Why You Should Consider a Seller’s Motivation before You Negotiate

October 30th, 2007

The challenge facing real estate professionals trying to market and sell real estate investment property and those trying to invest in rental income property begins with the seller’s state of mind. Is the seller motivated to sell?

If not, the seller will generally ignore any advice that a real estate professional suggests about the fair market value of the property and insist on a price that is much too high compared to similar rental property sales locally.

In this case, an over zealous real estate agent ends up taking an over-priced listing and for the next six months must watch (despite exhaustive efforts to market the property) fail to generate even one response. Or worse, must standby and watch the unmotivated seller turn down (often with no room for negotiation) offers made by real estate investors at fair and attractive prices more in line with fair market value.

The question is not seller desperation, though. If the seller is desperate to sell, chances are good that he or she will be extremely responsive to an income property expert, and overly cooperative to do whatever it takes to unload the property. Here, just posting the property will draw the buyers.

The issue is seller motivation. There are numerous reasons why a seller might be motivated to sell an income property short of giving away the farm. Maybe needed repairs are too costly (or management-intensive) for the property owner or perhaps the owner is relocating to a different area. It is normal in real estate investing for investors to roll equity from one investment property to a larger, newer rental property using an IRC 1031 tax-deferred exchange.

Negotiating with a seller who is motivated (though not desperate) can be a win, win situation for all parties concerned, and certainly makes working with real estate investment property a whole lot more fun.

On the other hand, trying to negotiate with an unmotivated seller (far from desperate and with no legitimate reason to sell) can prove futile. Why, because he or she simply wants to conduct a fishing expedition—to market his or her investment property at a price too good to refuse in hopes of snagging a highly motivated (or desperate) buyer.

The best thing you can do (whether you are a real estate agent or investor) is to examine a seller’s motivation. Before you jump in and waste your time and effort on an over-priced rental property offered by a seller with no reason to sell, think about it.

Real estate investing contains an ocean of motivated buyers and sellers, and your greatest successes are bound to come when you pair the two. Do yourself a favor and question the motivation of a seller. If you conclude that it does not exist, consider moving on.

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Real Estate Investment - Still a Great Option for the Long Term Investor

October 28th, 2007

by: Matthew Honsberger

Investing in Real Estate is a great Addition to any portfolio, but what is the best way to do it? There are a number of different options, and we will go through some of them here.

The first one, and the one that seems to get the most attention these days is the “Flip”. With the emergence of shows like “The Big Flip”, and “Flip This House”, this Buy, Renovate and Resell strategy is the ’sexy’ option for most real estate investors right now. However, there are a few things to consider before you go about this.

The first thing to think about, of course, is where are you going to find the property that is priced well for the flip. There are a few options for investors - the first of which is to contact a good Real Estate Agent and have them scan all listings for you for any that are undervalued, priced as is, owned by the bank or foreclosure company, or any other good opportunities that might be on the market. Your Real Estate Agent is your best friend in this respect, as they will be very motivated to find you the best property, and will be very vigilant, if for no other reason than they know you will be reselling the property at some point pretty soon!

When looking for Properties to Flip in your area, remember that the same rules apply as to your own home - the first three things you should look for is Location, Location, Location! Properties that are in Downtown Areas are often the easiest to resell, however, they are often more expensive than more suburban properties, so that will eat into profit margins. Look for houses on popular streets, in good neighbourhoods. If you are buying into a worse neighbourhood, make sure you are factoring that into your price of purchase, and projected resale. The other Key factor to the Flip, is that you must ensure that you don’t price yourself out of the neighbourhood. For Example, no matter how nice you make your small bungalow in an area of starter homes, Don’t expect to resell it for 50% more than anything else in the area! Ensure that your renovations don’t bring the price too high.

Finally, Understand that the higher price bracket you try to flip, the longer it is going to take to resell, and the higher your materials costs will be. You need to consider all of this and much more before considering the flip.

