Dear Motivated Property Investor
Increasing the value of a property for sale is one part of the flip process.
To explain how to do this without doing a refurb I need to show you my simple 3 step flip system.
- Buy an empty property below market value
- Fill it with tenants and increase the rent
- Sell for more than market value
That’s the simple top line overview and here’s a little more detail showing why it works and how you can use this in your property business.
#1. Buy An Empty Property BMV
We can all agree that a property that is empty is going to sell for less than a house that has someone living in it. If for no other reason than most people (myself included) are really bad at appreciating the size of an empty room.
Once it’s got furniture in it suddenly you can see that the living room has space for 2 sofas, a big TV and still doesn’t feel crowded.
It’s the same room. One just feels smaller than the other when you’re in it.
We can also all agree that as a landlord, when you’ve got an empty house, you’ve got a problem that is burning a whole in your pocket so you’re looking for a quick fix. If a buyer can take away your pain quickly then you are much more likely to accept a lower price.
So my strategy was to find landlords with empty houses. This often happened because the landlord lived out of the area and didn’t have the time to fill it.
Yes the property was a little tired, which didn’t help, but it certainly wasn’t dilapidated or in an unrentable state.
Knowing that they were unlikely to have made any significant cash flow from the property for some time made it easier to negotiate the sale with them.
Starting with a BMV deal is critical to flipping profitably.
#2. Increase The Rent
There are a number of ways to add value to a property. Most people only focus on the bricks and mortar value so refurb or extend before selling the property on.
That makes sense if you are trying to sell the property to a first time buyer.
However, if you are trying to sell to an investor they want to know what the property will rent for and how easily they can rent it.
If you rent it for them (before the sale) then you are not only proving them with the service that they want. You are showing them exactly what they need to see to be able to make an informed decision.
Think of this part of the process like filling it with furniture to show the size of the room. Only for an investor you are filling the house with people to show the ROI from the property.
I’ve named this section increase the rent and in reality what it really means is bring the rent up to the current market level so that you can demonstrate the full ROI from the property.
Will you agree that if a property has been empty for a little while that the landlord is unlikely to want to put the rent up, even if he knows he should?
How do you make a tired property feel better without doing a refurb?
This can be as simple as getting rid of the landlord’s dated furniture, giving the house a thorough clean and changing the curtains and light fittings.
When you change the curtains you can immediately put some colour and life in a room. If each room has a bare light bulb in the middle it’s not going make the room feel inviting. This will reinforce the fact that the property needs some TLC.
If you change this to a more modern fitting with 3 bulbs. The room will be brighter and lighter. This will immediately make it feel more inviting.
Another simple, quick and cheap improvement is to professionally clean the kitchen and then realigning the doors to the units. If they all open and close properly it will not look like it needs to be replaced.
When tenants come to look at a house to rent, they are in and out within 10 or 15 minutes so all you are doing is improving the immediate feel of the house.
Once the house is generating an income you have increases it’s value to an investor because they can now see their return on investment.
You have also saved them the time and hassle of finding a tenant which makes them more likely to buy your property than any other.
#3. Sell For More Than Market Value
Yes it is possible to sell a house for more than market value if you focus on who you are selling to.
I would always try to sell to an investor as I could draw their attention to the return or yield that the house will make them as soon as they buy.
An investor is never going to live in the property so they are making a decision based on the numbers. If they are happy with the return that the house is making then they will buy it.
Having tenants in the house saves the investor the time and expense to fill it. They can also see that it will rent in the condition that it is currently in.
This is all in stark contrast to a first time buyer who will make a decision based on how much they like the house.
Where do you find landlords to sell your deals to?
Back in 2003 I used to sell properties at auction. This was and to a large extent remains the playground of experienced property investors. So still a good place to go if you want to sell a house as an investment.
These days Facebook is another place to find landlords. There are hundreds of property groups popping up all the time so you might wonder which is the best to be in. Unfortunately I don’t have a good answer for you. My suggestion is to be in all of them and when you’ve got a deal post it in as many as possible.
How do I sell my deals?
I’ve created a landlord database just to sell deals to. These are landlords all over the country so they may want a deal in Wolverhampton because it stacks from the numbers.
Most landlords that want to build and grow a portfolio in their area. This motivates me to source deals across the country.
How can you build your own landlord database? Well that’s a long story that needs to be saved for another blog post.
However, if you’d like to save yourself the time and expense of doing this then there is a way that you can sell your deals to my database. I’ll tell you how in the next couple of days.
To your success