How to List Rental Income Property to Make a Sale

Here’s the challenge. How are real estate agents supposed to make money selling rental income property in this depressed real estate economy?

After all, most rental property owners are requiring a price for their property based upon previous years’ “bubble” inflation, and buyers are choosing to hold on to their cash rather than to fork out the money for income property deemed over priced.

Fair enough. Nonetheless, there are elements that transcend what might be considered likely and in turn nuances at work that are inherent to real estate investing that might surprise you.

Here’s the deal. It has always been true with real estate investment property: There are always owners willing to sell and buyers willing to invest. In other words, there are always deals (and commissions) to be made if you know where to look and are committed to finding them—even when it appears you are seeking the proverbial “needle in a haystack.”

Yes, you heard right. There are opportunities to list and sell rental property out there waiting for you, but it’s not likely they will fall into your lap; you’re going to have to dig for them.

Here are some suggestions.

1) Prepare yourself for income property – At the very least, understand what an APOD and Proforma are, and learn the formulas for cap rate and gross rent multiplier. Research your market area to determine what cap rate income properties have sold for, or are currently listed. Invest in good real estate investment software so you are prepared to make sound cash flow analysis presentations. You wouldn’t expect any business owner to succeed who lacks knowledge about the product or does not possess the right equipment and tools. The same is true if you hope to build a successful rental property business.

2) Call your customers – In this case, you already have rapport with those you’ve serviced in the past, so you have an inside track, and probably won’t get hung up on.  Ask them whether they might consider investment real estate, or perhaps own rental property that they might consider selling. Remember, you don’t know until you ask.

3) Listen to your colleagues – Attend office, local board, and other meetings where your colleagues (who are working with investors) are pitching “haves” and “wants.” Pay particular attention to the types of income property they’re looking for and don’t hesitate to go out and try to find it. My first income property listing was the result of driving around pinpointing and contacting owners of properties that suited my colleague’s buyer.

4) Contact rental property owners – To do this, of course you’ll need to know what rental properties exist in your town and who owns them. You can drive around and gather addresses then have a title company supply you with the owner’s name or you can visit the commercial division of the tax assessor’s office and gather them yourself. The more thorough you are the more names you collect and in turn, the more owners you will be able to contact.

5) Contact property management companies – This is sometimes the only way you will be able to contact an owner because rental property owners typically insulate themselves behind a management company. If you’re fortunate enough to build a relationship with a property manager you might get an inside scoop when an owner is considering a sale, but at the very least be sure the management companies know that you exist and are in a position to sell income-producing property.

6) Watch the classifieds for FSBOs – Check your local newspaper and Craigslist for rental property marketed by owners. It is never likely to see a For Sale sign in front of an apartment or office building because owners do not want tenants to know a property is up for sale, but sometimes they do post a classified.

7) Contact residential developers – Some homebuilders are also investment real estate owners, and given this sagging market, might be ready to sell or entertain an offer. Hey, they may even be sitting on empty houses that can be rented and sold as a rental property.

Okay, you get the idea.

If you want to list and sell income property successfully, not unlike any business entrepreneur, you need to understand your product, budget for the correct tools, and then do the legwork. It does work, but only you can decide whether you want it badly enough to make the investment.

Cap Rate or Gross Rent Multiplier to Estimate Property Value?

Cap rate (or capitalization rate) and gross rent multiplier (GRM) are two popular real estate investing methods real estate investors and agents commonly use to estimate the market value of rental income properties – both for selling and buying purposes.

At the end of the day, though, which method – cap rate or gross rent multiplier – best measures the property’s financial performance and profitability and therein is likely to promote a smarter real estate investment decision?

In this article we’ll consider the pro’s and con’s of both and then show you what the professionals think.

Capitalization Rate

Cap rate measures the relationship between a property’s net operating income (NOI) and its price – therein expressing what percentage rate a property’s net operating income is to its value (or sale price).

Here’s the thought. Because net operating income represents all income less operating expenses, net operating income represents the amount of money the property produces to pay the mortgage. So it basically shows whether a rental property has the ability to pay its own way. This is why lenders look closely at the property’s net operating income when making a loan.

Formulations

Cap Rate = Net Operating Income / Market Value

Using this method to arrive at rental property market value requires some research. You would have to establish what the average cap rates for similar income properties in the local area are in addition to the net operating generated by the subject rental property.

Market Value = Net Operating Income / Capitalization Rate

Pro’s and Con’s

The advantage of using cap rate – given that it relates to net operating income – is that it accounts for the rental property’s annual vacancy allowance and operating expenses. Moreover, it is routinely used by bank appraisers, county tax assessors, and commercial real estate brokers so it’s a widely-accepted valuation method.

One disadvantage is that it’s sometimes difficult to confirm a sold property’s actual operating expenses and therefore difficult to determine with any degree of accuracy the actual – not merely the published – capitalization rate the property sold for.

Rule of Thumb

Capitalization rate depends on individual market areas. So there is no such thing as a universal rate. In one city or state a rental property at 7% cap rate might suggest a great opportunity, whereas it might appear over priced in another.

