Helping Parents Sell House (and potentially rehabbing)

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Helping Parents Sell House (and potentially rehabbing)

Paul F.
Investor · Charlotte, NC · Member since 2016 · 23 posts · 6 votes

Hi all,

My parents have asked my brother and me to help them to eventually sell their house, and because my brother and I are still fairly new to the real estate game (the extent of our experience is that we have bought one duplex and one 10-unit apartment complex, both in the past year), I figured our best move would be to enlist the help of the BP community. Because of the potential rehab involved I thought this was the most appropriate sub-forum, but I’m happy to move the post if any moderators think it belongs somewhere else. Thanks in advance for any advice you can provide.

For a little background on the house:

A little over a year ago my parents decided to sell their house in Hanover, New Hampshire and buy a house in the southern part of the state to be closer to Boston. They originally listed the house for 885k, after no action they continued to drop the price, eventually to a low of 749k, and after no action at that price and after the house had been listed for almost a year, they decided to take it off the market and re-evaluate their options.

The house was built in 1984 and is a beautiful post and beam construction. It is approximately 4,300 square feet and was listed as a 3br/3ba (but has two other rooms that could be, and are plenty big enough to, be used as bedrooms, but the size of the septic tank may prohibit listing the house as a 5br), and is situated on a 2.6 acre lot that sits well off the street.

However, the house is very outdated. No updates have been made to the house since it was built in 1984, so the countertops are all formica and the appliances are very old. However, although the house is outdated, it is in fantastic shape. My dad always had things professionally fixed when they broke or were in need of maintenance, and he never let things slide for the sake of saving money. He spent a lot of money on upkeep over the years.

In thinking about why they have struggled to sell the house, my brother and I have come up with a few potential reasons:

  • The market – a lot of layoffs have been happening at the big organizations in the area, so demand just doesn’t seem to be where it has been in recent years.
  • The house – although, as I said, the house is in fantastic shape, it is outdated. At this price point perhaps buyers want to be able to move in and not have to spend more time and money making updates.
  • The real estate agent – we're not very confident that the agent my parents hired did very much hustling to sell the house. They used an agent that they have a long-standing relationship with who appears to have one foot out the door towards retirement. It seems as though the house was listed on the MLS and nothing much else was done to make it sell.

Given the above, the game plan we currently think would be best is as follows:

  • Update the kitchen countertops and appliances and the countertops in all of the bathrooms. On the main floor there are two good sized rooms that our family used as an office and sewing room but that are plenty big enough to be bedrooms, already have closets, and have great natural light. However, there is only a half bath on this main floor right down the hall from these two rooms but the bathroom is plumbed to accommodate a shower, so we would also have a shower installed. Note that I’m not sure whether this would allow us to list the home as a 5 bedroom, because I think it would depend on the size of the septic tank, which we would need to confirm. Finally, most of the house is in need of new paint, so our plan would be to have the whole house painted. Our initial thought was that if we could do all of this for less than 50k that it would be a good investment at this price point, but we have little evidence to back this up. Any advice on how to determine whether such a rehab would make financial sense is welcome.
  • Once the rehab is finished, we would look to rent the house out until the market rebounds. It’s obviously impossible to know how long this would take, but our aim would be to sell the house within about 3 years of first renting it. Given comparable rentals, we believe we could maintain a small bit of cash flow on the house as a rental, but it would be nothing near high enough to make the house a good “buy and hold” rental property long-term.
  • When the market recovers, we would put the house back on the market and hopefully command a sale price close to what it was originally listed for.

What does everyone think of this strategy? We would love to hear thoughts from anyone and everyone, but obviously thoughts from those who have done something similar or have investing/rehab experience in this part of the country would be greatly appreciated.

If we were to go forward with this plan, we would of course need a contractor, but we also think it might make sense to hire what we called a “rehab consultant” – someone we could hire on a fixed fee basis to help us choose specific countertop materials and designs, appliances, and bathroom rehab layout. Does anyone have recommendations for either or both of these types of professionals in the area that we could get in contact with?

Thanks very much to everyone who is able to take the time to read such a long post!

