January 2017: Fannie Mae announces it will back $1 billion in debt collateralized by single-family rental homes owned by Blackstone.
Whether you are a private lender, new or seasoned real estate operator, or real estate agent, this is important news. The government has rubber-stamped that we are becoming more of a rental nation.
How can we capitalize on this? Well, two options come to mind:
- Buy single-family rentals and hold for the long-term, effectively embracing the trend.
- Buy single-family properties, make the necessary renovations and sell them to individual investors or institutional funds.
Let’s do a quick dive into Option 2. As we already know, the value of a home is predetermined by its age, location and overall condition. However, there are a few simple things that anyone can do to increase the overall value of a home, especially if you’re in a pinch and see an opening to make a quick entry and exit on a deal.
Let’s put ourselves in the shoes of a tenant. Exterior appearance is a large part of what will influence a tenant’s first impression of the home he or she will occupy for the next several years. Of course, completely renewing your home’s exterior appearance is too expensive to be worth it for a rental. However, you can do a lot with simple landscaping. By putting in mulched flower beds, evergreen shrubs or rock beds, you can drastically improve the exterior appearance of the home you are trying to sell at a relatively low cost. Better yet, most landscaping projects do not require a specialized contractor. If you are willing to put in the time and some labor, you can easily transform the outside of your home yourself, further cutting down on your expenses.
Another inexpensive and easy way to increase the sale value of the home you are selling is to give it a completely new paint job. Many homes have paint colors that aren’t up to date with modern trends, giving them an outdated feel to investor buyers and ultimately, their renters. Luckily, this problem can be easily solved with a few gallons of paint, a few hours of time and a very low material cost. Before painting, go online or visit a paint supply store to get ideas about modern color trends that will make your home seem more up-to-date and more visually appealing to your potential buyers. Once you have decided on a color scheme, simply apply your new coats of paint as needed and before you know it your home will look much more modern. Painting is another job that most people can do themselves, so labor cost is once again not necessarily a major factor. Just be sure to be especially careful with trimming and edging, as you’ll want your new coat of paint to look crisp and fresh when you’re finished.
Minor Kitchen Renovations
Most investor-buyers are willing to overlook some aspects of a house being outdated, especially for rentals. A slightly out-of-style bathroom vanity, for example, won’t unduly trouble most buyers. The kitchen, however, could be a different matter. Because of the sheer amount of time most tenants spend cooking, eating and even entertaining in their kitchen and dining area, it’s important to put the property on the market with an updated kitchen. Fortunately, kitchen renovations don’t have to be horribly expensive or complicated. Refinished cabinets, counter-tops, faucets and paint will take care of the aesthetic needs of most kitchens without breaking the bank. If you plan to sell the property with appliances to make the deal more attractive to the buyer, you should make sure that all of the kitchen appliances are modern and come with the most popular features available. If you’re fairly handy, you should be able to do this type of renovation yourself. If not, however, the cost to have a contractor take care of it won’t be alarmingly high.
By the way
Too many times investors assume the roof, foundation and mechanical systems such as HVAC, electrical and plumbing are in good, working condition. STOP! Don’t assume anything. One wrong move here, and it is the difference between a higher budget for repairs or a quick sale. Get your inspections and work with a licensed contractor to set a timeline and realistic budget to get the job done.
These are just a few of the many types of small projects you will need to undertake to increase the value of a property. Whatever minor changes you may make, it is important to keep costs low while getting the best results possible. Minor aesthetic improvements can make the difference between lookers and buyers (especially buyers who are funds who care about long-term tenants), so make sure that you have the property you are selling fully ready before you begin showing it.
About the Author
Abhi Golhar is the host of “Real Estate Deal Talk” and Managing Partner of Summit & Crowne. Abhi uses a “value-added” approach to invest in real estate renovation, new construction and development opportunities in the Southeast United States. He actively educates and works with investors to deploy market-driven strategies that yield success. He holds a B.S. in Electrical Engineering from the University of Michigan. You can find him on Twitter, Snapchat, and Instagram – @AbhiGolhar.