Many years ago I watched the Wizard of Oz for the first time. However, I watched the movie on a black and white television. The problem with this was when Dorothy’s house landed on the Wicked Witch of the East and she steps out, nothing looked different to me. Still black and white. Yellow brick road . . . what yellow brick road?? Horse of a different color, so what, it was gray and then it was white. To me, the horse apparently was just aging.
Not many children would experience this now a day. However, my point to my story above was maybe it was good thing having it in black and white. No rose colored glasses for me, nuh uh! Well, I visited with some of my Texas Real Estate Lenders and wanted to discuss with them some of the issues they may be coming across with their fix and flips. Well, I found out some interesting news and have found that their main problem was learning how to price the property correctly.
So, let’s talk about an investor, let’s call her, umm, Toto, NO! Dorothy. Well, she gets this property, spends a few weeks, maybe a month and fixes it up. Chooses the tile, the paint colors, the carpet and the house is beautiful. In fact, to her, the house is the MOST beautiful one on the block. Well, Dorothy, take off your Rose Colored Glasses. I am sure it is a lovely home, but more than anything you have invested blood, sweat and tears into the home, so it is like your baby right now. You need to take a step back and reassess things.
It is time to sell the property and I am sure when you first purchased the property you had a value in mind. However, a lot of mistakes that investors will make is they never reassess the value of the property after the repairs are finished. OR they reassess it themselves. Don’t do this. Get another opinion. In fact, get two or three so you will get an unbiased value on your property. The value could change, it could get better or it could get worse. Perhaps you did more repairs on the property or the market is on the rise. You will not know this information unless you get an objective opinion. Also, note that the value of the property is not just based on the City and State, but also on the “micro area” or the area within an area.
Another thing to keep in mind is to make price reductions. Some Texas Hard Money Lenders are making the mistake of using set price reductions because that is what they have always been told is the norm. Well, this is just not the right approach for the market place. What you will want to do is every two weeks to a month, reassess the value, look at the actives, look at the solds, and look at under contracts. These will all help you determine the correct amount to make a price reduction.
I spoke with a Texas Hard Money Investor that was doing a loan with DoHardMoney.com and we discussed their property and price reductions. Their first plan was to make the “normal” $5,000 reduction every month until they got the house sold. But I explained to them by doing that they would be just chasing the market and would never get anywhere with it. They worked my method and we came to a determination that the correct amount (which fair warning here may sound astonishing) would be to do a drastic reduction of $15,000. Upon doing this they immediately began getting a flood of showings and I am certain should be receiving MULTIPLE offers soon. So, now, they will not only get their house sold sooner and gain their profit, but with the multiple offers, they will gain a good portion of that reduction back. One other thing that I mentioned to them for the next fix and flip was to make sure that they look for properties in the right demographic price range where you are going to have to most probabilities of selling.
I hope these tips helped, and just so you know, when I finally got the colored television, WOW, a lot of stuff sure clicked in place for me on that movie. Finally I understood why they called it the “Emerald City”!
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