Paul

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Greg PowersPro Member
Real Estate Agent · Manchester, NH · Member since 2013 · 120 posts · 159 votes
9y

Hi @Paul F.  I'm a Realtor in southern New Hampshire, and while I don't operate in Hanover, I do have a few thoughts for you.

First of all, I don't think the market in Hanover is the problem. I just looked in the MLS for houses that sold for $700,000-1,000,000 in Hanover over the past six months and found 9 properties. Their Average Days on Market was 27, with a Median of 10, which is pretty strong. All 9 sold more than 90 days ago, and none have sold in the past 90 days, but I would attribute that partly to seasonal factors.

There are also 9 properties either Active or Under Contract that have been on the market an average of 87 days, which isn't terrible.

As for renting it, you said your plan would be to rent it until the market improves.  What indications do you have that the market as you see it will improve any time soon?  We're entering a period of economic uncertainty with a new president and Congress, and it's anyone's guess what the next 1-5 years holds.  So you're gambling on the future, and in the meantime you're a landlord (although obviously you have experience with that).

You could do some rehab, but the problem with putting lipstick on a pig (if you'll pardon the crude expression) is that you have a good chance of picking the wrong shade lipstick.  In a $200,000 house that's not a big problem, but at your price range the buyers tend to have definite visions of what they want (because they can afford to), so the chance that you'll pick the right cabinets, tile, appliances, etc., to appeal to the ultimate buyer are pretty slim.  Someone will look at your gleaming new kitchen with its cherry cabinets and say, "I want white cabinets"--in which case you've not only wasted the money, but also the time involved in a rehab.

Which brings me to the marketing. If it needs updating, I wouldn't bother with a video. You want to stress the bones and curves of the property and its potential, not the dress it's wearing. I'd provide floor plans (easily done via HomeDepot or other services). In the MLS photos I would include some photos of details of the post-and-beam construction, not just whole-room shots; and if it's got a good location or lot, I'd stress that. I'd send a flyer (withe a link to a single-property web site) directly to local designers, architects, and contractors, who might have clients looking for a project. And whatever the local economy is doing, Dartmouth University will always be a bastion of steady employment, so I'd try to target staff and administration, as well as alumni (who probably don't live nearby, but who probably still communicate with staff and administration). And there are plenty of audiences to target with Facebook and other social media marketing.

Feel free to PM me if you have any questions that I might be able to answer!

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  • Richard Dale-Mesaros
    Investor · Campton, NH · Member since 2010 · 285 posts · 143 votes
    9y

    Hi Paul,

    A few things (okay, well not just a few...) that came  to mind when reading:

    - Do a REALLY thorough job of figuring out what the market might bear for your place after the work. This is something that a decent Realtor should be able to work through with you, but you may feel comfortable doing much of it yourselves. This due diligence can include driving by, or even better getting a look inside the three or four best recent, comparable sales for the subject property. With the right approach, you can get people to let you look inside, I have managed to do this on numerous occasions (if you can't get in, look at photos from the most recent MLS listing of the comp your investigating). This extra effort will provide you a more accurate sense as to the range within which yours will likely sell, giving you greater confidence/conviction in your projected numbers. This might help you to weigh up the merits of doing a multiple year rental stint as a Plan B. Go see the three most similar houses that are currently on the market, so your're able to experience first hand what you're competing with. What's the town tax assessment? What similar homes have sold off-market and what do they indicate the value might be (find through town records....)?

    - On the rehab (good ideas BTW...), ideally the goal is to bring it to pristine shape, so there are no issues that will put any kind of a question in buyer's minds; this goes for the exterior/yard as well as inside. The better the house looks in photos (because everybody looks online....) and in person, the more buyers it will appeal to, the more it will sell for and the quicker it should sell. You might want to compare what it will sell for with a few basic upgrades (for much less money), vs what it might sell for having put in the $50k in - you may end up making the same net amount either way!? Definitely worth the cost of a professional photographer, who may have to come back at different times of the day to get the light the best on as much of the house as possible. Also consider doing a 1-minute video (doesn't necessarily have to be a professional production...) walking everyone through the house highlighting the key features that will appeal to the type of person most likely to buy it; a precursor to this is brainstorming about who these folks might be as well.

