In today’s hot apartment market, the temptation exists for some sellers to simply place their building on the market and wait for the offers to come in. Doing this, however, leaves money on the table, and could turn a quick deal into a much longer process. The fact is, as good as the market is, sellers need to prepare their apartment building for sale, in order to attract the right buyers, and ensure the best value for their property.
Here are a few steps building owners need to take to ensure their property is ready for a quick sale at the best price:
1. Get Paperwork in Order
All real estate transactions generate a ton of paperwork, and apartments generate more than most. To avoid frustrating delays, do some of the work in advance. You could, for example, pay for a structural engineering inspection of your building, and issue the report before putting your property onto the market. Make your building ready for due diligence. By ensuring all capital expenditure work is quantified, there is less chance of a surprise that could make a buyer come back, asking for a cut in the price.
2. Clean Up Your Property
We all know how important curb appeal is in selling real estate, but apartment owners need to go deeper than just ensuring a building’s exterior looks good. Some older buildings contain hazardous substances like asbestos, or old oil storage tanks, and these can drive away buyers unless they’re dealt with or, worse, are discovered during the bidding or purchasing process.
Update your building’s Phase One environmental report before you put your building on the market. Have an environmental engineer look at your building to check for signs of hazardous materials. It is better to discover any surprises before a property is put up for sale rather than during due diligence. These must be remedied, or else you will not be able to get any financing on potential deals.
3. Consider How Your Building Will be Financed
Most owners don’t plan to sell their building, and only do so because of situations beyond their control (changes in the economy, changes in business partnerships, et cetera). In this situation, it is more than frustrating to have sales blocked because a building’s existing financing isn’t flexible enough to be modified. The penalties for breaking long-term mortgages can seriously hamper a deal’s bottom line.
This also applies to the taxes that come due on a sale. Make sure money is set aside to pay for recapture taxes and capital gain taxes, or else you may be surprised at how much these eat into your proceeds.
Do these things even if you aren’t planning to put your building up for sale in the short term. You never know when your circumstances will change, and if you are not prepared, the consequences can be a nasty surprise.
4. Retrofit Parts of Your Building to Show Potential Improvements
Apartment upgrades such as new low-flow toilets, faucets, energy-efficient lighting systems and more help cut costs and improve your net operating income. Even if you plan to sell your building sooner rather than later, it is to your advantage to start renovating key units now, and raising rents accordingly.
This approach represents a different type of curb appeal by highlighting the potential of the whole property. By showing the difference between unrenovated and renovated units in the same building, you will show potential buyers that there is a good potential return on their investment in your property, and they will pay more to acquire it.
5. Inform Key People on Your Staff and Get Them On Board
Your building’s staff are part of the street-to-suite experience potential buyers look at as they assess your property. It is important that your staff makes a good impression with these buyers, so they need to be aware of the potential sale and motivated to be on their best behavior. You can obtain the support of your staff by offering bonuses to staff members once the building sells. You can also remind staff that each buying tour is a potential job interview with the building’s new managers, and they should dress accordingly.
6. Choose a Good Broker
Preparing your building for sale takes time and effort, but an experienced broker can help manage this process and ensure your time and money is best spent. Look for a broker with a good reputation who is well known in the marketplace. Make sure they have experience in the apartment industry, and a good relationship with potential buyers in your market. Brokers with good knowledge of the industry will find the most qualified buyers looking for the property you are selling. They are critical in getting you top dollar for your property.
Derek Lobo is the founder and CEO of SVN Rock Advisors Inc., a real estate brokerage with over 30 years of experience in helping investors make the most out of buying, selling, and renovating purpose-built apartment buildings. Learn more about SVN Rock Advisors Inc., Brokerage on their website at www.SVNRock.ca.