1239 N. Westmoreland is for sale

We’re selling 1239 N. Westmoreland Ave. in East Hollywood in order to realize some profits for our investors.

It’s a pretty great building:

  • 5 units, 4 one bed, 1 two bed
  • Totally rebuilt in 2009-10 with permits; no deferred maintenance
  • Monthly rent is $7,980
  • For sale at $949,000 (9.9x grm)

Here’s the listing on Loopnet: http://www.loopnet.com/lid/17621152

Here’s the MLS listing: http://guests.themls.com/Details/CA/LOS-ANGELES/1239-N-WESTMORELAND-AVE/90029/12-594467.aspx

Here are some indicative numbers (but you should not rely on them; you need to do your own diligence):

  • Put down 25%, $237,250
  • Borrow $711,750 at 4.25%
  • Annual NOI of $62k
  • Annual debt service of $42k
  • So, cash-on-cash return of $20k / $236k = 8.4%
  • First year return (including loan reduction of $12k) = $32k
  • Total first year return of $32k/ $236k = 13.6%

Finally, here are some pics:

I’m brokering the deal on our end. If you work with me directly, I can do a bit better on price, since I won’t have to pay another broker. Any questions, get in touch.

The right strategy for selling

There are two basic strategies for selling property:

  1. Price it high and wait; or
  2. Price it low and have a bidding war
The second one is much, much better. To understand why, let’s take a look at both.

1. Price it high and wait

The theory behind price is high and wait is that, eventually, someone will come along and pay your price or something to it. Under this theory, there’s no sense in negotiating with yourself (by lowering the price too soon). Just let the property sit out there and a buyer will turn up.

There are a few problems with this strategy. First, your listing will get stale. Most brokers and buyers looking at property check to see what new listings have come on the market. If they see yours sitting around, day after day, they begin to get the sense there’s something wrong with it.

Second, your broker will start caring less and less about your listing. He’s in business to make a buck. If he can see there’s no action on the property, he’s not going to give it his full attention.

Third, you can have an appraisal problem. Even if you get someone to come along and pay your price, the fact it was your only offer may give the appraiser for the buyer’s bank pause.

2. Price it low and have a bidding war

The theory behind pricing it low is the following: You’re going to attract a LOT of interest. Every broker and buyer in the market will notice your property. Seeing a good deal, they will rush to get you offers. Now you’ve got some hot leads.

Assuming you get a bunch of offers, you’re now in the driver seat. What I like to do next is to counter everyone who is in the ballpark on price with the following: I’ll let you do your inspections now, before we go under contract. Then, you give me a non-contingent offer to buy my property for a set price.

The advantage of conducting a sale this way is that you will scare off the tire-kickers and re-traders. Serious buyers will take the risk of spending a few bucks to do their diligence up front. Then they will come back with hard, non-contingent offers. This spares you the haggling that sometimes goes on during the due diligence / contingency period.

Finally, this approach solves your appraisal problem. If an appraiser for the buyer’s bank doubts the value of the property, you can show him that you got a bazillion offers right around the final price. This goes a long way towards making the appraiser comfortable that the bank isn’t getting screwed.

And now, a final note: If you’re interested in selling your apartment building… don’t do it. Seriously. Hold on to your assets if at all possible. But if you really have to sell, give me a call. I’ll either sell it for you or, if I’m not the right person to do it, point you towards someone who is.

14 unit re-positioning deal

The 14 unit deal I mentioned late last week is going out to the mailing list around 5pm today.

If you want to understand how the numbers work on a larger apartment project, this is a good one to take a look at.

To join the mailing list, click here and follow instructions. Should take about 3 seconds.

How to choose a broker to sell your property

First things first. Don’t sell property if you can avoid it! But, if you must sell, use a broker.

Choosing a broker and figuring out how to work with him* successfully is the most important part of any sale process. (*Note I’m using “he” and “him” here, but many of the best brokers are female. Just a thought.)

Here is how to get it right:

1. Meet with the 2-3 brokers who are most active for your property type in your area.

Brokers who sell a lot in your area have lists of agents and buyers who are looking for local properties. As frequent market participants, they also have a good sense for true market values, whether loans are available for buyers of your kind of property, and how long deals are taking to close.

Drive around your neighborhood and look at the for-sale signs. Keep notes. If you do this for a few days when you’re on random trips out to the store, etc., you’ll have a pretty good sense for who is selling a lot. Make a list of the most active brokers. Narrow it down to the top 5.