    - Think hard about all of the ways to get the word out beyond the MLS (and all the other feeder sites...) and good signage, such as Craigslist, local professional vendors (mortgage brokers, attorneys etc), flyers all over town, social media (F/B, LinkedIn, Instagram, Snapchat, YouTube etc), letting very well-connected people know it's out there, local classifieds, your own personal network, mega open houses (paid for by sponsors - I even make money sometimes); I'm sure you can come up with a few more!

    I guess what I'm trying to convey is that it's worth grinding through the up-front work, so you know your're being realistic and have a solid foundation upon which to base your assumptions. Good luck and don't hesitate to reach out if I can help out in any way.

    Now get after it!

    Richard :)

    1Reply
  • Kuba F.Pro Member
    Real Estate Investor · Los Angeles, CA · Member since 2013 · 2k+ posts · 694 votes
    9y

    Hi @Paul F.

    Mostly great ideas, and you have a good head for this.

    First what's the actual value of the house as it stands?  Your realtor should have a much better pulse on this to not have listed it that high in the first place.  Still no action after dropping 136K?  That's a big margin of error, and looks like still over valued.  What are the days on market for properties?

    As to the rehab, first you have to figure out what your competition is, rehab it to be as good or slightly better.  Your competition will determine your finishes, and that will determine your rehab costs.  For what you said, you can absolutely get that done under 50K, but then again maybe your market requires a higher end cabinets and appliances. 

    If you were planning on renting it out, then I would do a very minimal clean up instead of a rehab.

    How do you determine what it will cost you?  Get a few contractor bids.  A good interior designer should be able to give you some ideas on what to do for a few hundred bucks.  

    1Reply
  • Christopher Phillips
    Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
    9y

    @Paul F. 

    There are a few things to diagnose. Hard to say without seeing the house.

    However, in general, listing agents don't sell houses. Buyer agents do. The listing agent's job is to market the house. Buyer agents then bring by their clients to see if meets the buyer's needs.

    Three major things contribute to selling a property: Price, the listing presentation, and availability to see the house.

    If no one comes to see the house, then it's the listing presentation and the price. If people come by to see the house and no offers, it's the price. Assuming the house is in okay condition, then it's over priced.

    If you consider the carrying costs of having two properties, you should consider the cost of rehabbing it to get it sold versus pricing it properly and getting it sold in the condition it's in now.

    First thing to do is get some solid comps that match the current condition of the house without the upgrades and see where the price needs to be to be competitive. Then you can compare that to the ARV and calculate if it's worth doing the upgrades and waiting with carrying costs.

    If you do work on the house and rent it out for three years, tenants are going to wear out all the work you put into the house and you'll be back to where you started.

    Also, your parents have to consider that if they rent it out too long they'll lose their capital gains exemption.

    1Reply
  • Greg PowersPro Member
    Real Estate Agent · Manchester, NH · Member since 2013 · 120 posts · 159 votes
    9y

    Hi @Paul F.  I'm a Realtor in southern New Hampshire, and while I don't operate in Hanover, I do have a few thoughts for you.

    First of all, I don't think the market in Hanover is the problem. I just looked in the MLS for houses that sold for $700,000-1,000,000 in Hanover over the past six months and found 9 properties. Their Average Days on Market was 27, with a Median of 10, which is pretty strong. All 9 sold more than 90 days ago, and none have sold in the past 90 days, but I would attribute that partly to seasonal factors.

    There are also 9 properties either Active or Under Contract that have been on the market an average of 87 days, which isn't terrible.

    As for renting it, you said your plan would be to rent it until the market improves.  What indications do you have that the market as you see it will improve any time soon?  We're entering a period of economic uncertainty with a new president and Congress, and it's anyone's guess what the next 1-5 years holds.  So you're gambling on the future, and in the meantime you're a landlord (although obviously you have experience with that).

    You could do some rehab, but the problem with putting lipstick on a pig (if you'll pardon the crude expression) is that you have a good chance of picking the wrong shade lipstick.  In a $200,000 house that's not a big problem, but at your price range the buyers tend to have definite visions of what they want (because they can afford to), so the chance that you'll pick the right cabinets, tile, appliances, etc., to appeal to the ultimate buyer are pretty slim.  Someone will look at your gleaming new kitchen with its cherry cabinets and say, "I want white cabinets"--in which case you've not only wasted the money, but also the time involved in a rehab.

