Selling Your Investment Property? Real Estate Agent Reveals Mistakes to Avoid

Video Transcript

Robbie: Phil, you and I have been working together now for a couple of years. And I guess predominantly we use Astute Realty for the property management phase of it all. Yep. And as all of you know, we are a buy and hold real estate property investing strategy and philosophy. You agree with that, right?

Phil: Absolutely. I would certainly back that up. But as you’ve said, circumstances change for certain people.

Robbie: Yeah. So, I mean, there may be, you know, as your life evolves, you’re like, alright, we need to get ourselves out of a pickle. We need to fix a certain problem in our life, go on a different tack, pivot to another, you know, area activity, whatever it’s going to be. So selling a piece of real estate that you own can be a very natural place. So, of course, enter real estate agent. Let’s effectively just have a bit of a chat now about what is the role of a real estate agent. So just sort of, maybe even just chronologically. Well, like, “Hey, Phil, Sam wants to sell his investment properties. He’s had a change the circumstances. Here’s his contact details.” What happens there?

Phil: Yeah, absolutely. So the very first thing for us is obviously to contact the owner and build a rapport and relationship with them, so understand what their personal circumstances are. Some would have a time basis in terms of a sale, could be due to divorce, could be anything else. And others will have a price thing. So time’s not as important, but price is really important.

Robbie: And we’ve got a whole section on price coming up in a minute. Absolutely. I mean, look, what’s the bottom line up front? Well, you’re there too.

Phil: We want to get the best price. That’s the bottom line. But we don’t want to do it at the cost of other things if that client’s got the specifics.

But ultimately the agent, our role is to get you the best price for your asset in the market at the time. I guess the background mechanics of that is essentially walking them through how that’s going to work from marketing. So marketing is pretty stock standard. We get photos and we go on realestate.com, which is probably the most powerful way to actually advertise. But then from there it gets a little bit grayer in terms of, okay, what’s our strategy? How are we going to send this to market? Are we going to go to auction? Are we going to do a private treaty? Are we going to do best and final offers? So best and final offers mean no one knows what everyone else is bidding, whereas an auction, it’s very open. So there’s cunning ways and it really depends on the location of the property. That is, are we in just the suburbs, are we close to lifestyle assets, schools, whatever, and then what else is on the market at the time and how the market’s behaving. So there’s no real direct answer on that other than the individual, their circumstances and dealing with it at the time. And I suppose that’s the role of us as an agent, is to get the best strategy to present your property in the best light we can to get you the top dollar.

Robbie: Yeah, I love that. And, you know, good news is, mate, is that Axon Properties are not in the middle of nowhere. They’re all, they’re close to infrastructure. You know, you’ve had some fantastic results. Literally, again, as per today, another property went under the hammer, got signed contracts. Was it 20, 30 grand above asking price?

Phil: 30 grand above. I think it was first open home. In fact, no, this one didn’t even go to an open home. The open home was a Saturday. We had so many people interested, we actually opened it on the Wednesday prior and we never went to open home.

Robbie: One really important factor, and it’s something that we will speak about down the track as well, is that if you’re selling your own home, obviously you’re living in it and then you’re moving away from somewhere. But what if you’re selling an investment property and what if it’s got tenants in it? Yes or no? So I know that’s really, really important for anyone selling an investment property, you must be made aware what the circumstances are of that other human that’s living in your house, paying the mortgage for you.

Phil: Yeah, absolutely, yeah.

Robbie: What’s probably the key function that you do up front there to like looking at other properties on the market? What’s that document you provide everyone?

Phil: Oh, so we do a what’s called a CMA or a comparative market analysis. What that really involves is us looking at what’s sold in the last six months in your sort of area and your price point and your, you know, whether it’s three bed, two bed, four bed. And then we also, then have a look, I will look at also what’s on the market right now in the area and then we put it all into a report so that you can see it. So we’re trying to sort of, I guess educate the seller as well as to where we think. Because the last thing I want is a seller to go and spend, you know, 4 or $5,000 in marketing to sell a property. In the aim of getting $900,000 cause that’s what they were promised, and in reality, it’s only worth $850K.

