What Is The Wash Looking Motiff Painting On Antique Furniture Why is Staging All That Important in Real Estate Investing?

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Why is Staging All That Important in Real Estate Investing?

There can be little debate that staging helps sell properties, but just how important is it and what value does it really return? To answer this, I first want to explain the types of staging that I have used and their results.

First is what I call “bare-minimal” staging or Stage 1. This is where the homeowner or investor wants to do minimal work to the property and wants the best possible return for his buck, except he doesn’t want to spend any serious cash. If the property is going to be wholesaled by an investor, the most important thing he can do is clean out the property and the yard around it. The average wholesaler is only interested in moving the property and almost never does anything to clean it up before showing it to perspective buyers. This clean up is most notable in REO properties and does get more money than if the property is left in a junked-out condition.

As an estimate, this minimal clean up and clean out of trash should add $2,500 – $5,000 to the price of the property or 5% of its Fair Market Value (“FMV”), whichever is greater. You as the seller still has to face the prospect of a buyer rehabbing the property to sell it to an end-buyer or keeping it as a rental, so it can only be marked up so far as a wholesale deal.

If the property owner wants to wholesale to a retail buyer (“wholetail”) the property, he must do more than simply clean out the house and the grounds. Aside from any obvious rehabbing needed to sell the property to pass lender or local code inspections, he should do an extensive patch and paint of the interior and exterior of the property. If he goes just a little further to maximize his return for a small additional cost, it would be most helpful to do some landscaping. This amount of clean up and repairs can bring a property to the next “stage” very quickly and only the time to hold the property because of seasoning may become a consideration.

When the seller actually has all the work completed and is ready to start showing the property to show perspective buyers, he should go to Stage 2 of the staging plan. Stage 2 planning includes making the property look lived-in but empty of furniture, hence, naked staging. Specifically, in the bathroom(s) there should be a least a brightly colored shower curtain, wash clothes and towels. A few accessories like a soap dish and flower arrangements wherever possible will help. I estimate it should cost $200 – $500 for the entire inside of the property and should return an extra $5,000 – $10,000+ on the final sale of the property. Many of these “props” can be used over at the investor’s next sale.

The kitchen is the major selling feature in most properties so it must have a “cozy” appearance and not have the countertop cluttered. Avoid having a toaster, blender, microwave, or any other minor appliances in the kitchen. You can plan on the prospects opening the refrigerator and looking inside the stove if they are serious buyers, so clean these major appliances ahead of time. Leave water bottles in the refrigerator for guests but do not store or allow children to drink anything that can stain carpeting or tile grout.

We generally use artificial plants over the kitchen cabinets – but live hanging vines also work well for color. Artificial flowers well placed throughout the property, including in the corner of rooms, are highly effective to break up the sparseness of the open areas. Furniture should be kept at a minimum unless you decide to go the next and highest level of staging – Stage 3.

Stage 3 is where serious money can be spent and where the biggest returns come back to the seller. In this type of staging the seller coordinates furniture and accessories in every room of the house. This can quickly get out of control especially in high-end properties. It is essential to get it sold quickly and at the highest possible price. This type of “complete” staging can add 7.5% – 10% to the “value” of the property, but more importantly it will often get the property sold more quickly.

In Stage 3 your budget can get out-of-hand very quickly if you are not careful. So stick to a budget related to the price of the property. If your property will retail for $400,000+, it is suggested that the seller approach local furniture stores and ask them to put their furniture in the property and the seller will offer it as “furnished or unfurnished”. In some cases they will want some compensation and guarantee that there will be no damage when the furniture is returned.

When we do a Stage 3 event, we like to keep our budget to about 1.5% of the sales price – a $400,000 expected sale price should cost about $6,000 for rental furniture for the sales event and a monthly rental fee or $300 – $500. Check on local staging companies because they can be very negotiable depending on the local real estate market. Local buyers can be ethnically very diverse so don’t get stuck when picking your “motif” to fit a certain ethnicity – otherwise you’ll set yourself up to kill the deal rather than help it.

In our personal experience of rehabbing and retailing, we have predominately used Stage 2 staging and in a “good” market as it was all that was needed to get above FMV. In today’s unsettled market, it may require you do something between Stage 2 and Stage 3 to get it to work. In the past we have installed 42″ to 60″ LCD, plasma, and projector TV’s and offered them as part of the sale at full asking price. The worst thing that happened was we sold the TV for $100 over what we paid and the buyer took the property at our asking price anyway.

Some sellers refurnish their property just before the sale and take the furniture with them if it can’t be sold with the property. Just remember your buyer may want what he sees in the property so much that it could be a deal killer if you don’t sell it to him (lamps and ceiling fixtures are very common items of contention and antique tables, chairs, and headboards).

In summary, there are three levels of staging properties. These levels of dollar commitment depend on your exit strategy and the amount of money you want to spend. The returns are generally well worth the money spent with the price increases so always consider some level of at least a cleanup or more staging for your property to increase your profit on the sale.

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