Friday, June 29, 2012

How to Sell Your Property the Right Way

There are plenty of people who claim to have deals but is it really a deal?  For those of us who are seasoned and know our craft well, we always find it interesting when sellers (or those who claim to be sellers) come to us all excited that they have so many deals and that we will be so impressed.  What impresses me is a seller who is a professional, knows what they're doing and can offer us a truly good deal with verifiable value.  Now that's a real deal!  We don't mind digging for the information, but we need to at least see some value before we dig, so help us see that value all of you sellers out there.

I've found that in most cases there aren't good enough numbers to justify an offer and we need to dig to find those numbers, so it's not a deal at all when we find poor numbers; the buck stops there.  To make an objective investment decision we need certain bits of information.  Buyers will not buy something that they cannot determine value to a reasonable degree.  It is a seller's responsibility to highlight value and justify it, and it's a buyers responsibility to verify that value.

There are many sellers who just don't have their act put together.  They send financial reports without thinking about what they're sending and asking if we would be interested in their offering?  Hmm, let me see....I have an asking price, no address and no financials, no comps, no nothing?!!  Now for those of  you who practice this sort of behavior, how can an investor decide if this is something that has value and if they want to invest more time to look into it further?  Let me answer that question for those people: WE CAN'T!  Do not waste investor's time with poorly constructed offerings which have no information, or insufficient information.  Please learn what investors need to see.  If you are looking for a retail sale, then go to a realtor and let them handle it for you.  They will help you get your property sold and help with the marketing. If you're looking to sell to investors privately, please understand what we need to see.  Don't throw all of the due diligence onto your buyers and you should perform it yourself at least minimally so you understand what value it has before you sell it.  It will make your selling life that much easier by doing some work on the front end.  Selling your property is not simply throwing mud against the wall and hoping some will stick.

For multi-family properties, investors need at minimum, NOI (net operating income), occupancy % and at least 2 - 3 years P&L plus the current rent roll.  The P&L should be presented in a trending report (monthly numbers).  If you have repair figures, provide them.  Ideally this should be from a third party.  Don't hide your numbers, be honest and up-front about your property condition.  The more organized your information, the easier your sale.  

Also for those of you multi-family rehabbers / repositioners out there who like buying low occupancy product and "fixing it", plan on keeping your property for at least 6 months past stabilization to get more value out of it.  Don't buy a 20% occupied building, rehab / reposition it and fill it to 85% + occupancy and once you hit that 85% level, put it up for sale.  You won't get your maximum money out of it.  Buyers want to see a history of stable income and so do lenders before they lend, so bear that in mind and plan ahead for it.

For single family home sellers, provide your potential buyers with comps from a third party source, a repair estimate from a third party source and also a subject-to appraisal based on the repairs.  When an investor sees those documents it makes their analysis and decision making much easier.  Yes you need to spend some money on those reports, but it will pay dividends for you.  One more thing on single family homes.....put it under contract and then communicate your numbers to your buyers list.  If you do that, you don't need to really worry about being circumvented because you control the deal.  It'll save you time and it will also communicate to your buyers list that you are a serious seller and should put more money in your pocket when you do close the deal.

Until next time, Happy Fourth of July and Happy Canada Day and  to all of my American and Canadian friends!

Tuesday, June 12, 2012

What's the Best Exit Strategy Today?

Exit strategy is something that many investors take for granted and unfortunately for many, this isn't a priority before buying the asset they want.  They see what they think is a deal, and then buy.  It's not enough to think it's a deal.  You have to know it's a deal and this has to be based on real facts and not blind faith.  Many investors buy real estate and stocks with this blind faith or gut feeling method and it doesn't work over the long term.  They may get lucky, but then again, that person could just go to a casino instead and have more fun losing their money than losing in real estate or stocks.  Declining markets present opportunities just as rising markets do.  The key is making adjustments to your approach to take full advantage and being on the very right side of the deal, by systematizing it and adhering to those standards.

Let me give you an example:  Time and again, I am contacted by people claiming that they have a deal.  In so many instances, this so-called deal is not a deal because they are looking to sell me on the fact that the pro-forma is such and such!  Ladies and Gentlemen, we do not buy based on some hypothetical future value.  We buy taking into consideration today's value.  What's it worth today?  Then we buy for much less than what it's worth today to ensure that we can make a profit.  If you have a different philosophy, then please tell me how it's better in a declining market?  Buying at or near market value is not a prudent approach and is very risky for the buyer. 

In a declining market, the best strategy depends on what your short and long term goals are.  Buy and hold may not be a prudent idea unless you have a long term strategy that can absorb equity losses in the short term while giving you cash flow.  Standard and Poor's released this article on May 29 that shows facts, and facts are what we need to base our decision making on: 

S&P Indices - Press Release May 29, 2012

According to Standard & Poor's / Case-Shiller Home Price Indices, "...all three headline composites ended the first quarter of 2012 at new post-crisis lows."

Further, Atlanta, Chicago, New York, Las Vegas and Portland all saw average home prices hit new lows.  Three cities...Atlanta, Chicago and Detroit saw annual declines worsen in March, 2012.

Source: S&P Indices and Fiserv - Data through March 2012

Does this mean that those folks in Atlanta, New York, Las Vegas and all the other cities that are seeing price declines can't profit as much as those in other markets?  Well, that depends on your exit strategy.  If you are buying and holding, then in the short term, you may be a loser or a winner, depending on your price to enter and service the deal.  Maybe you are looking to wholesale or a buy-fix-flip?  To successfully do so requires that you buy well below the wholesale level for wholesaling and well below your ARV after taking into consideration your repair and buy costs for flipping.  There is no need to consider deals that do not have sufficient padding for your market, especially in a declining marketplace.  Moving your money by turning it over quickly is a very good philosophy in today's declining markets, but buying right has got to be your primary objective to make this happen consistently and profitably for you.

Regardless of the market you're in, declining or appreciating, exit strategy is of prime importance.  So what is the best exit strategy in a declining market?  This depends on many factors, but the first consideration you need to have is what we have already discussed and that is to buy well below current real market value, regardless of what it is that you're could be a single family home, an apartment complex, a non-performing note, whatever.  You need to know the real true market value of the asset you intend to buy.  By buying well below market and understanding your market well, you will position yourself with options to exit in whatever manner you decide is best "before you make the decision to buy" and improve your odds for short term and potentially long term profitability.  There are other strategies of course, but I temper this with the fact that they have more risk than our discussion focus does.  

Regardless, real estate is not that complicated.  If you buy low enough, you will be well positioned.  It's more difficult to find these real deals, but they are out there and well worth the expense and effort to find.  

Until next time....