Robbie: I was gonna say some people, like, this is what I need, but what the seller needs and what the market will provide them are not the same as well. Can you comment on that?

Phil: Absolutely. And as Robbie’s just pointed out, we get, we get a lot of clients that say, yeah, but I need. And I go, I know that that’s obviously a calculation that you need, but the market doesn’t know your need. The market will only pay what it’s valued at. So our job, I guess, is to ensure that you’re going to market with a realistic price point. Ultimately, we want to get as high as we can, but we just want to know you’re starting from a good place.

Pricing The Property

Robbie: Yeah, nice. And you sort of said before about, we can go to auction, we can go to private treaty, we can go to best and final offers. And you can see up on the screen there, now let’s talk about price. So, yeah, what’s, what do you feel in this current market? So you’re predominantly based here in South East Queensland or you’re only based in South East Queensland?

Market’s strong here at the moment, across all areas, it is the only demand is high.

Phil: Yeah, absolutely. So that the property we were talking about was actually based on the Sunshine Coast before, and we’re getting 15 to 20 at an open sort of thing. So there’s a lot of demand there. But even in the other areas that we’d say are slightly softer. We’re still selling them within probably two to three weeks. So it’s pretty strong. And the key is probably pricing in a realistic price point. Like if we know that that property’s worth around the $850K mark and we go listed for offers over $950K, no one’s going to rock up to the open. So quite often it’s not where you start, it’s where you finish. So we say to someone, let’s list it offers over 800. I know you want 850 and we know it’s worth that. Let’s start there and get 20 groups through and let’s get some momentum. And that tends to be a really good strategy because ultimately then people feel like they’re going to miss out and dive in.

Robbie: In my experience, whether you’re selling houses or selling a bloody Jet Ski on marketplace, whatever it’ll be, you need to put yourself in the buyer’s shoes, because they’re not idiots. They’ve got access to the same information, they’re doing their own comparisons. They’re, you know, the buyer’s trying to get a bargain, you’re trying to sell it for the most amount. They’re working in opposite directions. What’s your job as the agent? You’re the person in the middle, basically bringing everyone together to make sure there’s a fair and reasonable outcome. Absolutely. Because you’ve got to communicate with both parties, right?

Phil: Absolutely. And as you just pointed out, the buyers are way more educated than they were say 20, 30 years ago where all this data wasn’t available. And we could probably use a little bit of smoke and mirrors to get a little bit more out of them. Those days are kind of gone. Most buyers, as you know, even the sellers, you ask them, what’s your property worth? They pretty much know already. They’ve seen on realestate.com, they know where it sits. So, our role is to try and bridge the gap a bit but get the most we can for that seller.

When Tenants Are Involved

Robbie: No worries. Let’s last topic now. Talk about, you know, I would say, you know, the 550 plus properties we’ve got sitting on the market completed 90% of them would be investment properties. Therefore there’s tenants in place. Yep. I guess here’s my bottom line up front to you is that don’t sign a 12 month lease with your new or current tenants and then wake up six weeks later and go, oh, I think I might sell this property now. You know, you’ve got to be smarter about that. You know, when the penny drops, what Phil’s about to pass on to you here now as far as what are the implications of trying to sell an investment property with a long lease in place? You just need to be made aware of it. So therefore your expectations are being managed. Let’s talk about that scenario first.

There’s at least a 10 month lease in place and the buyer’s like, I need to get rid of this property, Phil, help me.

