Selling your house on Craigslist – A Buyer’s Perspective

If you have decided to sell your house on Craigslist … good on you!  Craigslist in my mind is how the savvy home seller sells their house.  If you’re really good, you can totally forgo the real estate agent and save yourself 6% of the sale price.

Now, let’s say you’re going to sell your house yourself and not use an agent.  Remember, for all I rag on real estate agents, using an agent to sell your house is not NEARLY as much of a waste of money as hiring one when you’re buying a house.  Reason being, a seller’s agent (if they’re any good at what they do) actually does a fair amount of work listing and marketing your house.  By selling your house on Craigslist, you’re going to have to take a large amount of this work on yourself.

So, as someone who has bought numerous houses on Craigslist, and sold one that way as well (see this post for the ad I wrote to sell that house), here are my tips for attracting buyers:

1.  Take good pictures and use as many as possible

Remember, people do not want to waste their time visiting a house if they’re not at least somewhat interested in actually buying it.  If there is not at least a picture of a house, I won’t even consider pursuing the house.  If there is a single picture … maybe.  To come across as a legitimate seller though, I would recommend using at least 8.  (Craigslist allows up to 24 now which could be a little excessive).  The time taken to take those pictures is time well spent and it is something that you would be paying an agent thousands of dollars to do.

2.  Don’t take pictures of nondescript rooms

Sure, you want to get pictures of all the rooms which is cool generally except when the room is empty and you take a picture of the corner.  Nobody cares that your rooms do in fact have corners and showing someone a picture of a room corner will do absolutely nothing to sell your house.  All rooms have corners.  Instead, take more than one picture of the actual selling points of your house.  Focus on the kitchen, or bathrooms, or deck, or yard, whatever you want to draw attention to.

3.  Take pictures in the summer

Summer pictures simply have a better aura about them than winter pictures.  People like summer and people are more drawn to pictures of a house in the summer.

4.  Put the property address in the ad

Potential buyers like to drive by houses before they commit to even calling the seller.  Some folks are concerned about putting their home address in a Craigslist ad which is certainly understandable but consider this, if you put your house for sale on the MLS through an agent, the address will be there too.  If you can’t put the exact address, at least put the street or general area.  If I can’t get a good picture of where a house is located, I’m not going to pursue buying it.

5.  Specify if agents can be involved

Once you list your house on Craigslist, you will inevitably start to get calls from real estate agents asking you if you want them to list your house.  I have found that not clicking the “ok for others to contact you about other services, products, or commercial” interests doesn’t always keep the young and energetic upstarts from calling and asking if I want them to list my house.  As you can imagine, this bothers me to no end.  So much so that I specifically state in the ad that I do not want agents to call me.  I will also state that if the buyer wants to use an agent, then they will have to pay the commission themselves, in effect raising the sale price to compensate for the 3% that a real estate agent would charge.

6.  Know your potential buyers

This might sound obvious but when you post a house for sale on Craigslist,  ACTUALLY SELL THE HOUSE!  Don’t just say the basics, get into details on how great the house is.  Talk to your buyers.  Know what they like and take some time to think about why they would want to move to your neighborhood.  Is is the suburbs?  Talk about how much space there is and how great it is grilling on the deck.  City?  Talk about how short their commute will be and how everything is withing walking distance.  Get the buyer thinking about what they will do when they live in the house.  Big kitchen?  Lot’s of storage space?  Buying and selling real estate outside of the realm of Realtors is really a relationship-based event and should be treated as such.  Your ad in Craigslist is the beginning of a relationship with a buyer that will last for several month if they end up buying the house and possibly years if you end up selling the house on a land contract or lease-to-own arrangement.

Real estate … the 6 ways it pays

What a deal!  Real estate pays you in 6 different ways!  Yep, that’s a lot of streams of income.  So even if your property is “cash flow neutral”, which I would definitely try to avoid, you’re still making money in at least some of the other 5.  And here they are in no particular order.

Cash Flow

Cash flow is simply the money that goes into your pocket each month.  It’s income minus expenses.  When you’re buying a property, this is the metric you should use to evaluate whether or not it’s a good deal.  Remember, cash flow negative properties CAN make you money, but if you buy one, you’ll have to subsidize if for a while from other income.  I only buy properties that are at least somewhat cash flow positive.

Appreciation (Market Appreciation)

Aside from the bubbles that have occurred lately in real estate, houses and apartments typically appreciate at slightly above the rate of inflation nationwide and in some markets, much more.  I never count on a proprety appreciating in value because I consider this more in the realm of “speculation” and I’m not a good speculator.  When my properties do appreciate in value (which they always seem to do), it’s a bonus.

