3 Ways to Help Reduce Holding Costs While Real Estate Investing

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3 Ways to Help Reduce Holding Costs While Real Estate Investing

Monday, July 12

An entire real estate transaction is made up of many pieces; a few of which are finding a deal, funding, fixing, paperwork, holding, repairs, marketing, selling, managing, communication, leadership, and so on. Each piece, like a muscle, should constantly be exercised and improved upon. It is for this reason that a real estate transaction is only as strong as the weakest piece in the chain of events. One of these is holding time and more importantly holding costs. Holding costs are any costs that arise from having to own the home from when you purchased until the day you sell or rent the home for a profit.

Our goal as real estate investors should be aimed at minimizing vacancy time for each property we control. Below is a short list of techniques and tricks that can help to reduce this carrying cost.

1. Iron out wrinkles in sales process: Know your sales process from start to finish. Know when and where you will advertise. Will there be open houses? Who will be answering your sales calls? What are the qualifications to live there? The buyer loves the home… now what?

One simple change I made was to instruct potential renters/buyers to fax me a copy of their credit reports in addition to their application. This process is another hoop for the tenant-buyers to jump through for the property and easily allows you to “pre” pre-screen every applicant without taking the property off the market while you wait for the background check to be returned.

2. Negotiate No Ppayments: If you have utilized owner financing in a real estate deal when buying, request that you make no payments to the seller for 3 to 6 months. Asking for a delay to start the owner financing payments is a simple way to offset thousands of dollars in potential holding/carrying costs.

In my business I made it a mandatory policy to require a minimum of three months of payment free months to allow time to clean, remarket and fill the home (with a qualified homeowner) before any payments are made to the seller on the note we created to purchase the home. The goal here is to turn a profit via “thousands cash down and first month’s payment” from your tenant-buyer before you must pay money on your note.

3. Qualified buyers list: Continually be building a renters or buyers list. Whether you are planning to wholesale, retail or rent your properties you will need people that will give you money to occupy your investment property.

Most applicants looking to become renters or tenant-buyers do not stay available for long. That is to say that many potential renters will find homes within weeks, not months like traditional home buyers with conventional loans.

My experience has taught money saved by a "used mobile home" buyer/tenant-buyer does not stay in their hands long! It is for this reason we must continually market and advertise for potential buyers.

Be a servant!

John Fedro

Comments

Peter Haymond Reply
almost 2 years ago

Great insight John! Could you respond to my question that I sent you by email from your website? Thanks!
Don Konipol Reply
almost 2 years ago

Interesting thoughts
Jon K. Reply
almost 2 years ago

Hey, John, I like the idea of your applicants providing a copy of their own credit reports, but doesn't this screen out otherwise qualified applicants? I'm thinking of the person who is decent with their money, but can't spell credit report, let alone get you a copy.
Tod R. Reply
almost 2 years ago

With such a short shelf life, how far in advance of a planned purchase do you start updating your buyer list? Is it a constant process even though you may currently have no acquisition in the pipeline?
John Fedro Reply
6 months ago

Jon, Over the past year I have made the change to only require this for mobile home tenant-buyers with a mobile home ATTACHED to the land. If the home is in a park I do not require a copy of their credit report before we sign any papers. If the tenant-buyer doesnot know how to pull his credit report I will not require it and only use a tenant screening service which also looks at credit score.

Tod, Mobile home deals are a dime a dozen. If you start looking for a deal tomorrow you're going to find one within the week if you are really looking. With that said my answer to your question is, "As soon as you begin looking for another mobile home investment begin marketing for buyers too". **If you have yet to do your first deal than market for buyers so that you know what the demand and price range is for mobile homes in your area.

- John Fedro

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