The other main strategy that you can use to add to your investment portfolio in the real estate world is the rental property. Rental Properties offer two different qualities to your portfolio - income and capital gain. Your rental property can offer you a monthly income over and above your monthly outlay of expenses (mortgage, utilities and taxes). Even if your rental property doesn’t offer you a huge (or any) monthly income, remember, you are also earning a capital gain on the property, as it is very likely to increase in value… just like your personal home is. All of this should be taken into consideration when deciding on a property.

However, with Rental property, the most important consideration is always the Tenants that you have. A great looking, well maintained and located property can still be a nightmare if you get a bad set of tenants in their. It is important to do stringent interviews, check references and draft a strong lease agreement. You should also familiarize yourself with the Nova Scotia Tenancy Act. Finally, you need to decide what kind of rental property you are going to run. Do you want to rent to students? Young Professionals? High or Low Income? Students offer payment by room, which is often higher than you could command for entire flats, but you have to consider that they will likely not care for the building very well, and might not have the rent each month.

Additionally, you have the concern of them bailing out on you once school ends for the year. Young Professionals will often be very easy to deal with, will pay their rent on time, but will also be very astute about how much they will pay, and are likely to be there for only a short period of time. Your Rental portfolio must always account for at least a 5% vacancy rate (in the good times), and must still generate money for you with that in the equation.

Like I say, in both of these cases, your real estate agent can be your best friend, and you should seek out one that you feel can be an informative and trusted advisor. They will work in conjuction with your financial planner as well, to determine what the best course of action for you is. As always, you should feel comfortable with whatever investment you make!

About The Author

Matt Honsberger is a Licensed Real Estate Agent in the heart of maritime Canada - Halifax, Nova Scotia, and the designer of http://www.homesinhrm.com.

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Rental Property Management - What to Consider When Hiring a Property Management Company

October 26th, 2007

Anyone who invests in rental income property really does him or herself a favor by hiring a rental property manager. Having someone else taking care of the details like tenant management, unit preparation and showings, and low-level repairs gives the investor more time to concentrate on other things like family, or finding the next investment property deal. It can certainly prevent a few headaches often associated with owner-management.

Another reason for rental property management (often ignored by real estate investors) is privacy. Having a rental property manager field calls and meet with tenants in your stead keeps you insulated from from having to listen to tenant complaints and (well) small talk. When it is important, you can hear about it from the property management company.

Of course, it is important to hire a good property manager (yes, there are bad ones). If you are in the market, here are a few questions you want to ask the property management company.

  1. How much is the fee? Fees vary around the country, and typically by the number of units. A single-family residence, for example, can be as high as 12% whereas a large apartment complex as low as 4%. Be sure the management fee is clearly stated and understood.
  2. What other properties do they manage? It is best to find a property management company that handles rental properties similar to yours. Ask them about it, and for good measure, drive by their other properties to see how they are maintained.
  3. Know about the person who will be put in charge of your property. Do not be timid to get their name and ask about their experience. If possible, meet with them face to face.
  4. Ask about their charges. Be sure you understand whether they charge extra for showings and/or evictions. How about other extras?
  5. Discuss how they plan to collect their fee and when? Will you be billed or will it be deducted from your account directly? Will they collect monthly, quarterly, or other?
  6. What type of advertising do they plan for your rental property? Signs, newspapers, or other. What do they project it will typically cost you?
  7. How long does it normally take them to prepare vacant units that come up? What are they planning to collect as a cleaning fee?
  8. Discuss what items will need your approval and what dollar amount needs your authorization.
  9. Ask them about their business hours. Who takes weekend calls?
  10. Learn about their accounting system. What reports do they send (ask for a sample), and how often. How are accounts set up?

Okay, you get the idea, and may have even though about other questions you have as well.

Just keep in mind that you are the owner and CEO of your rental income property enterprise and you are hiring a service. Because no prudent employer hires without an interview, remember that you are interviewing a property manager to work for you. Ask everything up front, be direct, and clear up any misunderstandings. Real estate investing is a lot less stressful when you invest your time to hire the best property management company you can for your particular property.

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