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Buying Income Property
Most Buyers today are looking for the “deal of the century”, what they don’t understand is that most all the income properties purchased now will become the “deal of the century” when interest rates start to climb. Below are a few things to consider before you start your search:
Mortgages;
Most lenders will work with an 80/20 loan, which means you will need 20% of the purchase price to put down on the mortgage. The term will still need to be negotiated with the lender whether a 3,5 or 7 year term amortized over 25 -30 years
I have many lenders that are willing to loan on Multifamily properties, call for a list!
Risk equals Rewards
Location, vacancies, deferred maintenance all contribute to the pricing of the property, but can you handle this?
You have to know your limitations with time and resources before you purchase. Be realistic, you will have tenants, toilets and taxes to deal with.
Where to find properties for sale?
Many times Sellers will tell me that they want to sell but are not ready to list. This is very common in this industry, many Brokers act as a match maker and line up Buyer with Seller without ever putting the property on the market web sites. That is why it is very important to check out this web site, many listings are never listed on other sites, or call me and we can chat about what you are looking for, I may know someone!
OTHER SEARCH SITES TO CHECK OUT:
The Commercial Real Estate Marketplace
#1 in Commercial Real Estate Online
Selling Income Property
Selling income property isn't like selling a house. You can paint a house, and get a little more because it looks nice. Rental property is different, because it's bought by investors, who look at income more than new paint. Raise income, and you increase value.
Let's assume investors in your area expect a capitalization rate of .08. That means that they want a net return (before loan payments and taxes) of 8% on the purchase price. If your three-plex generates $12,000 net income annually, they'll value it around $150,000 ($12,000 divided by .08). Make it generate $16,000, and you make it worth $200,000.
Get More Income From Your Income Property
Higher rents is the obvious way to boost income, if you can justify it. Find out what similar units are renting for. If you're $60 below the going rate, you can raise rents and not lose your renters. Raising the rent $60 for three apartments means $2160 more net income annually. At a .08 cap rate, you just added $27,000 to the value of your property.
Consider other ways to raise rents. Your tenants may agree to $30 more per month if you have a carport built. That's $1080 more net income annually, meaning roughly $13,500 more value added to your property. ($30 x 3 units x 12 months = $1080 divided by a .08 cap rate = $13,500) Build that carport for $4,000, and that's a good return on investment right? What else do they want?
Consider other ways to get more income. Rent storage sheds to tenants or put in a coin-operated washer and dryer. If you own a larger income property, you could install pop machines.
Reduce Rental Property Expenses
Can you add insulation to reduce the heating costs? If you're paying $80/month for lawn care, will one of the tenants do it for $40? Can you get cheaper insurance? Look for any ways you can reduce expenses. A new $4,000 furnace that saves $800/year on heating costs means you just turned $4,000 into a $10,000 higher sales price.
These things are never an exact science, and of course appearance and other factors matter. Increasing that net, though, is the surest way to get more for your income property. Just make the changes at least several months before you try to sell the property. Also, learn how do the math - it really does matter.
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LORNA MUELLER
OWNER/BROKER
MULTI FAMILY SPECIALIST
OFFICE PHONE: (262) 569-7690 or 569-7699
MOBILE: (414) 405-7128
FAX: (262) 468-4250
LornaTRC@wi.rr.com