Are you preparing to sell your multifamily property (2+ units) and want to make sure you earn top dollar from the market? The best way to maximize the resale of rental apartments is to get buyers to fall in love with the building. Here’s a list of 10 things you can do to ensure buyers open up their wallets.
1. Inform your tenants of the sale:
A multifamily seller’s tenants can often make or break a transaction. If the tenants are non responsive to showing requests or provide damaging information to prospective buyers it could instantly mean a lower sales price or possibly no sale at all. The best thing to do to avoid trouble is to have a conversation with your tenants about your intention to sell. You’ll need to inform them that potential buyers are going to be viewing their living space and they will need to make themselves (or their unit) available during certain scheduled times. Let them know you’ll be respectful of their living quarters but will need access for potential buyers soon. If there are any complaints that have yet to be resolved, now would be the best time to handle these issues.
2. Prepare the property financials:
When you’re selling a multifamily home you need to consider your potential buyers and their wants/needs. Many multifamily homes are purchased for investments purposes. If you’re perfect buyer is an investor, they’re going to want information on the buildings operating expenses. You should gather this information and be prepared to show it to potential buyers during the selling process. Operating expenses include: Taxes, Insurance, Water/Sewer, Common Area Cost (Heating & Electric), Utilities, Trash Removal, General Maintenance, and anything else needed to keep the building running smoothly. They are costs your potential buyer will need to consider during the purchase.
3. Provide details on your systems:
When were the heating systems installed? When was the roof installed? What is the age of the hot water tank(s)? How old are the windows? Any electrical or plumbing upgrades recently completed. Have your real estate agent provide you with a check list of home systems so you can make sure you’re fully prepared to answer questions the buyer or investor has.
4. Get a home inspection done:
Home inspections are just for buyers. As a seller you can also have a home inspection done for the property prior to placing it for sale. This proactive approach will cost you a few extra bucks, but it will also allow you to see exactly what your potential buyers are going to see. The more issues you can resolve prior to the buyers home inspection, the less you’ll have to negotiate and the more the buyer will pay.
5. Bring your rents to market value:
If market rents for a two bedroom apartment in your area are $1500 a month (but you’re a nice lady) and you’re charging your tenants $1100 dollars per month, you’re hurting the value of your property. Charging tenants less than market value is what many landlords do to keep good tenants in place. They think to themselves that they don’t want to upset things and force the tenants to move out. While there is nothing wrong with this strategy, landlords are not helping the resale value of the building. For example, if you have two triple deckers side by side with one landlord collecting $1100 ($3300) per month while the other landlord is collecting $1500 ($4500) per month, all else being equal, the multifamily with the hire rental income is going to have a higher value. Put yourself in the buyer’s shoes. If I have the option to purchase two identical income producing homes, why would I pay the same price for a building producing less income than its counterpart? I wouldn’t. If you’re timeline allows, it may make sense to increase the rents a few months prior to selling your property to show the increased income. Consult your realtor about this strategy and make sure to properly assess the current rental market.
6. Assemble your real estate team:
Do you have a real estate agent? Does that agent understand the local market, the investment business and what potential investors are searching for? Do you have a good real estate attorney to represent you during the transaction? Your attorney will help work out the details in the purchase & sales contract which you and the buyer will sign. Have you spoken to your CPA or tax preparer? Do you fully understand the (if any) tax consequences for selling this investment property?
7. Have leases and tenant documents available:
Have your tenant leases and security deposit information available to show potential investors. Once both parties are in agreement on a selling price, and an offer has been accepted, your buyer will want to see leases and ask about deposits you have in place. This is important to them as these will be the documents they will need to honor after the property is in their name.
8. Make necessary repairs to the property:
If you’ve done a pre-sale property inspection, you now have a good list of what the property will need to avoid any buyer concerns. Now is the time to take care of these issues. Ask your realtor for local contractors and handy men and have them take care of what’s necessary. Making these proactive repairs will help deter the buyer from requesting a discount and help you achieve top dollar during the sale.
9. Have a Realtor provide the home’s value range:
Your home’s value isn’t determined by a real estate agent, the bank or an appraiser. All of these people (or entities) can provide you with opinions of value based on their market knowledge, but the true value of your property is always going to be determined by the open market (buyers). Your building is only worth as much as someone in the market is willing to pay for it. When buyers determine what to pay for a particular property they review what other properties have sold in the neighborhood similar to the one they’re considering. They do what’s called pulling “comps”. They “comp” or compare your house to other sold homes in the area. When determining a value, your real estate agent will do the same and provide you with this information. They will sit with you and go over other recent sales in the neighborhood and determine where your property lines up.
