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Dialogue “Transforming Hidden Value into Operating Strengths and Positive Cash Flows”

Dialogue “Transforming Hidden Value into Operating Strengths and Positive Cash Flows”
LIVE WELL - BUY RODWELL
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Asking your neighbor who had a valuable and very beneficial real estate experience what is their opinion of why the experience was so useful; they will say, "it was very enlightening." Almost all our customer surveys and repeating customers support that response. Especially, the housing business customers – every transaction is new and exciting to them. Even though they are an old hand at it. Here is a trip down memory lane with one of our lifetime customers who realized at the third summit that he successfully transformed hidden value into operating strengths and was able to prove positive cash flows that he did not want to sell the third property before buying the fourth.

When you are selling your housing business property, ask the prospective customer or even her agent to put a dollar amount on the cost of every feature and each element within each consequential value they see inside the property.

I will even reverse the proposition…

Whenever you are shopping for your housing business property, ask your agent or even the sellers to adjust the dollar amount of every feature and each element of each consequential value in the ask for the property.

Here's the dialogue of how the #ValueAddedRealtor to price and cost of any delayed property sale might play out on a multifamily housing property transaction that was listed and expired on the market and experiencing several price improvements yet no offers before. The consequences of the for-sale listings and price reductions drive interest down and further downgraded the probability to be resold. By now the sellers have grown frustrated and have taken down the listing for the "very last time."

We knew that those hard lines have no meaning in negotiations. Just in case you think negotiating is haggling and bantering to and from each other – negotiating starts the moment one decides to buy or decide to sell. All the subsequent actions, maneuvers, and dialogue leading up to the realization of that successful goal or ideal are negotiations. Nonetheless, we work with a seller, to overlook their disappointing efforts of the past, and to determine the price at which they will let the property go to another owner. However, if every owner or prospective owner isn't clear on the value that they are abandoning they will have more hesitations for transacting their businesses.

Join us as we lay out some of our Value-Added Realtor components, it's easier to understand, comprehend, measure, and estimate. Let's listen in on how one piece of that conversation, focusing on the cost of expired, withdrawn and failed listings turnaround Mr. Kenneth Crump:

VALUE-ADDED REALTOR: Kenneth Crump, I see you have listed the property several times and reduced the price significantly until you withdrew it from the market. I want to find out more about how the prior listings are affecting your future decision to have another Realtor® sell the property for you? I'd like to start by what value did the original agent presented to you when you decided to advertise your property for sale? I am just going to use the overall days-on-market to define the delay and the price drops total-up to money lost.

KENNETH CRUMP: It wasn't a pretty endeavor. People who were prequalified by their agents came to see the property at every price we asked. Some recognized that the property could have gone from a 4-unit apartment building to a 6-unit complex even and still have a community room. However, we could not have any offer to contract.

VALUE-ADDED REALTOR: Naturally you will have to revalue the "stuff" in your ask?

KENNETH CRUMP: That thought never occurred to me. I thought that resuming the advertisement of sale at a higher was a no–way in real estate. So, I was just going to wait for a year to pass, then hire another Realtor®. What do you propose to do differently?

VALUE-ADDED REALTOR: Eventually you will exit the property. Think of it as a product of your business – if you haven't realized it yet. It is different than your family home that is going to be forever. You could dispose of it outright or you could restructure the financing with improvements to make it worth more to your position. Both methods are equal forms of exiting the business. The latter is refinancing. While most people refinance to get money out of their property, so it is often considered getting in debt – smart housing business owners flip the properties back to themselves taking advantages of the capital improvement incentives and charge more for their units.

KENNETH CRUMP: Most property managers and landlords are looking for long-term tenants who pay their rents on time. Why would a landlord find ways to increase the rent when the tenants noticing higher-than-cost-of-living increases will just relocate?

VALUE-ADDED REALTOR: Yes, it is true! A housing business manager is to satisfy the housing needs of its customers. Also, every business manager's shrewdness for attracting more affluent customers are the misstep that housing business managers fail in their objectives. Especially the housing business owner who also doubles as the manager to reduce operating expenses. They tend to lose all their perspectives that a business must grow like a functional being – otherwise, it dies.

KENNETH CRUMP: What do you mean by must grow? How do you grow a building that is fully occupied? I understand some properties can expand and add more units, but I do not get this growing charge you are applying to apartment buildings and housing assets. We as landlords run our own properties because it is more economical than hiring a manager to do it with such few units. The larger complexes can afford to have a management and maintenance team but we have to handle those things ourselves. Why should I pay a property manager's salary when I can take care of those details and collect rents from my home myself? With the cost of financing these days we landlords must do things for ourselves to carry the note on the smaller properties…You actually get paid your commissions with that defecation?