But, you don’t need to meet all of them. You’re only going to hire one, so any information you leak to the others you don’t hire is just going to reach the ears of potential buyers. Just choose the 2-3 brokers who seem most active and meet them.

2. Never tell any broker what you’re hoping to get for the property.

At the meeting, called a “listing presentation”, the broker will ask you what you think your property is worth. This is a dangerous question.

If your number is below the broker’s estimate of the market value, then the broker is just going to agree with you, knowing that it will be an easy sale (which is good for him but bad for you). If your number is above the broker’s estimate of the market value, he’s also going to agree with you, because he knows you’re unlikely to hire someone who tells you your property is less valuable than you think it is. It takes an VERY confident broker to tell you your price is too high; these are rare birds.

So, when the broker asks you what you think your place is worth, just turn the question around and ask him what he thinks. Do this with a few brokers and you’ll get a pretty good sense for the actual market value. Then you can decide whether you’re a seller at that price.

Even when you’ve chosen a broker, don’t give him your real bottom line number! Take whatever you think your bottom line is and add 3-5%. Your listing broker will hustle to try to get whatever number you tell him (as long as it’s reasonable), so you might as well be a bit high so there’s room to come down if necessary.

3. Don’t let anyone buy the deal

“Buying the deal” is broker-speak for coming in and telling a client a high value for their property, hoping to get the listing by appealing to the client’s greed. The broker who does this knows that the property won’t sell at the price he’s quoting. But he’s hoping that you’ll get some low-ball offers and agree to lower the price. Then he’ll get his commission.

I once let a broker buy a deal from me. She told me my duplex in a somewhat crappy part of Silver Lake was worth $100k more than the other brokers quoted. I liked the other brokers more, but I went with her because I was greedy. The property sat on the market for weeks with no action. Finally, I called her to tell her to cut the price. She suggested cutting it by $50k. I cut it by $100k, to the price the other guys had suggested. We got a bunch of offers, bid them back up by around $50k and it sold. I can tell you I was not very happy to pay her a commission on the deal, because I was the one whose strategy sold the property! I’d never use her again.

Understand that the real price will probably end up somewhere in the range between the highest price a broker quotes you and the lowest.

4. Check references

Ask each of the brokers with whom you meet for contact info for some recent clients. Actually call them and listen to what they say about their experience with the brokers. Eliminate anyone whose references aren’t stellar. After all, you let them choose the references; if they can’t find good ones, there probably aren’t any!

5. Select the broker you actually like most

You’re going to be spending a lot of time with whomever you choose. There will be high pressure moments. You may disagree about tactics. The broker will be your sole conduit for information to / from the buyers. All of this is much easier if you fundamentally like and trust the person who represents you. So let your gut guide you to the right broker from among the remaining candidates. But…

6. Commissions are negotiable

So don’t tell him you’re hiring him, yet. Have the commission negotiation first! Tell your chosen broker you’re considering hiring him but you want to talk commissions, first. Then ask him what he wants to charge.

If it’s LA, he’ll probably quote the standard rate, which is 6%. For a smaller property, say one worth less than $300k, I wouldn’t push on this number. You want the listing agent and the buyers’ agents to smell enough commission money to make it worth their while to show your property. Going too low will cause them to move along.

For larger properties, you can negotiate, to a point. Here’s what I like to do: I like to offer the listing broker 5% if they have to split the commission with an agent for the buyer or 4% if they represent both buyer and seller. This way, if they have to split the commission, they’re still doing pretty well. And if they double-end it (that’s what it’s called when they represent both parties to a deal), they make a lot of money anyway and you get a slightly better deal.

7. Remember that the broker is there to close the deal, not get you the absolute best price.

The commission for a broker selling a $500,000 house and splitting the 5% with a buyer’s broker is $12,5000. I can guarantee you he does not care that much about a $10,000 price move in either direction, since it’s only worth $250 to him. So, when the buyers start to haggle and the broker pushes you to lower the price for them, remember that he’s not particularly incentivized to fight for every last penny for you.

This is not necessarily a bad thing. It’s possible to blow a deal over a relatively small amount of money and that’s usually a dumb thing to do. The broker’s job is to be the advocate for getting a deal done. You need to remember to be the advocate for getting the highest price. How you and your broker manage this tension will go a long way to determining whether you are satisfied with the outcome of your sale.