Let’s face it. Commissions are the primary reason any broker or agent would take a property listing. This is fairly straightforward. After all, brokers and agents are not paid merely to work forty hours a week; they are paid to sell property regardless how many hours a week.
It always boils down to the sale; no sale, no paycheck. Even with a hundred listings; zero sales equate to zero commissions and the agent makes zero money.
Therefore it always seemed paradoxical to me that some agents would devote so much time and energy to list a rental income property and then so little time and energy trying to sell it. Worse than that, that so many would take the listing and then simply throw it up against the wall hoping to generate an offer. Okay, for the lucky ones, perhaps, but for the majority it was just another pile of hours with no money to show for it.
I saw it happen dozens of times during my thirty years in real estate to colleagues of mine trying to sell rental income property and never understood it.
So it seemed like a good idea to suggest two areas where agents commonly fail that might be helpful if addressed. Alone, they might not increase the number of closed rental property transactions, given the many factors investors rely upon to make investment decisions. But they are a requirement to get agents started with investment property in the right direction.
Unlike residential buyers who are typically more emotional about amenities and floor plans, real estate investors make their investment decisions based on the numbers. Real estate investing is always about the bottom line: cash flows, rate of return, and profitability.
It stands to reason, therefore, that anyone who is serious about servicing income-producing property has to run the proper numbers
- Gross Scheduled Income
- Operating Expenses
- Net Operating Income
- Cash Flow
As well as the significant returns like
- Cap Rate
- Internal Rate of Return
This is the type of financial data your colleagues and potential buyers are looking for in your marketing presentations. And there was nothing more frustrating to me than to receive a marketing package from an agent for a property I planned to show one of my investor-clients when it’s not displayed.
If you’re new to real estate investing and not sure how to run the numbers, than ask a willing colleague who knows how to show you. Or invest in a real estate investment software solution that computes it for you.
The important thing is to send out a complete marketing package with meaningful numbers that allows others to evaluate the profitability of your rental property listing; not a half-baked one containing just a price, picture and few scanty details about the configuration.
Remember, this is income property you’re trying to sell, not a house. And when you make the effort to present the cash flows and returns before you begin marketing, you not only increase your chances of making a sale, you also promote your image as someone who understands investment property which in turn might lead to future business. It did for me.
Okay, but you should also understand the types of reports to present that investors and colleagues expect to see. These, of course, can range from just a few to a lot so I’ll just suggest a couple of the reports I used in the early stages of promoting my new income property listings.
Marketing flyer – This announces the listing to the community-at-large. It’s best to limit it to one-page for easy distribution, but in addition to the obvious like price, number of units, size and picture, include enough revenue data for readers to evaluate the cash flow, rates of return and profitability.
APOD – This is one of the more popular real estate investing reports because it presents a good initial-glimpse of a property’s annual financial performance during the first year of ownership. Whereas a marketing flyer might tend to highlight a best-case scenario, an APOD is based upon the property’s more actual income and operating expenses. So it is commonly requested by colleagues and potential buyers.
Pro Forma – This is a projection of the rental property’s potential future financial performance. It is subjective because it relies upon data estimates for maybe ten years out, but it does serve the investment-decision process. So it will benefit your sale efforts to have one prepared.
As stated, these are just a few of the reports commonly used for investment real estate analysis. But they are a good start. And here again, you can turn to a real estate investing software to create them for you if you’re unsure how, or simply rather not spend the time creating them yourself.
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