Accumulating-Analyzing the property data.

As the potential property offerings come in you will need to narrow down your search to a handful. At this stage you need to get enough information to sort out those properties that meet your minimum criteria.

At first blush I want to see last two years P&L on the property, current year to date P&L, current rent roll, asking price, and property description. From that I can determine, percent of occupancy, cap rate, and cash flow. I want to find out if the property looks like it meets my minimum requirements and if it might have potential.

What is the Cap rate?

• What is the occupancy rate?

• What is the expense to income ratio's?

Cap rate

The net income divided by the asking price gives you the cap rate. The percent of net income generated by an all cash purchase of this property. That tells me what the seller thinks of their property. It also tells me if the property allows me to meet my investors expectations.

Occupancy rate

The current occupancy rate lets me know if the property is well managed and in good repair. A low occupancy indicates problems in management, condition, or the trade area or all of the above. A low occupancy rate may mean an opportunity for improvement, or be a red flag warning of a bad deal. A high occupancy rate could mean a well managed and maintained property.

Expense to income ratio

The expense to income ratio when compared to other properties tells me if the numbers are out of whack. Is there room for improvement, are some items missing, and so on. Often management fee is not in the expenses because the owner is the manager, you will want to add that in, then recalculate the cap rate. Compare each year's expenses for inconsistencies.

Value

Value of income producing property is directly related to the properties net operating income. If the property under consideration meets your minimum requirements and you have lots of questions from your preliminary review, you just might have a winner and further analysis maybe in order.

Analysis form

Make up a form that you can use for a preliminary evaluation of the property you are considering. Once you find a likely candidate you can dig into the details of that property. Here is what I have on my quick analysis form.

Address of property

• Agent information

• Owner Information

• Property size and land size

• General property description

• Why is owner selling

• Number of rental units

• Types of rental units

• Asking price

• Taxed value

• Total income

• Total expenses

• Current net income

• Cap rate

• Existing mortgage information

• Property Tax bill

• Utility Information

• Known deficiency.

• Zoning

• Special situation information (owner financing, bank owned, reduced price, etc.)

You make your money when you buy

When you find the one or two candidates that you are interested in pursuing you will need to do an in depth analysis. The real estate agent and the seller want to sell the property and they will disclose only that which they have to and that which is beneficial to the sale. Your job is to find out everything there is to know about the property and anything that effects the property.

To get the best price, to avoid costly errors, and to formulate a realistic plan of what needs to be done to repair, improve and take the property its highest value you need information. In addition to my preliminary list you will want more details.

 

• Address of property

  • legal description

  • area census data

• Agent information

  • Commission rate (it's negotiable)

• Property size and land size

  • surveys

  • easements

  • drainage

  • restrictive covenants

• General property description

  • building sizes

  • zoning

  • unit sizes and configurations

  • construction type

  • roof type materials

  • age of appliances and A/C

  • appliances and ages

  • pictures of property

  • traffic counts

  • parking

  • pool

  • condition report

• Asking price

  • terms

• Existing mortgage information

  • assumable

  • owner carry part or all

  • who holds

  • terms

• Tenets

  • names

  • lease copies

  • rent rates

  • payment history

  • deposit amounts

• Types of rental units

  • furnished

  • special situations

• Total income

  • broken down by rental unit types

  • other income and sources

• Taxed value and tax amount

  • assessed value and rate

  • anticipated rate increase

  • any special assessments

• Total expenses

  • taxes

  • insurance cost

  • repairs

  • management

  • utilities

  • common area maintenance

  • Pool cost

  • needed repairs

• Current net income

• Current cap rate

• Utility Information

  • who provides

  • who pays

• Why is owner selling

• Known deficiency.

  • delayed maintenance

  • dated interiors

  • dated exteriors

  • aged appliances

  • damages needing repairs

  • missing amenities common in the facility type.

  • landscape deficiencies and maintenance needs

  • parking lot condition

  • adequacy of insurance

  • sign condition

• Special situation information

  (owner financing, bank owned, reduced price, right of ways, etc.)

   

Software for real estate analysis

I am only providing one link to analytical software, there are many available. This web site has good articles on the various subjects. We are not affiliated with this web site in anyway.

http://www.invest-2win.com/index.html