Great deals for investors are found everywhere, including neighborhoods where builders are still trying to move homes.
A neighborhood right down the street from where I live has an active production builder that I would say had a decent 2010. In that same subdivision, there have been a handful of rehabbed foreclosures that seemed to sell profitably and few others that are still sitting, collecting dust, err, bills.
If you’re going to dive into an opportunity in a community where the builder is still building, it’s good to know their tactics. Believe me, they are prepared for the shopper that says “We just left the rehab down the street, it looks great, we love the price.” The pros are well prepared to sell against even the best rehabbed, lowest priced home in a community. It’s tricky, because the builder is selling a new home against a home they built in the past. They have to be very careful what they say.
Here are a few examples of what the builder is saying about your newly minted flip and ways to combat those points:
1. First and foremost, professional new home salespeople want to create value for building an new house while instilling doubt in the mind of the buyer about your home, or any other home for that matter, as a viable choice. While some more desperate salespeople may come out and outright trash your house the pros will simply drop nuggets like “That’s not the one that had all the mold is it?”, or “You mean the one that’s been on the market since last Easter, yeah it’s nice”, and of course “Yeah, everyone visits that house before purchasing a new one from us”. Builders will also do what they can to compare their reputation to you as an investor or weekend warrior and raise questions about your experience and know-how.
With this in mind, it helps to take every opportunity to give piece of mind to the prospective buyer. If you have some sales savvy it might help to be at the showings to discuss what actually took place during the rehab and your experience. If you or your agent can’t be there, I would recommend a phone call / email prior each showing is in order to set expectations. Nicely done notes in key locations throughout the house mentioning the new or updated furnace, re-finished hardwoods, etc can help send the message as well.
More often than not, you have done things to the house the create a lot of value. You need to get credit for these – the builders are.
2. Odds are good that the house you are rehabbing is at lease 3 years old. With this in mind, the sales pros will sell the benefits of the newer options and the great energy efficient products that they use today that they didn’t offer a few years back.
You can combat the new options offered today with all the upgrades added during the rehab, assuming there are a few, just make sure the buyers know about them. Regarding energy efficiency, your house has a utility history – it’s black and white what the monthly costs will be. If it tells a great story about the house, use it to your advantage. Lastly, remember and point out all the things the previous owners did to the house that builders simply don’t do in many cases – blinds, sprinkler systems, garage door openers, window treatments, nicer landscaping, a refrigerator, etc. Most of these will be large out of pocket expenses for new home buyers.
If you are priced well below the builder, create a side by side comparison of all options in your house verse theirs. Basically, you want to show exactly what it would cost today to duplicate the house at today’s prices. Then, blow up the comparison and place somewhere in the house where you can’t miss it. Also, add it to your flyers, MLS listings, emailed announcements, etc.
3. Builders love to talk up their new home transferable warranties. This said, get to know the warranty offered by the builder and see what, if anything, was transferred to you.
One way to combat the builder warranty is to obviously offer one of your own – by a third party. The fact that your house comes with a warranty will give piece of mind and at least give the impression that you stand behind your product. Third party endorsements on service calls, if you do them, come in handy here too.
4. It kills me when I view a rehabbed house down the street from a builder spec that isn’t polished. Builders keep their specs crisp and you should too. Nothing says don’t buy me more than a dirty or unfinished rehabbed house. Attention to detail is a must. Remember, buyers purchase homes on emotion. Anything that will stand in way from them thinking about how they would live in the house will hinder the sale. Simple things like a loose front doorknob, a bad house smell, dinged up walls can make a big difference.
Photo: pnwraFour Ways Builders Sell Against Your Flip by Mark Saunders