Part 1 - Goals & Objectives - Preparing For The Transaction (For Sellers)
On the selling side of a transaction, preparation is always the number one component to a successful and quick sale of your property. Sellers who have documentation accurate and ready to go almost always sell their properties faster and get higher sales prices then similar owners who are disorganized. There are a few key areas where Sellers can get a leg up on the competition by being prepared for the upcoming transaction and provide accurate current data to the real estate brokers involved to make everything go smoothly. Those areas are; The Property, Record Keeping, Finances. Let’s take a brief look at each area to see how each owner can make their property the most attractive to a new buyer.
The Property:
Much can be done in the months and days leading up to putting a property on the market that can drastically change the buyers perception of the investment. Curb appeal can never be underestimated at any time. I have seen Buyers reject a property with better financials then one that looked nicer because they perceived it as less “hassle’ though in reality it made them less money. All areas of the property should be neat and clean, no trash or old chairs or other items sitting outside the building. Property painting or just a little touch up painting can also go a long way towards improving the image of the building. Parking lots can be re-striped for relatively cheap including just re-painting the stripes and concrete stops. Make sure any laundry or common areas are looking their best as most Buyers tend to notice these areas first as an indication of the type of tenants in your property. All of the above contributes towards a good “feeling” when buyers are even just driving by the property and it pays dividends at the end of the transaction.
Record Keeping:
Just as a property should be neat and clean the records associated with the tenants and maintenance should be equally clean and easy to decipher. Once in a contract a buyer will scrutinize those records careful and the best defense is always a good offense. Make sure you have copies of leases that are accurate and signed for each tenant on the premises. Make sure rent collection records are up to date and complete. Keep a monthly rent roll that is easily available for use by the broker in selling the property. Rent rolls should include the tenant name, lease expiration date, rent amount, security deposit amount and unit size or number of beds and baths. This wil be a crucial piece of info a new buyer will want right away. Maintenance records are important as well, as any major improvements you make to the property should be noted and ready to give to anyone who asks. These can include but are not limited to; property painting, parking lot resurfacing, new appliances, new flooring, new cabinets or kitchens, additions or major construction, new roofs, landscaping, and other similar big ticket items.
Finances:
In harmony with good record keeping above your financial records are the most important thing to keep up to date and accurate in any transaction as they could “make or break” your sale so to speak. Rental income should be separated by class including Rents Received, Laundry or Other Income, Utility Reimbursement, and Late fees or other fee income. Expenses should be well detailed and separated as much as possible. The more sub-categories you have on your profit and loss statement the easier it is for a buyer to see when abnormalities occur. Say one month you have three air conditioners fail and none in the following six months. If that cost is not broken down and just put in a general “Repairs” column, then it is difficult to explain why those costs were not normal. If a separate “A/C Repair/Replacement” category exists this is easy to explain to any interested buyer.
In the end when getting ready to sell you should have the following ready to deliver to your real estate professional so they can access the highest value for your property; Current Rent Roll, Prior Year Income/Expense Statement, List of Capital Improvements, Property Information on Units and Unit Sizes. Now that you’re armed with this knowledge up front your sale should get off to a successful start.
Next part in the series will deal with “The Search for Truth - Finding a Buyer or Seller”.
Peter J. Barnett, CCIM
