Selling an income-property at a top-of-the-market price requires more than just posting a pretty marketing brochure with pro forma income/expense data and waiting for the phone to ring.
The reality is, in most cases, months of pre-sale preparation is really required/recommended before the “property offering memorandum” is ever distributed to prospective buyers or brokers.
What all sellers NEED to understand BEFORE seriously contemplating selling is…
The primary metric for valuing income-properties is the capitalization of Net Operating Income. In other words, (all else being equal), the higher the supported Net Operating Income, the more an income-property is worth.
Our experience has shown over many years that very few owners (even highly experienced private owner-investors) truly understand the impact that even a “few thousand dollars” of supported Net Operating Income can have on income-property valuation at selling time.
Let's take the below example and apply the step-by-step methodology and process Realty Yield encourages all sellers to go through before "launching" a property for sale.
This includes both the financial and physical components.
Hence, current Net Operating Income = $231,000 ($396,000 + $5,000 (-) $170,000)
Assuming a market capitalization rate of 5.50%, this equates to a current value of ~$4,200,000
This includes both the financial and physical components.
The financial factors include: current rents versus potential market/full rents, current other income versus potential, the current operating expense load versus optimal and any “easy/near-term” added-value opportunities (example would be implementing a Utility-Bill-Back program) that could be applied before sale.
The physical components would include all “lower cost” aesthetic items (paint, landscaping, minor repairs, signage, lighting (exterior), litter & debris (exterior) and all/most minor unit deficiencies (worn out floor coverings, failing appliances, paint, etc.).
More often than not (unless the owner is a full-time professional investor and active asset manager), there is a list of both “financial” and “physical” items that a prudent owner should address PRIOR to advertising on the open market. Furthermore, many of these items often can take months to correct/implement.
Unfortunately, too many sellers don't get the benefit of an analysis before they decide to sell.
Continuing with our 30-unit example case study above, Realty Yield’s assessment and analysis has determined:
The financial ramifications of the above, to a selling owner, cannot be overstated. The projected increase in likely sale price by acting on the above is/was as follows:
Assuming the same market capitalization rate of 5.50%, this equates to a new/projected value of ~$4,900,000 (~$700,000 value increase!). Most owners would make the choice of waiting a few months before selling if this eye-opening analysis was simply communicated by a seller's adviser/listing broker.
The reality is that initiating a rent increase, implementing a utility bill-back program, collecting parking space income, transitioning to third party R&M vendors and fixing a list of needed repairs is going to take some period of time before the improved financial results are reflected on an operating statement.
Realty Yield will work with you to draft a written plan and timeline as well as participate in the execution and management of this process. We do it all the time.
Realty Yield is not one of those brokers that will hurry you to market just to close a sale and make a commission. In fact, in many cases we strongly recommend just the opposite. Ask our clients directly -- they will confirm this is true.
In order to price a property properly we will compile a list of like-kind comparable sales, perform our own valuation analysis, review recent appraisals of similar properties, review current for-sale competition and factor any value-add/upside opportunities, which the subject property would afford a buyer.
Pricing should be done right from the get-go. We don’t "buy" listings; in other words we won’t tell you your property is worth more than it really is just to get a listing, then later ask you to lower the price because the “market has changed".
You will get an honest opinion-of-value for your property from the beginning. We encourage sellers to think like buyers. If you wouldn’t buy your own property based on what is being presented, why would someone else? Again, top-of-market but realistic initial pricing is required if you want to work with us.
Realty Yield will then prepare the Offering Memorandum (marketing package). Our marketing materials are the culmination of many years of experience in knowing what gets results for our sellers and what doesn’t. But again, don’t take our word for it. According to the analytics from LoopNet (the #1 commercial-investment real estate listing site on the Internet), our listings are consistently in the top 5% of most accessed (clicked-on). The numbers don’t lie.
Our marketing packages are very focused on clearly differentiating your property (why a buyer should invest in it), supported by objective, compelling financial/investment return metrics. Yes, we also appropriately feature a representative sample of quality photos, rent comparables, sales comparables, market/sub-market and demographic information, maps, etc.
All sellers should ask to see samples of a broker’s marketing materials before retaining them. We look forward to sharing ours with you.
There is no downside to maximizing exposure. Obviously, the more qualified prospective buyers the offering gets in front of, the better. We utilize all the following channels:
Not all buyers/investors are created equal. Circumstances, motivation, buyer experience, and selling broker's expertise all factor in on “selecting” the right buyer. Our experience will pay big dividends here and all but eliminate false starts.
Negotiating/maintaining a final agreed upon sale price, which is at/close to the full listing price is much easier when the groundwork has been properly laid. Since we support our listings and pricing with objective, verifiable data, big price concessions are not something our clients/sellers have to deal with.
Having said that, negotiations are part of every deal. All brokers/sales people say they are expert negotiators, we can back that up with real world results over more than two decades, ask our clients!
We have brokered nearly a half BILLION DOLARS worth of real estate deals. There is no substitute for experience.
One other key added-value component we bring to our listing agent services is that we also broker commercial/apartment mortgages (the financing most buyers need/want). Deals fail for financing reasons more than anything else. This won’t happen with us. We know without a doubt what loans are available, what amounts can be borrowed and which buyers will be able to secure financing. In many cases we end up doing the financing for the buyer, it turns out to be a win-win for everybody.
The bottom line is that our experience results in very few sale-fails once a property is put into contract.
At Realty Yield, we want your investments to succeed. All investors need a plan, whether your goal is capital (equity) growth, maximum cash flow, realizing optimum tax benefits or any combination thereof.
The experts at Realty Yield will guide you through the complex and ever-changing world of real-estate investment with confidence. At Realty Yield, we know that lasting wealth comes from making the right decisions, at the right times. Knowing what to do in these moments is what sets Realty Yield apart.
By working with us, you’ll benefit no matter what your needs, whether you are looking to buy real estate property, sell real estate property, complete a 1031 exchange, secure a commercial loan, consult on investment real estate / portfolio performance improvement strategies, or executing a tax favorable exit strategy at retirement.
You are more than just a client, and we are more than just a brokerage firm. That’s why at Realty Yield, we make a personal commitment to you. We will create your own, unique, expertly crafted, Personal Real-Estate Investment Strategy. We give you the best results because we have the knowledge and experience to create your best plan of action. We will guide you through those vital decisions of what to do, how to do it, and when to do it.
We know we are only as successful as our clients. It is by providing unparalleled service that we keep our clients for life. Working side-by-side, year-in and year-out, we will proactively manage, assess, and strategize your financial investments through all stages of the investment life-cycle.