When it comes to the skills involved in selling residential real estate, we tend to think of real estate agents and the general class of sales skills that go with being a licensed sales person. On the other hand, real estate investors are not out to get listings or drive buyers all over town viewing dozens of different properties, they are about getting their specific property sold, and this calls for a different approach.
As one who has been both a real estate agent and a real estate investor, and sold properties in both markets, I’ve experienced both sides of the business. For purposes of this article, we’re going to discuss the thought process that goes into making money selling real estate as an investor.
Investors who are planning to sell a property themselves are usually working with one of two different kinds of buyers – investor buyers or owner occupant buyers. This is an important distinction.
Those who are attempting to “turn” a property very quickly with a minimum of work are usually selling to other real estate investors who are likely planning to rehab the property and hold it for rental. These investor buyers want the lowest possible price so that there is plenty of room to allow for positive cash flow after any necessary repairs or renovations are completed. Their objective is cash flow. If you want to successfully sell properties to this type of buyer, “the numbers” are everything. Location is also important, but at the end of the day, the numbers have to be right to attract an investor who will want the property.
Essential skill number one at this level is knowing how to negotiate great deals so that you can leave plenty of profit margin for your investor buyer.
Those who are planning to rehab a property and sell it to an owner-occupant buyer are not so concerned about the potential cash flow. When your buyer will be living in the property, the focus is on making the property attractive to the type of buyer that will want to live in that particular area. Location is also more of a factor when selling to owner-occupants.
Higher priced properties in better locations can expect buyers who are better educated, have higher incomes and more sophisticated tastes. Any updating or rehab work must be chosen and planned carefully for buyers with distinctive tastes and desires.
On the other hand, selling properties to owner-occupants in middle to lower income areas will tend to have more of a focus on affordability and perhaps creative financing techniques to help the buyer get in the home.
Entry level home owners with average incomes often have more difficulty qualifying through traditional channels, and may need the seller to take back a second mortgage so that the buyer can qualify for an 80% first mortgage. If the investor is smart enough to get in the deal with the right numbers, they can sell the house and make all their money back, plus some cash profit from the 80% LTV on the first, then hold a note for monthly income in the form of a 20% second mortgage. This is a selling skill that can yield an up front cash profit along with a sustained cash flow. As long as I am getting my costs back and making a decent net profit at closing, the risk of holding the second is much lower.
Lead generation for investor buyers or owner occupant buyers is relatively easy because buyers are trained to look for sellers. Getting buyers to call you can be as simple as running a classified ad, putting up a few bandit signs on the roadside near your property, (make them READABLE from the car, please), or putting up a simple website that says you have properties for sale. Photos are a must. Include flyers in the window of the property so that any potential buyer stopping by can see your price and terms clearly, along with contact info. Buyers will find you if you make it easy enough for them.
Selling skills for real estate investors are much more along the lines of creating a transaction that fits the type of property you have to sell, and the type of buyer you want to attract. Whether you wish to sell to other investors quickly for cash, or you wish to go for a higher potential cash profit by selling to owner occupants, the real objective is to understand the needs of your buyer and cater to those needs. Your buyers will reward you for it.
Donna S. Robinson is a 17 year real estate industry veteran, investor and author located in Atlanta, GA. Follow her on twitter at donnaconsults and read her blog on www.RealtyBizConsulting.com