Phil: Yeah, yeah, so, and just stepping slightly back from that, the first point is that your agent that’s managing your property, whether it’s us or one of the other wonderful agencies here on the Coast, they will normally send you out notice three months prior to the end of the lease. And the whole purpose of that is to have that thought process then about what you want to do. Don’t then, as Robbie just said, sign it and six weeks later, come in to want to have to sell. If you’re unsure in that process, sign a shorter lease, do a six month term with them. Don’t sign up to 12 months. Gives you some flexibility.

Robbie: Pro tip number one, I love that. Ok, now it didn’t happen. The scenario is we’ve got 10 months left on our lease. 10 months. I need it sold ASAP. Phil, how can you help me?

Phil: So, best case scenario, we rock up to do an inspection. So normally when someone’s engaged to sell, the first thing we’ll do is we’ll go on site and have a look at how the tenant presents it. In, I’m going to say about 50% of the cases, pretty good tenants are present it well, the house is fine. We’ll be able to get people through and be able to sell it for pretty top dollar. In some cases, which we’ve had a very bad one of. There is so much stuff in the house that we can’t see the kitchen, we can’t see the floor. And it makes it near impossible for somebody wanting to buy to understand what they’re actually purchasing.

Robbie: Can I just jump in? It’s a real pull on your heartstrings. You have poured your heart and soul into saving enough money and the excitement that goes with building a brand new house. You see the professional photo, everything’s pristine. You’re so happy and proud of yourself and then you lose total control. Because it’s not illegal for a tenant to be untidy. It’s not illegal for a tenant to have shit everywhere. If I can just couch it that way, it’s not, you know, so it’s a real tricky space and you do property management as well as sales. As far as giving the tenants the feedback as far as how they should live in the house.

Phil: We’ve got to be really careful. Under legislation, you can’t dictate how somebody lives. We can breach them for damages. So if there was underlying damage that we could spot, absolutely, we can start that process. But we’ve got to be very careful because the courts are really protective of tenants. So the key is don’t sign a long lease. But if you have got one in there, there are ways of negotiating with a tenant. Some tenants are open to it. We’ve just had one successful one where we’ve managed to. It’s going to cost a couple of months. No, they weren’t at first, but it’s taken us a couple of months. It’s going to cost a bit of money, but we’re going to all sort of sort it out and get them out.

Robbie: And the reason why, if we just use that as a bit of a case study when your offsider was trying to organise open homes, because the state of the property, even though it’s a pristine property, it’s literally across the road from one street, back from a school in probably one of the best suburbs in the whole country. And it’s gone up in value by 400 grand. We’re 50, 60, 70, 80 grand off the mark of what it could be worth, purely based on its condition. Right?

Phil: Absolutely, absolutely. And we can’t even get anyone in. Yeah, no one. People walk up to the front door and just walk away. It’s terrible. So we’ve got a good result there. But the better result is to you not be in a position where the tenant has the ultimate power. And at the moment a tenant signs a lease, we cannot actually kick them out. We have to negotiate with them so they ultimately hold the power there. Yeah.

Robbie: So yeah, I mean it’s just really, really important that even if your selling agent is not your property manager day to day, week to week. But yeah, you do make sure that you are providing some guidance to them and if, you know, if your tenant is not toeing the line. So what about. Let’s just talk quickly. At the end of the lease, you’re not looking at selling. If the tenant’s been super messy and untidy and there’s crap everywhere, you don’t have to renew that lease then, do you? At 12 months, Mark.

Phil: Yeah. So the reason we don’t have periodic leases anymore at all is because you can’t kick a tenant out on a periodic lease. Other than five reasons. And it’s for sale. It’s a very specific reasons. The reason we hold leases in place is at the end of the lease you don’t need any grounds, you just don’t renew. Yeah. So absolutely at the end of that we could just say, no, you’re not being offered renewal. See you later. We can get another tenant in.

When There Are No Tenants

Robbie: So let’s go to the other end of the spectrum that there’s no tenant in place and now you go to sale. What’s the pros and cons there?

Phil: So this is so we started obviously is probably with the worst scenario. Probably completely vacant is the second best scenario. And then we’ll finally talk about the third one, which is.