10. Brush up on the current real estate market:
Are you operating in a buyer’s or seller’s market? What’s happening within the local economy and is now a good time to sell? Your real estate agent will be able to help you answer both of these questions. It’s important to know if the current market benefits you as a seller or does it work in the favor of buyers. A sellers market is anytime inventory (amount of homes on the market) is really low, but there are a larger number of buyers looking to make a purchase. This is the best time for you to sell. In a perfect world you’ll have multiple buyers bidding for your property and driving the price upward. A buyers market is a condition when there are more homes available than willing and able buyers.
The local economy should also play a role in your sales decision. Is there development going on in the area? Are interest rates good and loans readily available for buyers? If money is tight and buyers aren’t able to find lending, you’ll have a tough time finding a suitable taker for your property.
Contact me directly to learn more about how The Mandrell Company can help you sell your multi-family for the most money in a reasonable time frame.
Willie@Mandrellco.com or 617-755-4938.Read more
Are you a new or aspiring real estate investors in or around the Boston area? Do you have an interest in buy & hold real estate or flipping property? If so, Boston Wealth Builders is the best REI group for you. BWB is group of new and experienced real estate professionals coming together to LEARN, SHARE, BUILD & GROW within the local market. We have regular educational and networking events all over the city as well as many locations north & south. Membership for the group is always FREE and as part of the group you’ll have the inside track on many “off market” investment deals.
You can join the group by visiting http://www.BostonWealthBuilders.com
- Mortgage Interest Deduction – This is the largest tax deduction for most individual property owners. A portion of every mortgage payment you make goes to pay down the principal balance of the loan and another portion goes to the bank as interest. The federal government also you to deducted all interest paid to your bank associated with the mortgage. In the early years of your mortgage, interest is a very high percentage of the total payment and will become one of your largest deductions.
- Property Taxes – You will receive a write off for property taxes you’ve paid over the last 12 months. You’ll receive a dollar for dollar tax write for this cost.
- Local Water & Sewer – If you pay for water/ sewer for your rental units, this cost is also a tax write off at 100%. If you live in the building you will not count the waster usage for you particular unit in the deduction. For example, if you own a Dorchester 3 family, live on the 1st floor and rent the other 2 units, you’d receive a tax write off for 2/3 of your total water cost.
- Common Area Cost – In Massachusetts, as a landlord of a multifamily building you area required to pay for lighting and other “common” area cost of your building. Hallway lighting is the most common expense that falls under this category. This is a cost of doing business for you as a landlord and is 100% tax deductible.
- Depreciation Expense – The government recognizes that every year your property (the asset) goes through some sort of wear and tear and slowly loses value. This loss in value (depreciation) is a tax write off for you without any outlay of cash. Most property is depreciated over a span of 29 years. You should consult your tax professional about methods for calculating depreciation.
- Home Office Deduction – As a landlord you are technically a business owner. As a business owner you can deduction of portion of your total home expenses as your home office. For example, if you use 1/5 of your home as an office (to run your rental business) and the total cost to operate your home is $1000 per month, you should have a total “home office” deduction of $1200. ($1000/5 = $200 * 12 months)
- Cost of Driving to & from your Property – There is a cost to you for driving back and forth to manage your rental property. It’s important that throughout the year you keep a log of your travel. Your accountant can assist you in calculating the exact write off provided for your time on the road.
- Systems & Tools of the Trade – Did you buy a snow blower, rakes, hammer, drill or other equipment you planned to use specifically for your rental property business? If so, make sure your tax person is aware of these cost as well. It’s important to maintain a receipt log during the year.
- Credit Card Interest – It’s always a good idea to keep a separate bank account you use strictly for your rental business. This separate bank account allows you to easily keep track (come year end) of what you spent. You should also keep a separate credit card for your apartments as well. The interest the credit card company charges you is also a tax write off.
- Property Management Cost – Did you pay a property management company to handle your apartment rentals this year? If so, the company will be able to provide you with the total you’ve paid them in the last 12 months. Also provide this figure to your tax-preparer.
To learn more about the ins and outs of landlord tax deductions, I highly recommend NOLO’s “Every Landlords Tax Deduction Guide”. Click the image below to learn more!Read more