Did You Do Your Due Diligence?
Due diligence is a crucial part of real estate investing. A seller may claim that all units in his building are rented, but your physical inspection could reveal an empty one. A look at the books could show that his reported income included the one-time sale of ten used washing machines. That $900 of extra income, if not subtracted out, would artificially inflate the value of the property by $11,250, based on a capitalization rate of .08.
Simply put, due diligence is your investigation of the details of a potential investment. The point is to avoid unpleasant surprises. You need to know what the real numbers are and what you are really getting into. This is especially important with income properties, because their are so many ways that they can "surprise" you.
When investing in real estate you'll often start the due diligence process before you even make an offer. You might do your own walk-through inspection of a property, for example. In addition, your offer will normally have provisions allowing for you to review (and approve) certain records, and have certain inspections done before you close on the property.
There is normally a deadline in the offer, by which time you need to complete your due diligence and approve of the results. If this deadline passes without your canceling the offer or notifying the seller of problems you have found, the legal presumption is that you are satisfied with what you found, and committed to close according to the terms of the offer.
Due Diligence - What You Are Looking For
Proper due diligence should start with a good due diligence checklist (more on that in a moment). It is just too easy to forget something without one.
What are you looking for? You can see the property when you walk through it, and the seller can tell you all the financial details. The problem is that sellers may exaggerate things, fail to mention things or just lie. Your goal is to verify everything the seller says about the property, and find any potential problems.
For example, you will want to look at the property closely, and have professional inspections done if you need them. Often sellers will put off necessary repairs prior to selling. This lowers expenses, which increases the net income - which makes the property appear to be worth more (income properties are valued primarily according to the net income they produce).
You will of course make a look at the "books" a part of the offer. You need to see how that net income was arrived at. You also are looking to see if the expenses recorded make sense. You may need the help of your accountant. On the other hand, you can certainly see that there is a problem if no expenditures are listed for snow-plowing of an apartment building parking lot, and you are in Minnesota.
Bottom line? Play it safe - do your homework. You want to look at the physical property, the service contracts (landscape companies, cable TV, etc.) that you may be obligated to, the rental agreements, the legal compliance issues, and the statements of income and expenses. Each of these areas has its own elements, so use a good checklist when doing your due diligence.
Steve Gillman has invested in real estate for years. To learn more, go get your real estate investing course free at: http://www.MakeThatOffer.com
Common Mistakes made by Owner at the time of Selling
If you have decided to sell your home on your own, you've joined a growing crowd of For Sale by Owners (FSBO's) in this area. More and more people are choosing to work without a Real Estate Agent. The main reason is Saving Money.
But for the unprepared FSBO home seller, this process can bring them to their wit's end. Unexpected calls, last-minute walkthroughs, and the thought of being stuck with two homes are all very real concerns. You could lose many thousands of dollars in the process if you are not careful.
? Not Developing a Marketing Plan
You might be under the impression that all you need to do to sell your home is put up a 'For Sale By Owner' sign in your yard and then wait for the calls to come in. This is untrue, and making this mistake in thinking will cost you dearly. Think of other ways you can promote your home. By selling on your own, you are saving thousands of dollars you might have paid a Realtor. Use a small portion of this money to market your home.
? Wasting Time with Unqualified Buyers
You have a busy lifestyle and you shouldn't waste time dealing with buyers who can't afford to buy your home, or worse, with buyers who are not really interested, but why are just 'seeing what's available'. Because of this, you need to ensure that everyone you deal with is a qualified prospect. We offer a no-cost service that can pre-qualify your prospects for you, so you never have to deal with this issue. It's included at NO-COST as a part of our 'For Sale by Owner Survival Kit'. More information on this kit is available at the bottom of this report.
? Preparedness
It will help you if you already have a lender you can send prospective buyers to. A business card from the mortgage office as well as a stack of empty credit applications is a great way to give your buyers a push in the right direction. If they don't have a lender already then you can give them a push in the right direction. Get from the mortgage company that you are working with a good faith estimate so you can quote a possible payment and interest rate.
? Lack of Access
By choosing not to work with a Realtor, you are making some clear trade-offs. The biggest tradeoff is that you have to answer the phone, conduct your own open houses, and showings, instead of the Realtor. Don't make the buyer jump through hoops to get information about your home. Always return any calls from buyers as quickly as possible. Make yourself available to answer any questions they might have and work with the buyer's schedule for showings.
? Offering Concessions in place of Repairs
If you have any trouble spots in your home (i.e. - carpets that need to be cleaned, fixtures that need to be replaced, or paint that is chipping), you are much better off fixing these items yourself, instead of offering concessions to the Buyer to cover the cost of the work. Even if you have to hire a handyman to make the necessary improvements, it could still be 3 to 5 times cheaper to pay the handyman than it would be to offer concessions to the buyer at the negotiating table. For a list of items that you should fix ahead of time to avoid this situation, make sure you request a copy of our NO-COST 'For Sale by Owner Survival Guide'.
? Not working with agents
I understand the trepidation most people have with working with agents. Some of it is warranted some of it is not. Don't automatically rule out working with agents. I have known many people that to avoid listing there $100k house have spent $10K in payments and expenses to do so. It sometimes makes good business sense to work with an agent. Just make sure that it is on your terms and not the agents.
? Not Following-up with Buyers Effectively
When someone shows interest in your home, but never calls you back, don't automatically assume they are not interested anymore. Call them and follow up. This is not difficult and you should not be intimidated by the fact that it feels like a 'cold-call'. Just use this simple script: 'Hi, may I speak with (Buyer Name)?' Then, when the person you want to speak with comes on the line, say 'Hi, (Buyer Name), this is (Your Name). I'm calling because you had previously shown great interest in the home I'm selling. My house will probably sell sooner, rather than later, which is why, before it sells, I wanted to follow-up with you and see if you were still interested.'
Once you have completed get your final preparations set up. At the very least you need a ?For Sale by Owner Sign? and some sort of outdoor literature holder. Either an Info-Pak or Info-Tube will work great for that. If you property is off the beaten path or deep inside a subdivision then I highly recommend buying some directional signs to point traffic your way. Buying some strings of pennants is another way to make sure that people know your house is for sale. String them up across from the roof of your house to the corner of your street. If your home is vacant when you sell it you may also want to consider purchasing a lockbox to keep your keys in so you can grant access to agents or lenders that may need quick and easy access to the property. For around $125.00 you can get most everything you need for final preparations and it will make all the difference in the world.
For more information on Real Estate see our Common Mistakes made by Owner at the time of Selling Page .
Visit our halfvalue.com and halfvalue.co.uk web sites for more info.
Two second test for potential investment properties
Looking at hundreds of potential investment properties can be a daunting task. You could analyze each property individually to see whether it would be a good buy or not. But that takes time. Lots of time. Try using the quick test to find investment gems. This is what you do:
1. Find out the rental rate for the property that you are looking at.
2. Take the asking price of the property and divide it by 100.
3. If the monthly rental income of the property is greater than the asking price divided by 100, then it is worth doing some more detailed analysis of the property. If it is not, move on. There are other gems out there.
Using this test will get you the properties that are most likely to give you positive cash flow after all expenses. There will be some good properties that will "slip through", but with so many properties available, you will still have many good investment properties to choose from.
Marc Norris is an experienced web marketer and real estate investor. You can learn more about real estate and business opportunities at http://www.bizops.ca
You can reach Marc by e-mail at mnorris@bizops.ca
