(Home mortgage loans) 3 Real Estate Analysis Mistakes to Avoid
No commentsBy jamesrk
Strange as it may seem, there are times when you should avoid using the “real” numbers in a real estate analysis. Discover what these numbers are and how you should enter them in your next real estate analysis.
Working with real estate investment property, I’ve been in the position over the years to see hundreds of APODs, Proformas, and Marketing Packages created by colleagues for promoting their income property listings.
Presentations are sometimes top-notch, but it’s also common to see a string of mistakes made in those real estate analysis presentations as well (especially by investment property novices). In this article, we will look at three of the most common mistakes and consider how to correct them. Before we do, however, we should understand why a correction is crucial.
Bear in mind that real estate investing requires accurate income and operating expense numbers to make prudent real estate investment decisions. In some cases, it’s just a matter of showing current figures in the real estate analysis, such as current rents or current property tax, for example. In this case, the “real” number is what it is, and the real estate investor would want the bottom line to reflect that number.
In other cases, though, the “real” number is not the number to include in the real estate analysis. Strange as it might seem, some numbers used in a real estate analysis, if “real”, can actually skew the bottom line and create distorted returns.
Okay, let’s look. Here are three of those numbers.
1) Vacancy rate - the tendency for many is to show a vacancy rate based on the past performance of the rental property-sometimes even at zero percent! This is not realistic, however, because market conditions, property wear and tear, rent increases, and even a change of ownership can (and often do) cause vacancies. It is always prudent in real estate investment analysis, therefore, to include an allowance for vacancies characteristic to the local market.
2) Maintenance and repairs - it is a mistake to show the amount actually spent over the past several years for maintenance and repairs. It is helpful for a real estate investor to know what an owner has done to upkeep the property, but past expenditures are not necessarily relevant to what a new owner might spend in the future. The current owner, for example, might be a repairperson capable of keeping maintenance and repair costs reduced, whereas the new owner might be required to contract it all out at top dollar.
3) Replacement reserves - most tend to ignore this altogether because reserves for replacements are not a fixed reoccurring expenditure like property taxes, utilities, or trash. It is, however, wise to include an allowance for reserves in a real estate analysis because it provides for future replacement of worn out items an owner must eventually pay for, and therefore it’s best that an investor plan ahead to spend it.
A local real estate appraiser or real estate agent who understands rental property can advise you concerning these numbers. Here’s what you want to know. (1) Typical vacancy rates in the area for whatever-type property you want to analyze; (2) Typical percentage used to estimate maintenance and repairs (you should get one percentage for brand new or newer units and another percentage for older units); (3) The dollar amount per unit per year to include for replacement reserves.
Don’t hesitate to call and ask them. If you are serious about working with real estate investment property, and want to present a real estate analysis with the most appropriate numbers and returns, it’s imperative that you avoid these rookie mistakes.
Here’s to your real estate investing success.
James Kobzeff is the developer of ProAPOD - superior real estate investor software solutions since 2000. Create a rental property cash flow, rate of return, and profitability analysis in minutes! Go to => www.proapod.com
Are you looking for a real estate agent to help you??
By Albenji Stefan
Are you looking for a real estate agent to help you find a home or to help you with selling your home? If so, you may feel a bit confused by all of the real estate agent advertisements that you look through. After all, the real estate market is one that is filled with fierce competition, which means every agent does everything possible to make him or herself seem like the best choice. Unfortunately, effective marketing techniques are a specialty of real estate agents, which means it can be difficult to judge which agents actually have the experience and knowledge you are looking for. By knowing a few tricks of the trade, however, you will be better prepared to make the right choice.
Making it Look Like You’re Busier Than You Really Are
Real estate agents are well aware that potential clients are interested in working with agents who have a great deal of experience. As such, they may attempt to make themselves look more experienced by listing numerous properties in their advertisements. It is important to understand, however, that these listings are not necessarily listed to the agent you are considering hiring. If you look at the fine print at the bottom of the page and you see the words “office listings,” it means the listings shown are listed with the real estate office, but not necessarily specifically listed to the agent. When meeting with the agent, ask to see the listings that are specific to that agent in order to get a better idea of his or her level of experience.
Claiming to be an Expert
It is easy for a real estate agent to claim to be a specialist or an expert with properties in a particular area, but you should ask for the credentials to back up this claim. Look through that agent’s listings and ask the agent how many deals he or she has closed in the neighborhood where he or she claims to be a specialist. The more questions you ask, the better you will be able to gauge whether or not the agent is truly the expert he or she claims to be.
Leaving Out Information
Some real estate agents leave out important information on their advertisements because they are hoping you won’t notice. For example, if the agent doesn’t list his or her years of experience, it might be because the agent doesn’t have a whole lot of experience to brag about. Of course, this doesn’t necessarily mean you shouldn’t work with the agent. At the same time, if experience is important to you, make sure to ask.
The same is true of an advertisement that contains a customer testimonial with no name attached to it. Don’t just assume the testimonials are true. Rather, ask the agent to provide you with the contact information of a few references and make sure to contact them in order to learn more about the experiences they had with the agent you are considering hiring.
In addition to paying attention to these telltale signs of trickery, it is also important to listen to your instincts. If the agent seems to be vague in the information that he or she provides or if you simply don’t feel comfortable with that particular agent, move on to someone else. There are plenty of agents to select from, so be sure to hire the one that suits your needs the best!
When we talk about renting a home compared to buying a home, it sometimes sounds too complicated or intimidating. I have met prospects with the mindset that it is too much of a hassle or too much trouble to try to go through the process, so they just keep renting because “it is easy.”
Given the fact that most people do not go through the buying process very many times throughout their life, they typically do not know what is involved, and it can be a little overwhelming. A mortgage professionals objective is to make the process as easy as possible.
The purchase process begins with nothing more than a thought with most people. They wonder if they can even qualify to buy a house and if so, how much house they can buy for the money they have to spend. Everyone has a budget in mind and just needs some guidance on how to navigate through the process to identify which houses will work for them. A good mortgage professional will educate them on the options as they pertain to their individual needs. Once the right price range and the type of loan that best fits their needs has been established, it is time to find the right house.
The Advantages of Buying A Home
There are many advantages of buying a home instead of renting. The housing market is at or near the bottom according to the experts…the recovery has begun in the state of Texas!
Obviously, the best time to buy is when prices are the lowest and beginning to go up. Other than the price, the interest rate has a major bearing on how much house you can buy for a particular payment. Mortgage rates are also at historical lows which enable you to purchase more house for the money and they are expected to rise in the near future. As far as down payment and cash needed to buy a home, there are still loan programs that allow for only 3.5% down payments, and depending on location, zero down loans are still possible. All of these are great reasons to purchase a home and make an investment instead of renting and having absolutely nothing to show for it when you are done. There are some great tax advantages associated with purchasing a home as well!Real Estate
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Tuesday, January 26th, 2010 at 10:55 pm and is filed under realestate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