    Which brings me to the marketing. If it needs updating, I wouldn't bother with a video. You want to stress the bones and curves of the property and its potential, not the dress it's wearing. I'd provide floor plans (easily done via HomeDepot or other services). In the MLS photos I would include some photos of details of the post-and-beam construction, not just whole-room shots; and if it's got a good location or lot, I'd stress that. I'd send a flyer (withe a link to a single-property web site) directly to local designers, architects, and contractors, who might have clients looking for a project. And whatever the local economy is doing, Dartmouth University will always be a bastion of steady employment, so I'd try to target staff and administration, as well as alumni (who probably don't live nearby, but who probably still communicate with staff and administration). And there are plenty of audiences to target with Facebook and other social media marketing.

    Feel free to PM me if you have any questions that I might be able to answer!

    2Reply
  • Mike HurneyPro Member
    Real Estate Investor · Boston, MA · Member since 2009 · 2k+ posts · 542 votes
    9y

    @Paul F. How do you know the Market is down? and by How much? @Greg Powers makes some good points.

    We analyze markets at our Movers and Shakers meetings and it's always interesting to see what someone else comes up with...

    PS Good you're trying to help your parents!

    1Reply
  • Paul F.
    OP
    Investor · Charlotte, NC · Member since 2016 · 23 posts · 6 votes
    9y

    Thanks very much to everyone for the incredibly helpful responses. To address each one more specifically:

    @Richard Dale-Mesaros We will do more legwork to try and get a better estimate of what the ARV would be. It's been somewhat tough just because we don't plan on renovating the entire house, but I like your idea of trying to find a good realtor to help us with this task.

    We had not thought much about the exterior of the house, but now that you mention it I would think the house could really benefit from some nicer landscaping. We will look into this more. I also love the idea of professional photos, so we will look into this more as well. The current pictures of the house are quite "drab."

    With respect to the video idea, where would you propose posting/sending it once taken? Is this something that can accompany an MLS listing?

    Thanks for the marketing ideas. The previous agent was really lacking in this department, so instead of continuing to rely on an agent we'll look to incorporate some of these ideas ourselves. As far as open house sponsors go, where do you go to find them?

    @Kuba F. Based on our review of comps, it definitely seems as though the house was listed too high at 885k, but we definitely thought it would have gotten considerable action at 749k. As I mentioned above, it's clear we need to do more research on what the ARV would be before deciding to do any type of rehab. As for stats like "days on market," we have not dug into these numbers at all and so will put it on the list.

    The tip on figuring out what finishes the competition is using is a great one, and one we need to look into more before going to an interior designer so that we are at least able to give them a price range.

    If we do decide to do some rehab, whether we do it before or after renting it out was a question we have struggled with. The reasons why we had landed on doing the rehab before renting were that (i) the house would be more attractive to renters and demand higher rent, (ii) the things we would be rehabbing we figured wouldn't stand a huge risk of being damaged by tenants (especially at this price point) (except the paint, which we would potentially have to re-do when it comes time to sell), and (iii) we felt as though when it does seem like a good time to sell we want to be able to pull the trigger quickly without having to wait for the rehab to be finished. Mind expanding a bit on why you say only go with a minimal clean-up over a rehab if we're going to rent the house out?

    @Christopher Phillips Very few people even asked to come see the house, so it seems, based on your post, that it's tough to narrow down the reason why it's struggled to sell.

    Carrying cost is definitely something we have tried to factor in but may be even more important than we have initially considered. The house is fully paid off, but because it is a pretty big house, my parents have spent a little under 2k a month just to hold it.

    As I alluded to above, we definitely need to do more legwork to figure out the true current value as compared to the ARV.

    With respect to tenants wearing out the house, I guess maybe we are being too optimistic. Our thinking was that at this price point we would expect decent renters, and new appliances and countertops would not be what get damaged. But maybe we're overlooking things that are in fine shape now that would suffer considerable damage over the course of three years of renting. Do you have thoughts on what you would expect the house to look like after three years of renting in this scenario?