Appreciation (Forced Appreciation)

If a $500 upgrade (say, new paint and carpet) allows you to raise the rent by $100 / month ($1200 / year), you have just increased the value of your asset many times the amount spent.  As a property owner (unlike the owner of other investments), it is in your power to make these improvements.  Your $500 investment pays itself back through increased cash flows ($1200 a year in this case), and through increase property value which can be accessed by selling the property or taking a loan out against it or using it as collateral for buying other houses.

Equity Capture

When you buy a property, you will (hopefully) not buy it at full market value.  If you buy an $100,000 property for $80,000, you have just added $20,000 to your net worth.  Like Forced Appreciation, this $20,000 isn’t immediately available to you in cash.  However, some investors will immediately refinance properties like these at the full market value ($100,000 in this case) to pull out their cash for another deal.

Principle Paydown

If your property is financed with a land contract or bank loan, part of the rent each month will go toward principle paydown.  Your liability (debt as a mortgage or land contract) will eventually paid off as you make your loan payments.  Paying off a liability increases your net worth by increasing your debt.  A few notes on principle paydown … the first is that you have to pay taxes on principle paydown.  The second is that is does not show up on Quickbooks’ Profit and Loss report, only on the balance sheet.  When you make a mortgage payment, part of that payment goes to interest (which can be counted as an expense) and part goes to principle (asset account to asset transfer rather than expense).

Tax Advantages

If you considered investing in real estate through a REIT, don’t do it!  You may take advantage of market appreciation (through an increase in share price) and possibly cash flow (through dividends) but that’s the end of it.  You don’t get any of the awesome tax advantages that real estate provides.  For starters, any and all expenses (including mortgage interest and meals with prospective buyers or sellers) can be written off of your income or “expensed”.  Furthermore, and this will merit it’s own entire post, is depreciation.  The IRS allows you to take 1 / 27.5 of the value of the property (building only, not land) and consider it an expense.  That’s right, you can expense something that didn’t come out of your pocket and write it off of your income at tax time.

In closing

Not every property will always pay you in all 6 ways although if you buy a house using a loan and rent it out, it will as long as the market is going up and you make some improvements.  Flippers or folks that buy properties using cash (as opposed to loans) may not get the benefits of one or two of the six but still benefit way more than what is possible with bonds or equities or other “paper investments”.  Just know that when you start buying property (even if it’s just one rental house), you will start a snowball of income that will increase exponentially and very quickly relative to your other investment choices.

Buying a house on Craigslist

Treadmills …. sure.  Lawn mowers …. maybe.  But a house?

Definitely!  Craigslist is an awesome tool for buying anything from juicers to concert tickets and even houses!  When I am on the search for houses to buy as rentals, Craigslist is my first and often only destination.  Sure, you can search the local real estate company or ForSaleByOwner.com but what you’ll find there are folks trying to sell their houses the “traditional way” … or maybe in the case of ForSaleByOwner.com, close enough to the traditional way that we are not interested.  What I mean by that is that the vast majority of people that sell their houses, whether by owner or through an agent, want to be PAID IN FULL at closing.  These are not the types of houses that college students (or someone with let’s say “less-than-stellar” credit) look for unless you got lucky and found a cosigner for a mortgage or found a local bank willing to give you a non-conforming loan.  As a college student, you are looking for the proverbial needle in the haystack … you’re looking for the owner that is willing act as your banker and sell on a Land Contract.

In fairness, most sellers have no other choice than to be paid in full at closing.  Most houses have loans on them that need to get paid off when the title changes hands.  Some sellers need to sell their house in order to clear their credit and buy another house.  Some need the proceeds from the sale for another down payment.  Land Contracts for all intents and purposes are not possible, or at least very risky, if there is an existing bank loan on a property so let’s not go there right now.    We are not interested in houses with bank loans on them.  In fact, we would rather not deal with banks at all.

So how do we find these elusive sellers who own their house free and clear and who don’t need a lump sum of cash immediately?  We search for Land Contracts.  Personally, I would start by scrolling through the listings before doing a more targeted search.  In your cities Craigslist, under “Housing”, click on the “Real Estate for Sale” link.  The problem with this directory as a whole is that the majority of the listings end up being brokers who have wised up to the power of Craigslist and are posting their client’s houses there.  Lame.  You can tell these apart because they have the “real estate – by broker” link after the listing.  You see, some real estate agents (or Realtors ®, as those that are part of the National Association of Realtors like to be called) have wised up to the “power of the interweb” and think that putting their listings on Craigslist is a good idea.  But don’t get me started on Realtors … or real estate agents for that matter.

