How Can Realtors Sell Renovation

Selling Renovation

This is becoming so hot right now with all the foreclosures on the market but you have very few lenders who know how to originate, process, and close these.  Aside from that, you have few loan officers who are specialists in this area (and by the way you want to be working with a specialist) which creates issues because loan officers not familiar with the process on these are "winging it" and this is where your horror stories come from.

So work with a specialist!

Anyway...the topic for today is how can Realtors sell this in the marketplace.  Part of my continuing education class curriculum is going over how to sell this and quite frankly it's really easy.  You're doing it right now and you don't even know it.  Here's how..

When you're taking a client through a property do you ever make suggestions on carpet, paint color, or possible improvements they can make to the home to "make it theirs"? Use phrases such as "add your own personal touch"?

Sure you do.  What you're doing is selling renovation financing already it's just you're not connecting the dots with the client which is letting them know they have a way to do this now instead of later and over time (this is where you direct them to the specialist you've teamed up with to explain further, just leave it at that)

Let's face it...

They may say they are going to do it but over time that intent diminishes because life is busy, they will get distracted with other things and it will never get done; so by letting them know that this is an option now and that they can finance the cost of repairs into the loan along with their purchase - and they can move into the property and quickly begin and finish their desired improvements, is really really powerful and motivating.

Why? This creates the vision in their mind what the home will look like completed and we all know visuals are extremely powerful and will move people to action.  You're selling feelings here.  Besides, I would rather make the home my own then rely on the seller making improvements or "settling"on a house that was newly renovated that isn't just right but "will do" paying a premium for that house... and heck maybe over time even redoing those renovations to satisfy my own liking...

What a waste of time, money, and effort.  I would utilize the opportunity to do it now and turn the home I "just like" into the one "I really love" now.

More Ways To Sell Renovation

That's just one way.  Another way is to overcome property condition objections.  Ever have somebody walk in and before they even see the rest of the house, and say "nope, no way, carpet is ugly, cabinets gotta go, I'm done here"? 

Yea, you've been there before.  Use this as a tool to again, describe in short, what they can do.  Find out if that's really the objection.  

If the area is great, price is great, school district is good (if applicable) just ask this simple question to intrigue them and get them thinking... If I could show you a way where you could replace all of these ______ (whatever it was they had a problem with) brand new roll it into your loan and have it done the way you want, and have it done right after closing, would you be interested in knowing more and would you want to move forward on this home?

Spark interest; find out what is really bothering them about the house.  Will this always work? Will this be the answer for everybody? No, of course not but just like in baseball, can't hit the ball unless you take the bat off the shoulder and swing.  Same goes here, you won't know unless you ask...it's just another tool in your toolbox you can use to sell more homes.

Properties in need of repairs

Renovation financing is perfect for those "ugly properties" that need repairs just to get the financing done because standards, lets face it, have tightened up.

Instead of avoiding these, if you have a client interested in one of these properties, you should be smiling from ear to ear as they are already sold on this property and plan to make improvements as they want "the good deal" since it needs repairs. 

This is where you sell renovation financing and let them know they are creating additional equity through the improvements and they are able to obtain the financing with a low down payment solving two problems - purchasing the property and renovating it - all in one loan.

Example:

Purchase price - $50k

Estimated repairs - $40k

As is value - $50K due to condition

After-improved value - $120k once fixed up (which by the way is how we base their maximum financing off of, after-improved value which is why this option is so appealing)

Options to buy - cash as financing it with a regular loan will not fly due to repairs needed

Money needed for repairs - $40k

Total cash out of pocket - $90k

Now Using Renovation Financing See the Difference

Same as above for price and repairs so total NEW purchase price- $90k

After-improved value - $120k

Down payment on loan (depending on program) - either 3.5% or 5% (investor loans 20 and 25%) based on the $90k

Total cash needed - 3.5% of $90k = $3,150 5% of $90k = $4,500 + any closing costs that are not covered by the seller.

Difference $90k in cash OR

Put down $3,150 to $4,500 and use renovation financing to get this property.

