Maximizing Property Return On Investment

by | Dec 29, 2020 | Financial Review

While the U.S. economy is experiencing turmoil in many segments due to the global coronavirus pandemic, real estate has remained relatively unscathed. Historically low mortgage interest rates have led to increased demand for home purchases. Combined with relatively low home inventory in many markets, home prices are reaching record levels with no clear end in sight. One market expert predicts that demand for home purchases will remain strong throughout 2021 and beyond — especially given statements from the Federal Reserve indicating a regime of near-zero interest rates for the foreseeable future.

As a homeowner, you may be interested in cashing out and looking for alternative living quarters that better meet your current lifestyle needs. This could be a great opportunity to get that extra bedroom/office or trade up to a property that has a larger yard. Alternatively, now may be a good time to consider downsizing or relocating to a less expensive market. Whatever your situation is, before selling your home you should carefully consider expenditures to maximize the return on investment of what is most likely the single largest asset in your portfolio.

When preparing a home for sale to increase return on investment, it is important to create a narrative of a life that is aspirational to prospective buyers. You want the buyer to imagine the comfort and luxury they will experience living in the home. You want them to see a future filled with family and friends. A future of success and fulfillment. If the buyer becomes emotionally invested in a future vision for themselves, they are more likely to offer you a high price in order to achieve that goal.

So, how does one approach selling the dream? Every situation is different, but there are a number of important steps to take that will dramatically increase your likelihood of success:

1. Hire An Experienced Agent

A real estate professional who deeply understands the dynamics of your local market and understands the psychology of property marketing (paywall) will more than likely pay for their fee. While experience is important, that does not mean the agent with the most listings in your market will be the best fit for you and your family. Consider the chemistry between you and the agent. Choose someone who you feel comfortable with and trust. This will make what could possibly be a stressful process into something that will be considerably more pleasurable.

2. Follow The Advice Of Your Agent

Many people hire a professional only to reject their suggestions. Put aside your own personal opinions, taste and style, as well as biases when preparing your property for sale. Experienced agents know what works and what doesn’t when creating a marketing plan for your home, so take advantage of their experience and stay out of the weeds.

3. Be Prepared To Spend

The old adage of “it takes money to make money” is never more true than in real estate. By making strategic improvements to your home, you will increase desirability and demand which leads to more competition between buyers and, ultimately, a higher offer price. If you don’t have cash on hand to make the improvements suggested by your agent, consider a variety of financing options that allow you to borrow money — sometimes interest-free — to invest in your home. The loan is then paid out of escrow proceeds when the property sells.

4. Invest In Aesthetics, Not Infrastructure

While you will certainly need to disclose any structural issues with your home, now is not the time to install a new roof, rebuild a deck or retrofit your foundation. These are large investments that the new buyer will take on, and those costs will be factored into the price offered. Not only do those types of investments typically fail to generate a positive return on investment, but the projects are also complex and time-consuming. Your time is better spent organizing your move out and clearing the way for your agent and their team to go to work.

5. Emphasize Cosmetic Appeal And Space

You can’t anticipate what a buyer will want to do with your home once they live in it, so don’t even try. Focus on creating a sense of cleanliness and space for both interior and exterior areas. This starts with getting everything out of the house — and I mean everything. Then consider things like trimming trees and bushes and installing inexpensive ground cover. Interior and exterior painting can make a world of difference in the initial impression that the home makes on a prospective buyer, even if there are other expensive repairs needed. Installing new kitchen countertops and appliances is often a relatively inexpensive way to refresh and modernize a kitchen without breaking the bank. Most importantly, invest in high-quality staging. While it may be difficult to stomach the idea of spending thousands of dollars to rent furniture for a few weeks, the ability to create an aura of luxury with professional staging can be the difference between selling at the list price or commanding a substantial premium over other comparable properties on the market which will increase the return on investment.

One of the biggest challenges that sellers face is justifying the suggested investments outlined above. After all, how can you know that any of these improvements will yield a positive return? It turns out that there is abundant evidence that quality staging and other home sale preparations can both reduce time on the market and result in higher sale prices relative to similar homes.

By identifying and quantifying the key success criteria that will yield the outcome you are looking for, you can hold your agent accountable, reduce risk, and increase the chances of a successful sale. Keep in mind that what you are selling is not a house, or a piece of property, but rather a story. Think of yourself as a curator of an idealized future for your buyer. With this mindset, an experienced agent and some selective investments, you will be well on your way to selling the dream.

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