VALUE-ADDED REALTOR: All valid questions and enthusiastic comebacks. I love it when I raise that much passion from clients – that means they are serious about their business and not just kicking tires. They are thinking and functional businesspeople and I will have them call my verbiage shit anytime above someone who just acts like they are hearing me and just say thank you. Those polite responders always come back asking for explanations yet eventually does no business whatsoever.

Fact is, most people are hung up on the same issues that get a lot of housing business owners/managers to fail. They fail because they do not plan improvements to the property that will make it more valuable to customers and in-turn more valuable when they exist – in any of the forms mentioned. When you let the property go into poor maintenance and disrepair it will attract poor tenants. Poor tenant turnover just as much as strong tenants. If not the same frequency the more rates when you add the forced changes. Evictions do affect operating expenses and before you know it a landlord can actually pay the cost of having tenants two or threefold.

Property management is the commonest cost-center many landlords take on shabbily, but it is not the only cost-center for operating a housing business. A housing business has utilities and house upkeep that the tenants are not responsible for directly. However, if a landlord misses a scheduled garbage removal, the tenant will complain about pests and odors so property managers can spend a whole day straightening things out and holding hands with the tenants as well as future customers. Let's take the F.O.C.U.S away from property management. Your issue is getting the value out of your property so you won't have to reduce your prices for an exit.

You have gleaned all the prior listing presentations and the price you asked should be indelibly on your mind by now. What would you ask today for the property? How about a year from today, what will your asking price be then?

KENNETH CRUMP: Hard to say. It varies.

VALUE-ADDED REALTOR: I can imagine it does. But just an EWAG estimate would help me put this into perspective. Naturally, we are having this conversation, so I am quite sure if you could get your original asking price now, and with all the topsy-turvy appointments and disappointments you have had, you would love to accept it without a second thought.

KENNETH CRUMP: Well, it's tough to estimate; there are quite a few variables.

VALUE-ADDED REALTOR: Oh certainly, that makes sense. But just to take this conversation a little further, if you had to guess, what number comes to mind? After all, the bottom line is to sell it for more than you pay for it? So, when you tally the accounts is whenever the income is greater than the expenses that another prospective owner or even you will benefit most to own it.

I remember a conversation I had with my nephew. He had noticed a woodpecker for the first time that was not in a television cartoon hammering away at the tree bark and he was amazed. "I didn't know they were really crazy – I thought that was only on TV," he yelled while running over closer to the action. When the bird flew away, he came back to the picnic table and said, "WOW! They are really crazy like in the cartoons; HUH?" Naturally, I had to explain: The woodpecker finds value in the tree's bark, so she validates hammering her head against the wood to get that value." What value that bird see in the tree trunk when the cherries are easier to pick, he asked. So, I had to spell it out for my nephew. Many bugs live in the tree's bark while other insects lay their eggs to hatch on the tree as well. Consequently, when a hungry woodpecker wants to eat some delicious young insects, they pay for it with some sweat equity and learn to eliminate the headaches.

Anyway, let's get back to Transforming Hidden Value into Operating Strengths and Positive Cash Flows with RodwellBuildingServices.

KENNETH CRUMP: Maybe we could list it at the higher asking price like before. But the risk is we could lose the customers.

VALUE-ADDED REALTOR: When we are communicating your property's value on the market, shoppers are not customers until they agree to buy. Furthermore, until you present the valuable features of any product (in your case – this apartment building), you will just be selling because of despair.

The industry has made that the status quo because people have bragged about flipping-for-a-profit without any development to the property at all. Most people are attracted to the new-found wealth but the lazy way of doing real estate only makes IRS happier. The so-called "customers" you are thinking of are prospective buyers who will be very intrigued with affording the stuff of your deal when it's put to them the RodwellBuildingServices' way.

KENNETH CRUMP: Yes, that certainly sound's great.

VALUE-ADDED REALTOR: I don't know if you went through anything like our F.O.C.U.S. Consultation, but that is where we will begin so that we could start estimating a selling value that the market will want to pay. Should we agree on a marketing assessment, you and I can walk around and observe the physical condition of the property now?

KENNETH CRUMP: I think that's very doable. By-the-way, why do Realtors® say that now is not a good time to sell my multifamily building?

VALUE-ADDED REALTOR: Your previous listing agents may say that because they were just posting the information into the Bright MLS database and then reduce the price as time passes and attendance waned. But what would be the most amount of revenue this property could generate from this area? Have you been given that information if you haven't studied it yet since you bought the property?

