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I purchased my first piece of real estate with almost 100% financing back in 1978. I was 27 years old. It was a beat up triplex with central heat and electric. The price for the three units was $8,500. It was located in a then-blighted area of South Philadelphia. It was close to the school where I taught so it was easy to work on the building for a few hours each day after classes.

Early Mistakes

After settlement I went to the home and wondered what part of crazy I was listening to when I agreed to purchase this house. The real estate agent told me that we could access two of the units but the second floor tenant would not give us access. I purchased the home anyway without any inspections and began my days as a landlord.

At the time, I was a full-time woodworking and construction technology teacher. I thought that I could do all my own repairs at cost and that my first venture into real estate investment would be a quick success. Not so.

Pro Tip: Separate Metered Utilities are Key

My first piece of advice to you is never buy real estate where the tenant does not have metered utilities. You only want properties where utilities are separate or be ready, willing and able to install them immediately after settlement before you begin renting the property.

Lessons of a New Landlord

One of my wood shop students came to class saying that his family was looking for an apartment. I met his mom and she agreed to the terms of an acceptable lease and moved in. The landlord paid for heat and electricity.

Pro Tip: Always Investigate Potential Tenants

I did not do any background checking, no credit report, nothing but blind faith that they would move in and be a happy tenant in my triplex.

They did not pay the second or third months’ rent and would call and say the oil had run out. It was on an automatic oil delivery. I had three tenants and only one was paying on time. Within a week of another oil delivery, I got a call that the oil had run out again. I went to the home and knocked on the door of the first floor unit where the thermostat was, and found the unit to be 85 degrees inside. The unit with the thermostat for the entire building was located near a window the tenants had broken and they did not attempt to even cover the window with cardboard or call me to make a repair. They simply turned up the thermostat. The second and third floor units had their windows open because the heat was too overwhelming on their floors. I was spending more on oil than the rents plus most of my teaching salary combined.

The first floor tenants had no interest in paying the rent nor did the inherited second floor tenant. The third floor tenant paid on time but her entire rent check was spent on my oil bill.

I soon found out that taking tenants to court for non-payment and eviction was a 9 month process back then. I was on the verge of bankruptcy with my new real estate investment. I replaced the broken window glass but the financial damage was done. Too many oil deliveries, I had been heating the outside, too little rent, and not enough teacher income to overcome the monthly overhead.

I told the paying tenant that she should begin looking for another rental because there was no way I could continue to support this losing real estate investment anymore. I found out too late that first floor tenant had been evicted many times in the past and was a professional at mastering the art of free rental housing from rookies like me. I also had a conversation with the second floor tenant and he agreed to move voluntarily when I told him the facts about my situation.

A Little Bit of Luck

Then divine intervention occurred. I ordered another load of oil and before they could deliver it a debilitating snow storm hit South Philly. None of the small streets could be plowed. It took at least seven days for my street to become passable for an oil truck. The oil in the triplex ran out on the first day of the storm. Three days later, a radiator froze and flooded the first floor. When the first floor tenant called I suggested she use the back rent she owed me to find another place since the unit was no longer fit for a tenant and repairs could take months.

Within five days of the storm all the tenants had moved out. The water was turned off. No more oil required. I hired an architect to help me redesign the entire building with separate utilities. I began to demo the interior of the building over the next year and set up the first floor with a small wood shop. I had a small construction company with another teacher friend and we used the triplex for material storage and as a base of operations for the next few years.

City Squabbles

In the summer of 1983, I married my wife and we moved to Denver, Colorado. We stayed for almost four years.

Before I left for Denver I purchased new windows for the third floor of the triplex. We gutted the third floor, reframed for the new windows and when I realized we were moving to Denver I stored the windows at the triplex and closed up the newly framed window openings on the third floor with plywood. At that time, the city of Philadelphia was boarding up vacant homes trying to stop drug dealers who were squatting and dealing in anything vacant.

My home was maintained by a local subcontractor I worked with and who lived down the street. He called one sunny day and said that the city had ripped out the first floor windows, doors, my marble lentils over the windows and doors and removed my marble steps. $20,000 worth of tools, equipment, scaffolding and materials were removed from the property.

I never received any notice, only a $1,700 bill for the close up work performed. Years later, I went to a hearing and the judge threw out the bill but said that all the materials and tools removed from the building were a loss to me because you have to sue the city within 6 months of this type of wrongful event or the statute of limitations runs out.

Because the city removed the supporting lintels above the doors and windows and placed the cinder block at the front door on top of the interior flooring instead of the foundation wall, the building began to sag and fail. The cost to remediate was way above the value of the building. Eventually, the city took down my triplex and the triplex next door. I now had a vacant lot.

I received a bill from the city for about $12,000 for the demo and then another bill for thousands more for stucco they claimed to put on the attached neighbor’s home when they took my triplex down. Since they took both buildings down together, the city tried to charge me not only for the demo that they caused but for work on stucco never performed.

