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Monthly Archives: July 2017

About Choosing Comps

In the offering memo prepared, in almost all cases, a detail of rental comps is provided. As it is a primary fiduciary duty of a real estate agent to maximize the sales price of any marketed asset, it makes sense that a smart broker will select comps that display their property in the most positive light. In some cases, the broker chosen comps are, in fact, the best true representatives. However, in most instances, I have found that they are not.

Obviously, location is a significant factor, with properties geographically proximate to the subject being important. However, simply choosing the five or six nearest properties can lead to a distorted assessment of the acquisition target.

The critical feature that all comps must have is that they must be a realistic consumer alternative to the subject property. In other words, you must view the comps through the eyes of a potential future renter.

Of course, location is going to be a paramount consideration. In most instances, potential renters identify their preferred location, and then go about winnowing down the alternatives to a handful of properties that they may actually research further and/or visit. It is this “handful” of properties that will be most useful to an investor for comparative purposes during the due diligence period.

Of the remaining factors a potential future renter will consider, price is arguably the most critical factor, even surpassing location. After all, if a potential renter identifies a preferred location, but cannot find any options that fit within their budget, they will likely begin investigating secondary location options. While verifying current asking rents for these comps, it is vital that any current concessions or discounts be considered. Further, the inclusion/exclusion of other items like utilities, in-unit laundry and parking must be factored in.

Other elements that should be considered when selecting the proper comps include; property age/condition, building type (garden style, mid-rise, high-rise, etc.), included amenities, parking (on-street, surface or enclosed), current tenant base (young professional, family oriented, senior housing, etc.) as well as those factors that may be unique to the specific municipality or neighborhood.

Turn Property to Regular Income Source

Property Funds

These are associations that sell, buy and manage property, in which you can invest. You don’t have to bother about the daily business proceedings, which is usually taken care according to pre-agreed terms. You can join a property fund through an independent financial adviser. Funds are regulated by the FSA.

Property Renovation for Profits

This is a practical path for people who are well versed about the market with the right skills and the perfect contacts to improve/develop a property quickly and sell it. This is the ideal option when you are sure that the property prices are not going to rise, Example: recession. These kinds of investors are proficient in renovating semi-ruined or derelict properties and bring them back into the market.

Property Trading

For people who know their job and are ready to invest their time & expertise to look for properties that are low-valued or semi- derelict, possibly they can make minor changes or alterations, such as getting a planning permission for an extension, once the value is added, it is possible to trade on at a profit.

Buying ‘off-plan’ property

The buyer purchases unbuilt property from a developer, hoping to sell it on at a profit after it is completed. The investment is highly risky in a static/falling property market.

Hard Money Lenders

Types of hard money lenders include:

Direct Lenders – A direct lender draws from large amounts of pooled capital to fund loans. They get their money from wall street, hedge funds, etc. Typically, direct lenders are larger lenders with immediate access to unlimited funds.

Broker – A broker outsources their deals to a direct lender for underwriting and eventual funding. The problem here is that brokers are at the mercy of the direct lender’s timeline and are typically more expensive as they add their fees in addition to what the direct lender charges.

For example, I charge 10% and 3 points. Brokers in my area charge up to 14% and 5 points because they get funding from someone like myself and then add their profit to our fees.

Syndicators – Once presented with a deal, they then raise the capital needed to fund it and often from multiple sources. Syndicators can cause painful delays as they raise needed capital after the deal is already underwritten. And, just as in the above example, their funding source may not come through at the last minute. I know of borrowers being told the day before, or even the day of, closing that their funds will not be available after all.

One reason syndicators run into trouble is that they often borrow from personal friends or family members. At the time of your closing, these friends or family members may have loaned to someone else or simply changed their mind about lending. Don’t go to closing without absolute certainty that your funds are available.

Flipping A House

You should fully understand precisely what the home will sell for once it’s fixed up, the expense of enhancing it, as well as the permits, contingencies in addition to your lowest profit so you may proceed to the next offer. The moment you have that worked out, only then may you recognize exactly what to offer the seller..

Capital for home flipping is available, however you may pay much more as an investor

Presently there are a great deal of loan providers available which focus in home flipping. The crucial factor to keep in mind is, you’ll be an investor, not necessarily a home buyer. As a consequence, your interest charges, even if you possess the finest credit rating, will certainly be many percentage points above even the greatest rates, at times towards double numbers. You furthermore may only be capable to finance merely 60% of the property, although many loan companies may finance as much as 130% of the purchase price in order to assure there are funds with regard to the renovating.

Get your team together

In order to be a profitable house flipper, you’ll require plenty of close friends, specifically friends who are building contractors, house inspectors, accountants as well as attorneys and real estate agents. It normally takes a crew to construct a home, and it requires a crew to flip a house. Simply because you have purchased a house, sold a house or even painted a house, does not suggest the expertise to flip a house is there.

You’ll require to operate with a reliable builder to be an effective flipper, as well as a qualified home inspector which can point out items which will need to be repaired that you’ll expect to talk down into the sale price, or it will cut into your gains once you sell. You will also need a competent Realtor which can price the residence appropriately when you depart.

Location is important

It doesn’t matter how great the offer you make on the purchase end of the home if the location isn’t a sensible one. Nonetheless, even a 10% to 20% revenue margin on a flipping offer is an effective one. There tend to be far better markets than others with regards to flipping.