Today’s REI Classroom Lesson

During the time the home is in escrow, Holly McKhann explains items that can be taken care of, including repairs and getting the home ready for inspection.

REI Classroom Summary

Holly McKhann explains how getting utilities turned on early but not installing appliances until close to closing can help with final inspections and deter from theft from having expensive appliances sitting in an empty home.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the FlipNerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Holly: Hi, I’m Holly McKhann with HouseFlipMasters.com and I’m really excited to share with you my topic of the day as your REI Classroom coach of the day, which is going to be the escrow process when you are selling a home.

Mike: This show is sponsored by PassiveRental.com.

Holly: And I’m talking about the process of selling a retail home to what I call a retail buyer, not a flip or a wholesale deal where you’re flipping it or wholesaling it to an investor. So you’re selling the house to someone that’s going to own and occupy the house for themselves, or maybe they’ll even hold it as a rental. But you need to get that house in great condition and ready to turn over to them.

So my first tip is to ask for their request for repairs as soon as they can get. I always encourage my buyers and their agents to get their home inspection right away, as soon as possible, so that we can see what, if anything, needs repair. When we’re lucky, we have a few things, when we are not lucky, we have a lot of things that somehow my contractor missed or that we are just unaware of as we were doing a cosmetic rehab. So the sooner you know that, the better.

My next tip, which relates to this, is in most cases, it make sense to fix most everything. You want to deliver a good product; you want to have a good reputation in your community. You don’t want to be known as the Band-Aid contractor that does tries to cover things up and then, as soon as it closes the escrow, pipes are bursting and problems are happening.

Make sure you have good quality repairs and if somebody wants something changed or fixed, I would probably do it depending on the cost. But you get it done, and you dig your heels in and say, “No this is as-is,” you’re probably going to have the same objection with your next buyer. So we’ve learned in our over 200 transactions of doing these types of fix and flip rehabs that it’s just better to get it done.

One that I went into escrow with just yesterday, the realtor said, “Hey, I don’t think you know this, but on a couple of the windows you didn’t replace, I’m seeing between the dual panes some fog coming in there, which means the seal’s broken and I’m going to need to fix it.”

He’s warning me of that in advance, which is nice. I mean we didn’t see it before with the change of the weather, I think, is when it happened. But of course, I’m going to fix it. I want my buyer to be happy and stay in escrow. Maybe it’s going to cost me $500 to $1000 depending, but it’s worth it just to keep them in the deal. You have to evaluate what is your opportunity cost if you lose that buyer, go back out to market and start over.

If it’s a hot seller’s market and you’ve got a long list of backup offers, then you don’t need to be as concerned, but we definitely try to please our buyers and keep them in the deal. In California, as I’m sure in most states, you have something called seller disclosures. I recommend you just be honest, get it done, get it done fast, and get it over to the buyers.

We’ve actually sold two different houses where people have died in the homes while they were even in our possession. We knew about them, we weren’t going to lie about it, but we told them and it was not a problem for our buyers. But we disclose that even upfront before we even got into escrow because we didn’t want it to be a problem.

They were nonviolent, peaceful deaths and that wasn’t a problem for most buyers. Some of them, they said, “No, thank you,” and they walked away. But it so much better to be forthright, honest and just treat people like you would want to be treated. Don’t try and hide things because it will probably come back to hurt you.

Next, I would say to make sure all utilities are on for the home inspection. I was reminded of this a lesson myself yesterday when I called to get the gas on in the house. We often are saying, “Oh, let us keep the gas off during construction because we wouldn’t want it to be a gas leak or some kind of a problem.” So I called yesterday and their first appointment was 16 days out, I’m like, “Our whole escrow’s supposed to be 25 days.”

So I cut a deal with the other agent. I just said, “Hey, we’ll make sure the whole heating and the appliances and everything are working, but please proceed with your home inspection.” And I made a note to self. And while I was on the phone with the gas company, I got it turned on in my other five properties in the area to make sure I wouldn’t run into this problem again. Some utilities take a lot longer than others to get on.

Also, in Southern California, we have termite inspection, so that’s something else you’ve got to be on top of, get it done and get it cleared. And another thing that we sometimes do, depending on the neighborhood, is we’ll wait to install appliances, and or air-conditioning condensers because they’re a high-target theft item. One of my houses just had the air conditioning condenser stolen last week and it’s a $450,000 house. It’s not like a scary, sketchy area. But when people are driving by the house, they see the realtor sign in front of it, they can scout out and figure out it’s a vacant house, it’s an easy target for things to be stolen.

So if you do that, you’ve got to plan to schedule to get your appliances installed and your air conditioner, whatever it is you need replaced right before close of escrow just to make sure that it’s not there longer than it needs to be. So it takes some careful planning and timing.

So that’s about it for my tips on what to do in escrow for your retail fix and flip property to lead to a smooth closing and, hopefully, a satisfied customer and satisfied you. Thanks and I’ll talk to you next time.

Mike: PassiveRental.com is your source for turnkey done-for-you rental properties. If you’d like to be an investor and not a landlord, please visit PassiveRental.com to learn how to purchase cash flowing professional manage rental properties in the hottest rental markets across the country. We can also help connect you with financing for your next property. Invest the easy way today and get started by visiting PassiveRental.com.

Please note, the views and opinions expressed by the individuals in this program did not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

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Holly McKhann is a full-time real estate investor and works with her husband Scott, having done over 200 fix and flips together in Southern California over the past five years. Holly began her career as a CPA, working for Ernst & Young. She also earned an MBA in finance. Scott is a registered civil engineer with a decade of experience at public home builders. Their blend of expertise and experience has attracted multiple investors, allowing them to expand their business. They used to buy homes exclusively at trustee sales, but now Holly focuses on relationships with realtors to find the flip deals that work. They own 12 rental units, mostly single family homes, all in Southern California. She raised over $3 million through trust deed investments. Holly loves working from home and enjoying her freedom as an entrepreneur. Holly has been married 23 years and has four children ages 13, 15, 18, and 21 and lives in Dana Point, CA.

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