KENNETH CRUMP: I don't have an exact number on that. I did not buy it with that information. When I bought, this property was competitively priced with the other similar property selling around here. So why is that process different now. We priced the ask aligned with the comps last year and even with several Open Houses and several Price Improvements, we've not even one low-ball offer. We are talking about 400 DOMP (days on market property) and a $123,000 price reduction here!

VALUE-ADDED REALTOR: Oh, I think the market will pull back when you have not communicated the value of the property in a medium, they can see value in operating it. Think of the commissions and closing costs you didn't pay yet as a happy upside to that ordeal. I don't mean you should laugh about delayed transactions but keep in mind you have not covered any unrecoverable expenses yet. So, please let me help you balance the books and show you some profit centers.

KENNETH CRUMP: Okay! I guess it's fair to have RodwellBuildingServices earn the commissions and witness your sales activity.


VALUE-ADDED REALTOR: That sounds like a plan. The same people who saw your property before will see it again but in a new light. Is there any reason for you to study your business in the next 30 days and drive an irresistible asking price next month?

KENNETH CRUMP: No, No reason whatsoever! What's next?

VALUE-ADDED REALTOR: You mentioned waiting another year earlier, so I want to make sure you are confident in RodwellBuildingServices aggressiveness for cutting your delays and losses as the new environment for selling your property.

KENNETH CRUMP: Well, that will be great so let's cooperate and see salvation.

VALUE-ADDED REALTOR: Out of how many tenants residing here require additional parking spaces? With this area being as densely populated as it is, would you think that the better feature to sell to future tenants is the 5-stops bus ride to the Metro Station? Wouldn't a 40-minute commute attract some of the higher paid commuters from the other areas?

KENNETH CRUMP: Surely. But the property won't attract tenants willing to pay more rent.

VALUE-ADDED REALTOR: I was hoping you would catch-on from our earlier exchange that I will not have to redo the benefits from gentrification. And, Yes! Before you ask you will expect to do some physical improvements – I see no reparations but we will propose some aesthetics improvements; some management improvements – not specifically hiring a property manager but there are things that I will show you to do with your leasing terms; and some tenant improvements – some increase in rents because you are upgrading the amenities.

KENNETH CRUMP: That sounds like thousands of dollars.


VALUE-ADDED REALTOR: Yet it won't be $123,000 even you take a year to spend it. So, let's get the numbers right. It sounds like you accounted for the loss as a result of the delayed sale. And you are not looking at the larger picture. Yours is not a single-family home that you are selling to someone to make their new home. Yours is the asset of a business – it is different than just tidying up and improving the curb appeal.

Look at it this way: if you can increase your rent roll to match the building around the corner you will add another $60,000 to your business' income. Upgrading kitchens and bathrooms with a comprehensively new painting throughout can cost upward of $14,500 per unit to be amortized over the next 7 years. If the existing tenant stays, they will pay the rent the property around the corner is getting paid. If they don't, then you will attract tenants well over the income limits for the enhanced living facility. $60,000 annually less $8,300 in capital improvements grosses $51,000 revenue per year. Can you see how that places you way out front of the game? I see that smile, it does sound fantastic, HUH?

KENNETH CRUMP: Yes, Sir, I guess it does. That sure sounds great. I don't think we've really put the numbers together before—probably didn't really want to know.

VALUE-ADDED REALTOR: Well, it's our added F.O.C.U.S and insight plus our Relentless Focused Actions we provide all our clients from the moment they come upon us.

Kenneth sold the property and is in escrow for another slightly larger property. He is a lifetime customer and an old hand at housing business entrepreneurship. We just met at a 21-units property a week ago. Heck, this one he will need is property management team. I wonder how our dialogue should be?

Like Kenneth Crump, often, you will be intrigued and fully engaged by the cost of the problem conversations. Prospects do want to add clarity to their decisions, and the financial aspects are the most critical in their minds. There really is little reason for them to refuse to participate. There will be rare cases where prospects aren't as forthcoming as we might like. When you buy or sell your property with RodwellBuildingServices, don't be surprised if we get you to involve as rigorous as you will want us to get with the prospects that will be buying or selling your property. You can always get our attention with a brief email to help@rodwellbuildingservices.com

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Rodwell Smith

Rodwell Smith and RodwellBuildingServices, Inc., has over 35 years of progressively responsible experience developing and modernizing real estates for individuals, corporate and government entities. Rodwell has sold and procured over $270M real property improvements; managing the projects from selection, inception, through design, through construction; quality assurance, surveying quantity, turnaround delays and augmenting progression to completion. RodwellBuildingServices™ benefits keen real property sellers, buyers and users in Washington, DC and up to 50 miles around Maryland and Northern Virginia with the real services and the right property for their order!

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