By Mandy Lunnon-Wier, Realtor
It’s no secret that now is a good time to sell property in Colorado, and landlords are taking notice. Whether you no longer want the responsibility that comes from owning a rental property, or you plan to purchase a new investment property after offloading a current property, there are considerations to keep in mind as you decide the cost and benefit of selling.
Experienced landlords typically fall into one of two categories: 1) they list and show the property while still tenant occupied with the goal of closing on the sale at nearly the same time as the current lease expires, leaving the property vacant for little to no time. Or 2) they wait until the current tenant has moved out, the property is cleaned, and any repairs or improvements are completed prior to listing and showing the property, which can leave the property vacant for several months before closing on the sale.
For landlords that are still undecided on their approach, let’s consider the scenarios of two landlords that we’ve worked with to sell their investment properties.
The first landlord expected that they could sell their unit for $250,000. Their monthly expenses for the property were about $1,300 and they were bringing in $1,500 per month in rent. Their primary concern was letting the property sit vacant for any amount of time, as they didn’t want to pay their mortgage without bringing in rent. Their tenants were average tenants. They were decently clean, but they had a lot of stuff and the dog was in a kennel during showings. The unit was an average unit. It had been a rental for 10 years and while it had been well maintained, it hadn’t been updated at all, including carpet, in far longer than that. The small yard was essentially a mud and weed pit. To work around the tenants’ schedule, 30 minute showing blocks were only allowed between 9:00 am and 4:00 pm during the week and 10:00 am to 1:00 pm on Saturdays, with no showings allowed on Sundays.
The property did get showings, and here was some of the feedback from other agents:
“There’s so much stuff and too little storage. My buyer doesn’t think it is enough space for them.”
“Shows rough and there was dog poop all over the backyard.”
“My buyer is looking for a home in move-in-ready condition. This needs too much work.”
It took about twice as long to get a contract on the property than other units in the same community, and in fact, the offer was received after the tenants had moved out. Ultimately, the seller sold the property for $243,000, approximately 3% less than they were hoping to get and it closed a month after the tenants moved out.
The second landlord sold at a similar time, and they were expecting to get about $315,000 for their property. Their monthly expenses were approximately $1,400 per month and their tenant paid $1,675 for rent. However, the tenant had already moved out before we were even called to preview the property. The landlord asked for very specific direction on items that needed to be addressed, since the unit had been left in rough condition by the tenants. We happily gave them our input which included a fresh coat of paint for the full interior, refinished hardwood floors, landscaping in the front yard, new stain on the cabinets, new counters, and some tile repairs in the entry way and two of the bathrooms.
The repairs and updates took about four weeks and cost about $7,000. By the time they listed their property one month after calling us (and after sitting vacant for that month plus a couple of days), comparable homes in the neighborhood suggested that a reasonable list price would be $318,000. There were multiple offers received by the end of the first weekend, and the property sold three weeks later to a cash buyer for $328,000.
Of course not all situations will have the same financial implications as these two scenarios, but our overwhelming experience is that homes that show in good condition, sell quicker and at a higher premium. Your Realtor can help you decide which approach may be best for your situation, and will always be enthusiastic about providing suggestions that will increase the value of your investment.