Once you make the decision to sell rental income property, you cross the largest obstacle between you and closing your first income property deal: The desire to sell more than residential real estate is foremost.
In this article, I’ll show you four things you must now do that will help you seize every opportunity, perhaps avoid missed opportunities, and maybe bypass months (perhaps years) of trial and error before you close and subsequently collect your first rental property sales commission. It’s not exhaustive, but guaranteed to get you started on the right foot.
1. Learn some basic terms and formulas. After numerous years of assisting countless residential real estate agents in a large real estate brokerage frantic for rental property advice, I strongly recommend that you understand just two real-estate-investing-related terms (and/or formulas) in the beginning. Comprehension of other terms and formulas can wait and follow later.
- APOD – An APOD is a report that shows the income, expense, and cash flow of an investment property for the future first year of the property’s operation. It’s an assumption because it’s based upon current property data subject to change; still, it does offer a valuable indication of how a property will perform after one year of ownership. APOD is an acronym for Annual Property Operating Data (in case you’re wondering).
- Cap Rate – Understanding how cap rate (or capitalization rate) is calculated is likewise paramount to working with rental income property. You will not mingle in real estate investing circles very long without hearing about or seeing a cap rate. I’ll forego the textbook definition and cut to the chase: here’s the calculation (memorize it): Net Operating Income (NOI) divided by Sale Price = Cap Rate
2. Determine what typical cap rates are in you local market. Conduct your own comparative market study.
Start with your local MLS. What cap rates are income-producing properties listed and/or sold? Cap rates are commonly included in rental property listings so it shouldn’t be difficult. If cap rates are not shown then make the calculation yourself (you only need the property’s net operating income and sale price). If the NOI isn’t shown then derive one by computing the gross income and deducting about 45% for vacancy allowance and operating expenses. If the gross income isn’t shown, then call the listing agent or scrub it and move on to the next property.
Local real estate appraisers are another excellent resource. Call around until you find someone who appraises income property and is willing to share with you. Then ask them what cap rates are for multifamily and commercial properties in your area. While you’re at it, be sure to subscribe to their newsletter if they provide one.
If you know an agent that specializes in multifamily and commercial properties, likewise discuss it with them. Depending on how well you know them, they can give you a plethora of good information about the cap rates for your area.
3. Invest in real estate software. Yes, I know that it sounds like a shameless plug for my real estate investment software, but not so. Honest. Having sold income property for nearly twenty years, I can attest that quality cash flow presentations got me listings, sales, and real estate investor customers time and again. Truly, you would be wise to invest in real estate software (some software) that enables you to create real estate analysis and marketing presentations. Consider it as a way to develop your income property skills further, and as a tool to build your business.
4. Let others know you are working with rental property. Call your residential customers and alert your colleagues. You might be surprised how quickly you gain traction toward your first rental income property sale after mastering steps 1-3.
Here’s to your success.