Gross Rent Multiplier

The gross rent multiplier method measures the ratio between a rental property’s gross scheduled income (GSI) and its price.

Formulations

Gross Rent Multiplier = Market Value / Gross Scheduled Income

Using GRM to arrive at income property market value also requires some research. You would have to establish what the average gross rent multiplier has been for recently sold income properties in the local area as well as settling the gross scheduled income generated by the subject property.

Value = Gross Scheduled Income x Gross Rent Multiplier

Pro’s and Con’s

The advantage here is that gross rent multiplier is quick and easy to calculate.

The disadvantage of the GRM method is that – because it is based upon gross scheduled income – it ignores occupancy levels and operating expenses. Both of which, of course, that should be considered during the real estate analysis.

Rule of Thumb

Because GRM is market-driven, there is no universally correct number – though it would be surprising (perhaps suspicious) to see a GRM lower than 4 or maybe higher than 12.

Conclusion

Okay, so which method is the better way to determine a rental property’s market value?

Most analysts tend to agree (including appraisers and tax assessors) that the cap rate method is the more reliable way to determine rental property value. But it comes with a caveat.

You should never rely on capitalization rate alone to provide a true picture of a property’s profitability. Before making any real estate investment decision, always compute all the numbers, rates of return, and cash flow scenarios for yourself. After all, numbers can be contrived so always reconstruct your own raw data. Before you actively pursue any real estate investment further, insure that all is revealed and nothing is concealed.

So You Know

ProAPOD real estate investment analysis software solutions automatically calculate cap rate and gross rent multiplier and then post the results in the appropriate real estate analysis reports.

 

How to Identify a Good Fixer-Upper

by Jamie

Finding good fixer-uppers is a skill which can make you hundreds of thousands of dollars a year in the real estate investing industry!

There are lots of ways in which you can improve your cash flow and the amount of time and money that you spend on any given property. Here are some of the ways in which you can find good fixer-upper properties and avoid those common mistakes which keep people from achieving their true potential in the world of real estate investing.

Two of the most important things to start with are the location and the design of the property – a place in a popular area with a solid design is a must if you want to be able to turn the property around quickly. Think about the local transportation and infrastructure and what it would actually be like to live in the area where the property is located. Next, consider the overall picture of the property. Are there any structural issues that could lead to problems down the line? One thing that you certainly do not want to do is to spend time and money working on the foundation or the bones of the property, or pouring money into basic systems, because these aspects of a home do not provide a strong incentive to buy, they are simply expected to be there.

Remember that more often than not you are making the bulk of your profit when you buy – look for the motivated seller who is not even interested in putting the time and money into relatively minor cosmetic changes which could substantially increase the value of the property, and who is willing to sell for a price which is very competitive for the local market. Successful fixer-upper opportunities from motivated sellers will give you the highest levels of profit, so a relatively small amount of time put into researching sellers will save you a lot of time and money in the future.

Finally, arrange your financing for the property in the way which is least expensive to you. Use as little of your own money as possible when you are arranging the purchase of the property and take full advantage of loans and good financial strategies. Don’t lose the money that you are making from locating motivated sellers and excellent fixer-uppers by making mistakes on paper! Follow all of these pieces of advice and you will be able to be a big success in the real estate investing market!

PS I’ve never seen anybody do what Frank is doing and I’m excited to share this with you today… Happy Investing, Jamie P.S.: To learn more, go to: http://foreclosurecashprofits.com/go/?thankyou-page=945

About the Author

Internet Marketing.Real Estate Invester.

ProAPOD 6.0 Update Adds Commercial Features

ProAPOD® real estate investment software solution 6.0 has been updated and is ready for customers to download.

What’s new in this real estate software solution is the ability for users to select either “Residential” or “Commercial” as a property type–which means that the Cover Sheet already provided in this real estate investment software software can now read either “Residential Income Property” or “Commercial Income Property”.

This is the result of an issue brought to our attention by a current user looking to create investment property presentations for other than residential multifamily properties. So we acted upon it.

But we even did more.

Now, when creating the income and rent roll data, in addition to the selections  attributable to multifamily property already present in the software such as Studio, 2/1, 2/2, 3/1 and so forth (typical for multifamily property), users will also be able to select whether the unit configuration is retail, office, or warehouse (typical for commercial property).

In other words,in addition to using ProAPOD 6.0 to analyze multifamily properties (as many do), you now (with this latest update) can be assured that when you are using the software for commercial real estate that the Rent Roll and Cover Sheet will reflect the type of real estate you are presenting.

This makes ProAPOD 6.o (in our opinion) not only the best and most affordable rental property pre-tax cash flow analysis software on the planet, it makes it better.

Make Money With Real Estate Investing

by Nick Cifonie

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About the Author:

Nick Cifonie, a long-time real estate investor, speaker and mentor gives an explanation about wholesaling, retailing, subject-to real estate investing, rehabs, lease options and many other strategies. For more information, log on to the website http://www.REI-TV.com