The city contacted me for a hearing regarding the two bills and I arrived with my young daughter. I wanted her to experience first hand the trials and tribulations of owning investment property. Eventually the judge agreed that the city caused the problems leading to the required demolition and agreed that the stucco work had never been performed. The judge was a reasonable man and sought a compromise. I agreed that if I tore down the building at cost it was take approximately $2,000 for labor and dumpsters to take down the building. He asked for $2,400. I agreed if they would take $100 a month for 24 months with no interest and he agreed.

I paid off the $2,400 and kept the vacant lot well maintained and allowed a community gardener to grow fruit and vegetables at no cost in return for keeping the lot clean.

When the city contracted out the demolition they had huge heavy equipment with steel tracks that damaged the concrete walkway. The city was unresponsive about replacing the concrete. They started sending threats of lawsuits if I did not replace the concrete. I would respond politely asking them to replace the concrete that they destroyed during demolition. A stalemate occurred and they left me alone.

Long Term Success

During 2016, finally, the South Philly real estate market was on fire. It was time to sell my vacant lot. Purchased in 1978 for $8,500 and I sold it in 2016 for $60,500. I held onto that property for thirty-eight years. My first investment property was like a masters degree in what NOT to do in real estate investing. Although the ownership included a lot of grief, aggravation and stress, I wish now that I had purchased 100 of those properties, but only those with separate utilities. 100 of those paid off vacant lots today would be worth somewhere around $6,500,000 today.

The Emotional Buyer

Most buyers are unapologetically emotional in their purchasing decisions. Investment property shoppers aside, a home buyer looking for a new primary residence is going to need to be able to imagine themselves in a home they walk through.

To a home buyer, a new home is a reflection of who they are as a person, a couple, a family, etc.,. As consumers, the purchases we make, especially the large ones, reflect how we view or want to view ourselves. Cars and homes are prime examples. See how easy it is to finish these sentences:

  • I could never see myself driving a …
  • I couldn’t imagine living in <city/town/neighborhood>.

Making Home Improvements Before SellingWhether consciously or not, walk-through prospects are trying to imagine how family members, friends, and co-workers would react to a home they are looking at. Considering that 65% of recent home buyers were married couples, the home buying process is often full of compromises, referendums and concessions between two people (NAR 2012 Profile of Home Buyers and Sellers). For these reasons, it’s important that your home is staged to be neutral, a blank canvas they can paint themselves into. Let’s take a look at a checklist that will help you neutralize your home.

Cleaning

The importance of cleaning the entire home thoroughly can never be underestimated. It’s all about the details that shout, “This home is extremely well-maintained.” Think of the following aspects:

  • Shampoo and wash carpets, clean trim, window sills, screens and blinds.
  • Clean out light fixtures and dust shelving.
  • Make rooms appear as spacious as possible.
  • Store unnecessary furnishing and personal items that might be making a room look crowded.
  • Make sure it’s extremely easy to walk through your home. There cannot be any clutter.
  • Light, light, light! The worst thing for a home on the market is darkness.
  • Keep all curtains and drapes open.
  • Replace broken or lower wattage bulbs with new and high wattage bulbs.
  • Turn on all overhead and lamp lights before a walk-through or open house.

Touch Ups

  • Inspect your entire home. Touch up paint, from trim and baseboards to cabinets and window frames. Pay special attention to areas that are worn from high traffic over the years.
  • Make sure all door knobs and locks work and replace anything that doesn’t.

Kitchen Area

  • Make your kitchen pristine!
  • Absolutely no clutter on the countertops. I actually know a couple of Realtors that will not take a listing until all the clutter is removed from the kitchen.
  • Clean all the grease from the oven and stove. Make all appliances shine!
  • Remove any fridge magnets, personal calendars, posted invitations, mail and newspapers from the kitchen area.
  • Remove any old mats or carpets from the kitchen floor.
  • The number of photos, portraits, and posters should be minimized.

Bathrooms

  • Clean, scrub and make superficial improvements to your bathroom(s).
  • Remove any clutter, such as personal toiletries, hair care electronics and medications. Add fresh soap.
  • Consider well-placed candles or other finishing touches.

Pro Tip: Color coordinate bathroom linens, i.e. towels, wash clothes, shower curtain and/or carpets. You’d be surprised how an older bathroom can really shine with some new and nicely coordinated linens. Here are some websites that show examples of how you can transform your bathroom.

  • http://activerain.com/blogsview/2707996/budget-bathroom-staging-before-after-photos
  • http://colorchats.benjaminmoore.com/2012/10/which-bathroom-color-has-you-green-with-envy/
  • http://www.designsponge.com/2012/12/before-after-rustic-bathroom-transformation.html
  • http://www.designsponge.com/2012/11/before-after-grey-green-bathroom-redo.html

Fix every single problem, such as leaks, plumbing issues, clogged shower heads and drains. Leaks and other common problems that arise but often go unfixed for months or years scream “poorly maintained”.

Finishing Touches

  • While walls, furniture and rugs should be relatively neutral, strategic arrangements of flowers or plants throughout the home can add splashes of color that are always well received.
  • Consider placing large mirrors where they can be of benefit.
  • If a room has smaller windows, a well placed mirror can reflect natural light into the room.
  • If a room is small, a mirror can make it look larger.

