Lesson: Be confident & prepared
Backstory: In 2016, I helped a client purchase his first home. It was a multiple offer situation. My client loved his home and he had paid top-dollar for it. We won the bidding war for the home and he enjoyed living there for 4 years.
During the pandemic/shutdown, he called me to chat about his options. My client wanted to move to Dearborn, but he was not sure what to do with his current home. Should he rent or should he sell? As I do both real estate sales & property management, I was in a strong position to help make the decision. After we discussed all of the options, we decided it was better to sell now.
The Options
When I spoke with my client about renting out his home as an income-generating property – I presented him with the following decision points:
- The Client was financially secure.
- The area was not saturated with rental properties.
- Mortgage interest rates are historically low, and he could be more competitive on pricing with prospective tenants.
- The particular neighborhood on New York Street in Lincoln Park has recently seen a price increase from $1,000 per month rents to $1,300 monthly rents. This would permit him to cash-flow from day one beyond his mortgage.
But, we did ultimately decide that selling this property was better for this client. While the above list makes it seem like rental investing is a slam dunk, the question is whether it is right for each particular client. In the end, several points favored us selling the home instead, and we decided together that it was right for my client to move into a nicer home rather than to start a real estate investment empire at this time.
- Inspection and regulation requirements for the City of Lincoln Park were extensive.
- The repair expenses would outstrip the cash-flowing potential of the property in the short and medium term.
- The Client was able to get into a much nicer home and would rather use the equity on his personal property than in investment.
- Market analysis favored selling because the capitalization rates did not pace the price increases for this area.
Challenge – Submitting a Purchase Agreement with a Contingency
At the re-opening of the economy in May, it was a crazy frenzy seller’s market due to pent-up demand due to the shutdown as well as historically low-interest rates. We knew it would be no problem to sell his home on New York Street, but it would be extremely difficult to get a contingent offer accepted in a market like this. We got all of the paperwork and photos ready for the home but didn’t list it right away. We looked at a few homes in Dearborn to see if there was anything worthwhile. They were going like hotcakes and selling within 24 hours. After running out of time on a few nice homes, he decided he couldn’t wait any longer. We knew we had to get his current house sold if we had any chance of getting a contingent offer accepted.
Solution – Documents and Proof that the Lincoln Park Home Will Sell
We listed the home and had 19 showings in 4 days. We priced it well & got 7 offers right away. We ended up choosing an offer that was 7K higher than our list price, and the buyer agreed to pay $5K over the appraised value. It was an amazing offer. The next day, a great property came on the market, and we were the first to see it. We submitted an offer right away. I was able to persuade the seller & listing agent that our contingency wouldn’t be a problem and that we would get to the closing table on time. Sure enough, we did, and I was able to assist my client to pull off the (almost) impossible of getting a contingent offer accepted in one of the hottest seller’s markets in Dearborn. No easy feat!
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