To find the individual owners that are selling without brokers, scroll down until you find a listing with a “real estate – by owner” link after it.  Click on that link to get only the “For Sale by Owner” listings.  To make it quicker, you can just go to the following link …. http://annarbor.craigslist.org/reo (obviously substitute your city for the “annarbor” in the example).  These are the listings that we as savvy buyers are interested in and only include listings where the actual owner is trying to sell their own house.  The other stuff is just riff-raff and can easily be found and more effectively searched on Trulia or Zillow or any one of hundreds of websites that pull data from the MLS.

As you look at each listing in the “Real Estate by Owner” directory, you will start to get a feel for how common (or how uncommon) land contracts are.  Even in the For Sale by Owner listings, very few owners can or want to offer Land Contract terms.  As with the more traditional listings, most of these folks need to get paid in full at closing.  As far as Land Contract listings are concerned, some motivated sellers may advertise that they’re willing to offer a Land Contract right in the title of the listing like these gems, pulled straight from the http://annarbor.craigslist.org.reo on May 5th, 2013.

Large Campus/Downtown Ypsi Condo – Land Contract! $34900 / 2br – 1000ft²

3 Bedroom Brick Ranch. Land Contract Available

More often, the seller is willing to offer a land contract but would rather be fully paid at closing and therefore will not advertise it as a selling point.  In cases like these, this is usually indicated in the body of the Craigslist posting:

“NICE BRICK HOME, NEW ROOF WITH FULL BASEMENT FERNDALE SCHOOLS!!!!!!!!!!!!  XTRA LARGE KITCHEN AND DINING AREA NICE LIVING ROOM.  GOOD SIZE BEDROOMS.  HARD WOOD FLOORS.  THIS HOUSE IS A FIXER UPPER NEEDS KITCHEN COUNTERS , PLUMBING, WATER HEATER ONLY $3500 LAND CONTRACT WITH LOW MONTHLY PAYMENTS.  BRING ALL OFFERS OWNER WILL ACCEPT A LAND CONTRACT.  THIS IS A NICE SOLID HOUSE IN A CENTRAL LOCATION.  CALL XXX-XXX-XXXX FOR DETAILS.”

Why do so many sellers write their ads in all caps?  That’s a very good question.

Let’s talk a little bit about the psyche of people that are selling their house on Craigslist.  As a buyer or investor, ideally we are looking for motivated sellers.  We are looking for people that REALLY want to sell their house.  If someone is offering a land contract as a selling point, then they are more than likely a very motivated seller.  So that’s a good thing right?   Well sort of … but be careful.  They could be motivated for all the wrong reasons.  If their house is trashed and unrentable without considerable improvements and repairs, then we may want to stay far away from that house.  A lot of the folks that offer land contracts fall unfortunately fall into that category.

So how do you figure out why someone is a motivated seller?  Well, give them a call!  There are tons of reasons why someone might be a motivated seller.  Maybe they’re moving out of town.  Maybe the are in the business of flipping houses, not managing them.  Maybe they’re sick of being a landlord.  Maybe they inherited the house … and the list goes on.  Also, just because a house need some TLC doesn’t necessarily mean it’s a bad house or a bad investment.

Buying houses on Craigslist is all about Social Credit and relationships.  Each and every time you contact a seller you are starting a relationship with them.  If you end up negotiating a Land Contract with them, this relationship could last for years.  I am still very good friends with the first guy I bought a house from on a Land Contract.  We have done several subsequent deals together, he has mentored me in many ways, and we have actually become close friends.

Once you’ve found the house you want to buy and begun a relationship with the seller, the negotiations begin.  With a deal like this, chances are you will not be using banks or real estate agents (or Realtors®, as they would prefer).  You will be using a sales contract, possibly a home inspector, and definitely a title company to close the deal.  The techniques for closing the deal can be found at the end of my “College Student Home Buying Guide“.  (Of course, the same techniques apply if you’re not a college student).

As always, it is my goal to help you buy a house, whether it’s your first house to live in or your first rental property.  If you have any questions, please feel free to contact me and I will respond as soon as possible with whatever advice I can give.  Thanks for reading to the end of this post and have a great rest of the day.