Some Thoughts on Home Condition

Sell As-Is or Make Improvements? What’s Best for You? Do a cost-benefit analysis. The HomeDepot has a great landing page about ten steps to updating a bathroom. If you can update a master bath for under $1500, is it worth it?

Pro Tip: Go through all of your records since you first purchased your home and list all improvements you made and their cost. Share this with all potential buyers.

Yes, it is. It is all about location, location, location!

Of course, you can’t change your location as a seller. What you can do is understand the influence of your home’s location on buyers’ decision making processes. Your location relative to comparable properties for sale is either going to enhance or detract from your maximum selling price. For this reason, it must be a factor in pricing when you re-list your home.

Pro Tip: Check out your school district’s reputation and things like average test scores and college admission rates. Those who don’t have kids can ask friends with kids, and average SAT scores for local high schools can often be found online as well.

Buying a home is one of the largest investments a person can make. Similarly, selling a home is one of the most important financial decisions you can make. When it comes to real estate, contempt prior to investigation is the number one offender for home sale failure. Don’t make the mistake of assuming you or your agent knows why your home didn’t sell. Re-evaluate everything from buyer feedback surveys to market conditions to your own actions and thought process when you re-list your home.

Motivation

Let’s start with your goals and why you wanted to sell your home in the first place. Are these goals still the same or have they changed? To dive a little deeper, do you have a good reason for selling your home? Do you have to sell? Are you trading up or down? List out your goals… Really, do this: List out all your goals related to why you want or need to sell and prioritize. To help you brainstorm, here are some of the most common goals:

• Being closer to loved ones or work.
• Lowering monthly costs, whether it’s downsizing after the kids have left the nest or taking advantage of the historically low interests rates out there.
• Retirement or looking to make a move to a new area.

There are a ton of reasons. Which ones are your primary? Which ones are your secondary? List your top 3 goals and keep them in mind when you’ll read our next post.

When you’re selling your home, it’s important to know your competitors. Although this may seem like a time consuming thing to do, it doesn’t require much effort at all.

Schedule Time to Look at the Competition

Consider walking through the 5 to 10 properties that are most comparable to yours in terms of proximity, price and type. Make sure to take notes and photos of each property, considering the layout, feel and condition, as well as any upgrades or value adds that a buyer might consider in comparing the home to yours. It’s best to look at 3 to 4 properties at a given time. Otherwise, the properties can begin to blend together in your mind; however, the whole process shouldn’t take you more than a day.

Why Knowing the Competition is Important

Getting to know your competition is invaluable! It blows us away when home sellers tell us their agent has never suggested that they should get a feel for their competition. By looking at what competitors have to offer you put yourself in a potential buyer’s shoes and the perspective gained from knowing what’s on offer on such an intimate level is simply unparalleled.

Pro Tip: If you have a smartphone, download a good “Notes” app, such as Evernote. Some apps let you take pictures, write notes and organize your entries by title (you can even make it the listing address). Take photos with notes of the front, back and inside photos of the kitchen, bathroom, master suite and ANYTHING unique or different (good and bad).

When selling your home, looking at recent data will help you understand the supply and demand for homes in your price range in your area.

What’s the Percentage of Successfully Sold Listings in Your Area?

An important statistic to understand is the percentage of successfully sold listings in your marketplace. Know the number of active, pending, sold, withdrawn, expired and re-listed listings in your home’s price range for the last month, 3 months, 6 months and year. As experts in expired listings, we have found that most sellers cannot answer the simple question of “How many homes are actually selling in your area?” Phrased differently, “What percentage of homes are failing to sell in your market?” Simply put, you are not alone and understanding the home selling success rate gives you the understanding of why your home did not sell, and more importantly, what you can do about it.

Selling Your HomeLet’s start by adding up the totals for all homes that attempted to sell:
Active + Pending + Sold + Withdrawn + Expired
= Total Listing Attempts

To determine the rate of success in your market segment, divide total number of sold for each time frame (1, 3, 6 and 12 months) by the total number of listing attempts: Total Number of Sold / Total Listing Attempts x 100% = Home Selling Success Rate

Here’s an example. Let’s say you own a single family home that was recently FHA appraised at $400,000 in Lower Merion Township, Montgomery County. For the period of 12/21/2011 to 12/20/2012, the total number of listing attempts for single family homes in Lower Merion priced between $350-450,000 was 131. The number of homes that were successfully sold in that same time period in Lower Merion was 77.
77 / 131 = 58.8%

Given that in the past year, 131 houses were listed for sale in the MLS and only 77 sold, the rate of home selling success for that area is about 59%. This means that 41% of homes failed to sell! So if only 59% of the inventory is selling, you want to be priced within the most competitively priced 59% of listings comparable to your home.

In the same area for the same time period, homes in the $850,000-950,000 range experienced only a 48% sold rate. So for Lower Merion single family homes, the higher the price range, the lower the success rate.

Every market segment is different so understanding the sold rate in your area is the most important step to determining a price that will work for you. By now you may understand that it’s extremely important to do this research for your home.