    @Greg Powers I really appreciate the market insight. Based on those numbers it definitely doesn't seem like the market is really the issue.

    As far as rehabbing it goes, what would be your response to the argument that at this price point a buyer wants a move-in ready house that they don't need to put work into? Is that worry simply outweighed by the fact that the odds we pick finishes that are unappealing to too many potential buyers is too high?

    Thanks for the marketing tips. I really like the idea of where you would focus the attention, as I do think that would much better highlight the positives of the house. It's clear from your response and the others that we need to really focus on a marketing gameplan, regardless of when we decide to sell.

    1Reply
  • Christopher Phillips
    Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
    9y

    @Paul F.

    If very few stopped by to see the house, then the price was too high. Even if the photos didn't look great, at the right price you would expect traffic. 

    First thing to do is get a handle on the comps. Your parents have put a lot into the house, but it's not updated. So, price needs to be adjusted. Especially in the price range it's in now, people probably expect updates. A lot of modern home buyers don't want to do any work when they move in and that will keep them away.

    So, you need to really figure out the price thing and price it properly.

    1Reply
  • Greg PowersPro Member
    Real Estate Agent · Manchester, NH · Member since 2013 · 120 posts · 159 votes
    9y

    @Paul F....you're absolutely right that most people in that price point want a move-in ready house.  The problem is that A) it doesn't sound like you are going to rehab the whole house, and B) unless you do the local research to see what buyers are looking for, or query some local agents or designers, you stand a good chance of spending a lot of money on things a buyer will want to change anyway.

    But there are buyers who are willing to tackle a big project like that house, at the right price.  They're out there, and the marketing avenues I suggested would aim to find them.  And yes, you would take a hit on the price.

    As someone else suggested, it would be worth getting an opinion from a local agent about an ARV after rehab and another "as is." Weigh the difference, and then decide with your brother and parents whether it's worth the time, energy, money, and uncertainty to capture that extra dollar with a rehab.

    And yes, ALWAYS professional photos!  :)

    One last comment about renting.  In a house that size, you're probably renting to a family, which means kids, which means multiply the wear and tear by 2.5 (or some other frightening number).

    1Reply
  • Paul F.
    OP
    Investor · Charlotte, NC · Member since 2016 · 23 posts · 6 votes
    9y

    @Christopher Phillips We will be sure to get a better handle on the comps before moving forward. As @Greg Powers and others suggested, we will also drill down further on whether a partial rehab is worth it, or whether we should just figure out how to market the house to capture the maximum selling price the house would command as is.

    @Greg Powers Since we would still like to consider doing a partial rehab (keeping in mind the whole "lipstick on a pig" risk), would you happen to know any agents that operate in the Hanover area that you would recommend to help us figure out more accurate "as is" and ARV values for the house? Probably more of a stretch, but what about interior designers and professional photographers? One topic I forgot to include in my original post but that I just now remembered in thinking about professional photographers is staging. When would you say it is worth staging a house, and when would you say it isn't?

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  • Greg PowersPro Member
    Real Estate Agent · Manchester, NH · Member since 2013 · 120 posts · 159 votes
    9y

    @Paul F.  Yes, I know an agent up there.  I just sent you a colleague request to connect you two.  I don't know any designers, and while I know a photographer who would travel up there, the agent I have in mind probably has one that he works with.

    Regarding staging, if you do the rehab, then I would say yes, a little staging will help people gauge the volume of each room and how furniture can be placed.  But if you decide to sell it "as is," I would not stage it--better to let potential buyers see the blank canvas they'll be working with.  But that's just my opinion.  The local agent will have a better idea of what his market responds to.

    Good luck!

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  • Paul F.
    OP
    Investor · Charlotte, NC · Member since 2016 · 23 posts · 6 votes
    9y

    @Greg Powers Thanks! Makes sense re. staging. Just accepted your colleague request.

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  • Mike HurneyPro Member
    Real Estate Investor · Boston, MA · Member since 2009 · 2k+ posts · 542 votes
    9y

    @Paul F. Sell it yourself and save the commission, that's what this whole BP site is about. You can do an "entry only" listing on the MLS for $500.

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