Total equity - $30k
Total money out of pocket saved = $THOUSANDS

Not too shabby huh?

Either pay $90k out of pocket to pay cash and fix up or use renovation financing with minimal cash out of pocket and use banks money at low interest rates.  Fully amortized loan over 30yrs

Option 2 is definitely the smarter one.  This is an easy sell.

Some More Options

Now you can use this loan to sell updates to a badly outdated property as well.  Needs completely updated to modern standards - no problem - you can do anything from light to moderate (painting, carpet, cabinets, to plumbing, electrical) all the way up to tearing the house down and rebuilding on same foundation.  Has mold or lead based paint? No problem there either - done! 

More complex properties such as mixed use or manufactured - done! 

Conclusion

So you see, there are many ways to sell this and we are in a very wet, muddy, crazy marketplace right now but there is a way for you rise above the competition and dominate this piece of the market and do very well because I'll tell ya...

Nobody else is focusing on this at ALL.  They are scared of it.  That's because of the stories that they've heard and been told but then again were they working with a specialist and what was the whole story, would be two questions I'd be asking. 

Don't be scared of it - learn it, sell it, dominate, and have a monster successful 2013 because again, this will be the next real estate trend...

You can read When To Use Renovation Financing post as well here.. http://swigartsmortgagejournal.blogspot.com/2012/10/when-to-use-renovation-financing.html

Dustin

When To Use Renovation Financing

 When To Use Renovation Financing

People often associate renovation financing with dumps; foreclosures and bank owned properties; but that's entirely true.  You can also use Renovation Financing for outdated properties as well or even in situations where you would like to build onto your existing home with improvements such as a room addition or second story.  Anything light to moderate from kitchen updates, flooring, electrical to a complete tear down and rebuild on the existing foundation....you really do have many options available.

The most popular renovation loan is the FHA 203k loan.  This loan has been around since the early 80's and was designed to help revitalize communities and renovate the aging housing stock. This in of itself a stimulus package.  It creates economic activity on many fronts from the purchase of the home (or refinancing) to hiring of contractor(s), purchasing of the materials, and keeping money flowing through the economy. 

Even though this loan has been around for many years, very few lenders know how to originate them or even offer them.  I think you'll see this change as more foreclosures hit the market to which renovation financing is the only way to get loans on these properties because in the as is condition...they don't meet minimum property or appraisal standards for financing. 

I'm calling it right now that renovation financing will be the next real estate trend.  See my previous post on this here ====> http://swigartsmortgagejournal.blogspot.com/2012/09/the-new-real-estate-trend.html

The key to completing these loans in a timely manner is:

1. Going to a lender that specializes in these and speaking a renovation specialist. Not all loan officers are trained properly to originate these and it could get ugly if they don't know what they are doing.
2. Having your plans for renovations decided on early.  If you're purchasing a home make sure have the walk through with the contractor to determine needed and/or desired repairs. Also if your doing a 203k it's advisable to have a HUD Consultant inspect upfront so that you know what minimum repairs are needed early in the process.
3. Do not make multiple changes to the scope of work after beginning the process because each time you change the scope of work, this triggers needed paperwork changes that delays the process.
4. Turn your documents in as quickly as possible.  Read my blog post on being prepared at application here ====> http://swigartsmortgagejournal.blogspot.com/2012/09/how-to-be-prepared-at-application.html 
5. Again - work with a specialist, work with a specialist, work with a specialist.  They have the experience and training to advise you and lead you down the path to closing as quickly as possible.

Now I can give you many more tips but just follow these above and you'll be just fine.  Using renovation financing is an awesome tool to help turn a home you just like...into one you really love.  Not only that but your getting the financing at low interest rates and spreading the cost over 30 yrs....and...you're increasing or even building equity with the improvements so that in the future when you sell; you can get top dollar and have money left over for a bigger down payment on the next one.

I've had people purchase foreclosures at $40 and $50k and putting $20-$30k into them and walking away with 20% equity to build on for the future.  You just can't go wrong with these loans.

Until next time..

If you like this blog check out my other one www.livingwithnolimits.net.

Thanks,