Robbie: Let’s just go back to the first one quickly. With a tenant in place and 10 months to go, even if they’re keeping the property quite tidy. It rules out owner occupiers being buyers. It does, yeah, absolutely. No occupier is going to want to wait 10 months.

Phil: No, some will, but it’s very rare. A lot of them will want to be moving in within six to eight weeks and if that doesn’t happen, they just cross it off their list and they move to the next open home.

Robbie: And of course, as a seller, you want people to buy with their heart because they’re going to pay more. Absolutely. If you can’t attract, if you can’t have owner occupiers that fall in love with your house and therefore they’re willing to pay 20, 30, 40 grand more, then you just cut yourself off to that really important element of the market.

Phil: And it’s not only, and it’s not only cutting yourself off, it’s the numbers. So if it’s 50%, we had 20 in an open, we’ve now only got 10. So it’s even just the numbers game of having more people interested. But so now we’ve got no, no tenant in, no tenant in place. So probably massive advantage there is that we can get stock photos done, we can get furniture put in place on these photos, make it look spectacular, it’ll present well. We can recommend to the owner whether it needs touch up painting, you know, some landscaping, you know, spend a few hundred bucks here and there and really tidy it up. So from that point of view, from a selling and a, you know, a selfish point of view from us, it’s perfect, we love it. But from a client point of view, which is what we’re all about as well, the same as you guys here at Axon. It’s not the best from a cash flow point of view because obviously there’s a period now the tenants moved out, you may have four, six, eight weeks where the property is actually vacant and that hurts cash flow. So some people are lucky enough to be in a position where that’s fine, some others aren’t, where the cash flow is important to them. So they’re probably the, the main positives and negatives and differences in it. But the big advantage for us is that, yes, empty house, owner, occupiers, investors, no matter what full market, we can do the best run at it to get the best price.

Robbie: Yeah, she’s open slather, mate, no holds bar there. You’ve got the whole market looking at your house for that. So yeah, there’s a little space in between, of course. What if there’s a lease, maybe one or two months left on the lease. So it’s ending soon, but it’s not quite there yet. Give us your take on that.

Phil: So I think that’s probably the number one scenario if, if you were to do it. So when we send out for those that are managed, you know, with Astute or with one of the other, you know, wonderful agencies around the Coast, when you get your three month notification that your lease is ending in three months time, what do you want to do? That’s the time to have a think about the sale. And if you then think, okay, I do want to sell, that’s the perfect time to start engaging with, you know, whether it’s us about the sale and listing process. Because with eight weeks to go, what we can do is we attract owner occupiers and investors. So we’re ticking that box. We. As long as it’s presented well, the only negative would be is if tenant presents it really poorly. If they do, we only have to wait eight weeks and they’re out anyway. But if they present it well, you’re then getting cash flow and income coming in. As we’re running open homes and as we’re presenting it for sale. So hopefully in terms of dollars for your clients and maximising their return, that is probably the number one way to go. If it presents well and the tenant looks after it.

Robbie: So good, mate, thanks so much for everything. There you go. Ladies and gents, if you do find yourselves in a situation where you do need to sell your property because you’re life’s evolved and there’s a bunch of people that are now sort of doing these little mini restructures to buy their own home, whatever it is. They’ve made 2, 3, 4, 500 grand with their 2, 3, 4 properties with us. I’m like, awesome. That’s why you bought it in the first place. So at least now hopefully you guys are all feeling a little bit more confident about the reason why you need to engage an agent. What mechanical steps take place, the importance of making sure that you do have a vision and try to foresee some of those key events so you’re not left holding the baby in the bath water or you’re not sitting there with a property which is completely empty as well, but burning cash flow or somewhere in between. Phil, thanks so much for joining us.

Phil: Pleasure, mate.

Robbie: Hope you enjoy that ladies and gents.