ahhh. The Smell of Money. To real estate investors, that smell is usually pet urine, decay, mold, smoke or some other strong odor that makes most retail buyers run for the hills. Now that you own the aromatic abode, how do you sink the stink? We are going to cover the 2 most common sources of bad smells and what to do about them, but first a word from our sponsor. Just kidding – I wish. But seriously, go buy one of these:
Every serious real estate investor needs at least one ozone generator machine. These things work great at drastically reducing the amount of even the strongest odors like smoke and herds of animals in the house. I buy the exact one shown above off of Amazon for about $90 (it is closer to $60 during non-pandemic times). If you get one, make sure to get one with a “Hold” setting so that you can keep it running overnight at vacant properties. They come in all different sizes and price points, but they pack a punch, so you may not need as large as you think. And don’t run it while you are in the house, genius.
Also, unless you are into buying ozone machines about every other month like me, include “Pick up ozone machine” on your honey-do list before you sell the house. I am probably on machine #10 because I always forget to grab them when the rehab is done and the house is pending sale.
*Disclaimer: I am not a healthcare professional, so please do your own research on what is safe for you to use based on your health situation and desire to live dangerously.
The Mother of All Odors. Cat urine is one of the worst, strongest smells on this earth. There is a reason that smelling salts are made of similar molecular compounds as cat pee. Is there a cat currently sitting there peeing on your floor? No? Then, your first step is to locate the source(s) of the smell. It could be in the carpet, the pad and even the subfloor if it got really saturated. Don’t forget about kitchen cabinets!
Cats also like to spray walls, so check out the drywall about 2 feet up from the floor. Turn the lights off, take a black light and shine it on the floors and walls to see what you are dealing with.
Warning: You cannot unsee this once you have done it. You have been warned.
For areas that have a small amount, douse it liberally with urine enzyme remover and wipe down/soak up as much as you possibly can. Let it dry out, and do it a few times to be thorough. There are several popular brands of enzyme removers, so choose one with good reviews and follow the directions on the product.
If you have ever bought a house like The Cat House, you will want to grab a dumpster or five, because you are going to be chucking some carpet, drywall and subfloor. In cases of serious mental illness, disability or pet neglect, owners just let their pets go in the house repeatedly and never clean it up. Cats in particular like to go in the same place, which means that it can soak all the way through the carpet and pad and into the subfloor. Yay.
When in doubt, throw it out. Home buyers and tenants can be REALLY sensitive to smells. And let’s face it, as investors who look at a lot of stinky places, we tend to get desensitized in the olfactory zone compared to normal people. You don’t have to replace the entire subfloor or drywall all the way up, just the saturated sections. You can seal the rest with a heavy coat of primer.
Have I mentioned ozone? You should be running that bad boy pretty much the whole time you are not physically in the house. I would buy stock in ozone companies if I had any money left over from buying cat pee houses.
Once you have tossed out the worst of the stank, sealed in the rest and put the pretty new carpet in, you should now have a house smelling like a field of daisies that an FHA buyer will write an offer over asking price on.
Let’s start with the obvious – air that sucker out. Open a lot of windows and get some good airflow running through the place.
For professional smoker homes, you have to get the nicotine residue off of the walls, trim and ceiling before you even think about painting. One tried and true way to scour walls and woodwork is using TSP (Trisodium Phoshate). This stuff is powerful, make sure you read up on how to best use it.
Your next investment is a high quality oil-based primer. DO NOT skimp on this part. Paint is porous, so you can’t just paint over smoke saturated walls and call it good. It will smell fine for a couple of days, then come back with a vengeance once the smell bleeds through. Kilz, B-I-N and Zinsser all make good odor blocking primers that can seal in strong smells. Oil based = strong fumes. Plan accordingly with proper ventilation and PPE.
For surfaces that cannot be painted (carpets, curtains, etc.), it is normally best to ditch the affected materials and start over if enzyme and ozone is not working.
You will also want to vacuum out your air ducts, and don’t forget to give your furnace’s A-Coil (evaporator coil) a really good cleaning as well, as it can be a hidden pocket of odor (and hair).
While you are going through all of these steps, you will want to run your ozone generator after you finish up work for the day on the house.
Now that you have cleared the air, move on to your HGTV design and try to forget that all of this smelly business even happened.
P.S. – See below for a noteworthy unpaid product placement
BioSafe makes a pretty cool technology which uses a cold fogging technique that releases a mist which kills airborne contamination and microorganisms. It is non-toxic and environmentally safe. I have not yet used the product myself, but I know several investors who have used it and swear by it. At the time of this blog post, I have heard that prices are around $.10 per sft in the Omaha area. I plan on trying it out soon – it sounds like witchcraft to me.